Examination of Witnesses (Questions 700-711)
MS JOANNE DENNEY, MR JON WOOLVEN AND DR RICHARD HUTCHINS
WEDNESDAY 10 APRIL 2002
700. Do you not think, given the discussion we had earlier about the Food Chain Centre and the supply chain, that there is a need for the chain to speak up for something that addresses the real concerns of the production side of the industry? Looking through this, they deal with prices and payments, compensation, promotions, how to deal with waste, consumer complaints—it goes on for ever but it does not say what is the right relationship between small scale enterprise in the supply chain of which farming and horticulture would be examples, and very big multi million pound companies represented by the supermarkets. They have to co-exist together and the mutual arrangements have been tested to the extent that they have to have a code of practice to deal with some of it but it does not deal with this leverage. Are you doing any work to try and improve these relationships?
(Ms Denney) I think our whole raison d'être is about improving relationships by bringing people together, as I said earlier, to resolve issues, etc. I would hope that the best way you can bring about change is to identify good examples of best practice and the benefits of that best practice, and I think you can only persuade people to do things differently by really showcasing those who do it in a world class way.
Mr Breed
701. Can you explain to me the difference between supermarkets' dealings with suppliers and a trading relationship?
(Ms Denney) I am not sure I understand the question.
(Mr Woolven) I do not think there really is a difference.
702. In that case what you just said about the code of practice was nonsense. What you are trying to say is it does not regulate the trading relationships—it just operates the dealings—but the dealings are trading relationships, and we are talking about the supermarkets' code of practice, which I suspect not many suppliers would sign anyway because it seeks to merely codify all the practices that were exposed which the Competition Commission report where they tried to say that as long as they were applied reasonably suppliers would have to accept them. I think there is an obvious tension, and I do not know how many suppliers have signed and how supermarkets have signed. Have you any idea at all?
(Ms Denney) In terms of the actual signing, it is the four retailers who have to comply.
703. How many of those have signed with their suppliers? Do we know?
(Mr Woolven) I do not think it is considered optional. As far as those four retailers are concerned they will operate according to that code.
704. What about the suppliers? Have they entered into that?
(Mr Woolven) I do not think there is a specific need to sign it. I think it is considered to be there as a form of protection which you can then use when need
705. Turning to collaboration, then, which you have talked about in terms of being involved in trying to assist collaboration, why do you think that UK farmers as a whole have been rather reluctant to collaborate themselves when I suspect they can see that the way in which other parts of the food chain have collaborated has brought significant benefits to them?
(Ms Denney) IGD is interested in the vertical collaboration along the chain rather than the horizontal collaboration. Having said that, I think there are examples of collaboration which are very effective and they tend to be in those areas such as the produce sector which clearly do not have subsidies. Another challenge has been in terms of collaboration: when people have talked about collaboration the competition authorities have intervened, so I think there may be some legal obstacles there. Clearly, if there can be collaboration, that can mean lots of different things—it can mean sharing people, sharing equipment, or doing something more formal. It would be helpful to the farming community given that we have such consolidation worldwide in terms of retailing, manufacturing and the agri supply business, so it would be positive if that could be facilitated and it would be fair to say that is why IGD is very supportive of the Curry Commission in terms of the English Collaborative Board.
706. Are you going to be directly involved in assisting the farming industry as a whole in trying to get the benefits of collaboration and, if you are not going to do it, who do you think is?
(Ms Denney) It is not our remit to do that. Seeing that the English Collaborative Board is set up, we will have close links with them and will be providing them with information and will generally support it, but I do not think it is necessarily IGD's role to tell farmers that they need to collaborate horizontally.
(Mr Woolven) It is obviously early days. The Food Chain Centre has only just been set up and the English Collaborative Board is in the process of being set up. We have identified there needs to be some link between the two but we have not worked out how that will operate yet.
Mr Todd
707. There are examples of collaboration in the past in farming, processing and logistics. The best example is Milk Marque, where eventually the Government chose to intervene and to fragment that business once more. Many of us look with interest and admiration at, for example, farmers overseas forming co-operatives that go right through the supply chain, from the farm gate to the plate of the customer, encompassing retailing, distribution, processing and others aspects. That appears to be a model that is frowned upon in this country. Do you feel that it has merits here?
(Mr Woolven) There are some elements of that. For example, Morrisons have an upstream processing capability; alongside its supermarkets, the Co-operative movement is the biggest farmer in the country; and ASDA has its roots in Associated Dairies, as it was. The action of market forces thus far in the UK has led to the current outcome. I do not think that it is about anyone frowning on that concept. People have tried some of those models and have had limited success.
Chairman
708. I believe that you are going to send us some additional information on the supply chain. If you would like to add anything, let us know. If there is anything that you want to subtract, it is a bit late now.
(Ms Denney) There is one thing that we may like to send to you that may be helpful. We have not covered it today. Quite a lot of our work relates to the consumer. We have carried out a lot of research on the consumer and organics, the consumer and local produce, the consumer and food safety and the consumer and information requirements. If any of that would be helpful to you we could probably summarise any of those topics on one side of paper.
709. That would be very helpful. The Curry report—the other Curry—referred to the fact that one of the salvations of farming was local foods. What is your perception and what is the consumer's perception of local foods? Is local food only of use when it becomes nationally known, if you understand what I mean? I am thinking of the way in which Camembert is a local cheese.
(Ms Denney) We have carried out two pieces of research that are relevant to that. The first was from the perspective of the consumer. Perhaps I can ask Richard to give you some highlights of that recent research. We have to be careful about the definition of "local". It does not matter what the definition is as long as people share the same meaning. Local can mean that food comes from the UK, or it can mean that food is produced close to the point of consumption or close to the point of production. Local can also mean a speciality where there are local benefits because the food is part of the local culture. Perhaps Richard can say what the consumer said about that.
(Dr Hutchins) This research was conducted in February and March this year. Nationally in the UK around six in ten consumers are seriously interested in buying local food. However, there is one important caveat to that: such products must compete at least equally on all other product attributes, which includes the price, the way that they appear, and all the quality attributes. If they happen to be local, there is a distinct advantage. Secondly, although the majority of consumers are willing to pay slightly more for such local foods, one-third of consumers actually expect to pay less for local foods, simply because it is more efficient to distribute locally and therefore the cost should be less.
Mr Lepper
710. People like the idea of local food, but they do not necessarily want to pay for it.
(Dr Hutchins) Indeed.
(Ms Denney) That is true throughout and about buying British. One final point is that we have a booklet that we would like to send to members of the Committee on local sourcing, in which we have showcased examples of best practice in local sourcing. Effectively, we have identified five key strategies where local sourcing works. That can be about direct selling of local products, niche products, where one can be successful with the multiples, shortening the supply chain, which everyone talks about, premium products through wholesalers and differentiation through production standards. It makes quite an interesting read. We shall be happy to share that with you.
Chairman
711. That would be very helpful. We would also be grateful if you sent us the other information on consumers, about how people eat and live, which goes to the heart of this inquiry.
(Ms Denney) Yes. As we have prepared quite a lot of that for today, we can put together a series of fact sheets under various headings and we can send that to you very quickly.
Chairman: That would be very good indeed. Thank you very much.
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