House of Commons - Environment, Food and Rural Affairs

Select Committee on Environment, Food and Rural Affairs Ninth Report

LOCAL PRODUCE

191. Sainsbury's said that customers were telling the company that they "want more locally sourced food",[361] and, once again, there was widespread agreement among the supermarkets on this point. Most of the supermarkets have reacted by increasing the amount of local products they sell. Asda has a "local sourcing initiative",[362] Sainsbury's have a supplier development programme,[363] Tesco told us that "sourcing produce from farms within the same area as each of their stores has been one of Tesco's priorities for several years",[364] and Safeway wanted products that "you can call ... local if you like" that had the potential to grow.[365] Netto, however, does not have a 'buy local' policy.[366]

192. However, the supermarkets identified a number of issues that could affect the development of the market for local food. It was pointed out that it was very difficult to come up with a definition of "what is local produce",[367] and Mr Hawkins, of Safeway, accepted that the term "'local' food is used very flexibly".[368] In addition, there were a number of potential problems for supermarkets in interacting with local producers: the Co-operative Group had in the past found it impossible to maintain the large number of relationships that were required by each store having an unique supplier for sandwiches.[369] Safeway added that often stores had to spend a lot of time with suppliers ensuring that the suppliers met all due diligence and quality control procedures.[370] Because of these factors (and so far limited demand), the local food market is still very small - Sainsbury's had identified 3,000 out of their 20,000 lines across the country as 'local' but sales accounted for just £60 million out of a turnover of £14 billion.[371]

Overall trends

193. The National Farmers' Union illustrated the changing demands for different ways of eating by describing the differences between food price inflation at the farmgate, retail and catering outlets.[372]

Figure 10: Food price inflation

Its evidence suggests that catering is growing strongly, and is able to charge premium prices, whilst food sold at retail is becoming ever cheaper. It also suggests that the share of value passed to farmers has fallen back sharply in the past few years.

INTERNATIONAL CONSUMER BEHAVIOUR ISSUES

194. In its Agricultural Outlook 2001-2006, the Organisation for Economic Co-operation and Development reported that "agricultural markets are emerging from a prolonged period of downturn that has seen the value of many commodities reduced to historic lows".[373] It concluded that "supply and demand projections suggest that the worst of the market slump may now be over as global demand enters a somewhat more bullish phase, amid slower agricultural production growth in many countries".[374]

195. In a recent report, Livestock development: implications for rural poverty, the environment, and global food security,[375] the World Bank said that it expected a "livestock revolution" to occur within the next two decades. It anticipated that "the growing, increasingly urban, and more affluent population in the developing world will most likely demand a richer, more diverse diet, with more meat and milk products. As a result, global meat demand is projected to grow from 209 million tons in 1997 to 327 million tons in 2020, and global milk consumption from 422 million tons to 648 million tons over the same period".[376] In his evidence to us Professor David Hughes also commented on the implications of global economic growth. He argued that the implications of growth in meat consumption in developing countries would be to "suck in feed grain supplies and it will contribute, over time, to more resilient food and feed grain markets internationally, but it will also probably bring more instability".[377]

196. In its report the World Bank said that much of the increase in world demand for meat products, particularly in developing countries, would be met by those countries themselves. But it argued that there was still some scope for increased production in the developed world.[378] In short, there are opportunities for United Kingdom farmers in this area.

Implications for United Kingdom Agriculture of Changing Consumer Behaviour

197. The Policy Commission on the Future of Farming and Food found that "some farmers have been slow to meet their customers' requirements, slow to change and slow to innovate". It emphasised that farmers "need to reconnect with their market".[379] But the market with which farmers need to reconnect is very different from the one from which they disconnected in the past. Safeway confirmed this view, saying that "one very clear trend is the decline of consumption through supermarkets of primary products like milk and meat and various other traditional products on the fruit and veg side like potatoes".[380] A recent issue of the Farming Views newsletter said that

381

198. Professor Hughes described a market that "is increasingly differentiated by lifestyle, by demographics, and ... by ethnic group ... [which] brings opportunities".[382] There would be less focus on raw commodities, but British farmers "should be in a better position to take opportunities that arise because we are living right amongst our consumers ... So in agriculture and food we should be able to identify the trends rather sooner than our competitors".[383] Furthermore, both the Co-operative Group and Asda explained that there is still a need for "good quality primary produce which then becomes the ingredients in the value added food".[384] However, in highlighting the emergence of food fashions, Nestlé UK acknowledged that agriculture could have problems in responding quickly because of the industry's production time-frame.[385]

199. The processors, retailers and caterers from whom we took evidence outlined what they wanted from United Kingdom agriculture. The Food and Drink Federation told us that the United Kingdom food industry purchases some two-thirds of United Kingdom agricultural produce, worth £11 billion, but stressed that it was "efficient and responsive farming that enables the food and drink manufacturing industry to source locally [i.e. within the United Kingdom or the European Union]". It added that there were "increasing consumer and legislative demands ... for traceability of foods, ... for greater auditability and for consumer assurance".[386] The retailers concurred, telling us that products should be traceable and that they required detailed standards or specifications to be met before they put products on their shelves.[387] Whitbread described their very tight specifications: cuts that "are almost soldier-like and regimented and so they meet the needs of the consumer", and stressed the importance of the primary producer knowing and understanding of what consumer demands are.[388]

200. A number of our witnesses commented on continuing pressures for trade liberalisation. In that context, it was observed that there were likely to be two main categories of farmer operating in the future:

specialist producers of bulk commodities; and

value added producers.[389]

The other likely impact of greater trade liberalisation is increasing quantities of competing imported products.[390]

201. So the world market for agricultural products has changed, and is increasingly volatile. But there will be opportunities for British farmers in the future if they adapt to the needs of the marketplace. There will for example be increased demand for meat, but perhaps less in this country and in the developed world for fattier cuts due to the emphasis on healthy eating. Certain grains will be needed, albeit perhaps only for periods of time before food fashions change: for example, durum wheat for pasta, certain types of maize for Mexican-style products. There may be increased demand for salad crops rather than root vegetables. Flexibility will be required to adapt to changing fashions and demand patterns. Niche opportunities will often be transient. It is for Britain's farmers to develop a closer knowledge of developments in their marketplace - particularly in the European market of 375 million consumers.

202. It is apparent from our analysis that the supermarkets in the United Kingdom play a tremendously important part in delivering food to consumers. Moreover, they have proved responsive to those consumers. Professor Hughes told us that "as retailers see the traditional supermarket becoming less relevant, then they are going to have to evolve".[391] He stressed that they are "constantly trying to work out what consumers want" which he contended was difficult because "consumers do not articulate well what they want". This was reflected in statistics showing that nine out of ten new products failed.[392] The advantage supermarkets have is that they receive the message directly from the consumer: Professor Hughes said that "supermarkets just wait until the noise level of their customers gets up to a certain significant level and then they will respond".[393] If the response comes without this gradual build up of intelligence being shared it must seem, to the primary-producer, as though the goalposts are being shifted rather than gradually moving.

203. The structure of the food retailing sector in the United Kingdom has been determined through competitive processes, and now a very small number of large companies dominate the market. The retailers in the sector are very competitive amongst themselves. It is often presumed that competition considerations will prevent further rationalisation. However, there are more players in the United Kingdom food retailing sector than in other markets with similar characteristics, so changes in the structure of the United Kingdom retailing sector cannot be ruled out. Wal-Mart, the world's largest company, is likely to have an increasing influence on British food retailing,[394] and its worldwide purchasing power means that it is likely to exert far greater buying power over multinational food processors than the United Kingdom's domestic supermarkets.

Supply chain communication

204. In order to develop that knowledge of the marketplace farmers must be in a position to receive messages from it. It is frequently asserted that one of the weaknesses of British agriculture is that "market signals are not getting through to some farmers because much of the industry is too fragmented and messages do not filter up the supply chain."[395] Professor Hughes told us that there was a problem with supply chain communication and urged farmers to take the initiative.[396] The National Farmers' Union agreed that "what farmers need to do in Britain is actually to become more intimately involved in the food chain. There are still too many people involved in that food chain, taking costs out that sometimes do not add commensurate value to the product on which we are bent".[397] Streamlining the food chain could help farmers to receive more of the final price of their products.

205. The key question then is how British farmers can become more intimately involved in the food chain and ultimately secure more value for the product they produce as a result of better integration within the food chain. A number of ideas and initiatives were presented to us in the course of our inquiry, including local food initiatives, co-operation and collaboration between farmers, the Food Chain Centre, traceability and reliability of supply, and assurance schemes.

Local food

206. The Policy Commission on the Future of Farming and Food believed that "one of the greatest opportunities for farmers to add value and retain a bigger slice of retail price is to build on the public's enthusiasm for locally-produced food, or food with clear regional provenance".[398] It identified the main source of funding to support such initiatives as the Rural Enterprise Scheme, which "provides assistance for projects that help to develop more sustainable, diversified and enterprising rural economies and communities. Its coverage is wide-ranging but the primary aim is to help farmers [although non-farmers are also eligible to receive assistance] adapt to changing markets and develop new business opportunities",[399] and set out a number of recommendations intended to overcome barriers to the widespread development of local food products. The Policy Commission recommended that:

"the Rural Enterprise Scheme budget should be substantially increased at the Mid-Term Review";

Regional Development Agencies "should consider how to overcome problems of distribution and availability of processing within their regional economic strategies and seek to encourage the networking and planning that are necessary for the development of these local initiatives. Where third-party support processing facilities are available, every effort should be made to work with existing businesses";

where need is identified, "professionally-managed collaborative ventures developing processing units should have a high priority for grant funding and Government aided venture capital initiatives. The English Collaborative Board should be involved in scrutinising these applications"; and

"retailers who give over a portion of their store as an outlet for local producers to sell direct to the public should receive business rate relief on that part of their premises".[400]

207. We discussed these recommendations with Sir Don Curry, the Chairman of the Policy Commission and with a number of other witnesses during the course of our Inquiry. Sir Don highlighted the "significant rise in farmers' markets ... [and] an increasing interest in local food, locality food and regional food".[401] He described again the obstacles to the expansion of the market for local food, and he emphasised that the Policy Commission recommended that both Regional Development Agencies and Food from Britain should have co-ordinating roles to play in developing a regional food strategy, including distribution, and "driving speciality foods and local food initiatives", respectively.[402] However, he accepted that local food "will not be the mainstream of food production [although] it can [provide] valuable opportunities for the people prepared to participate in it to add value and sustain what would otherwise be unsustainable businesses".[403] He was not able to say how the recommendation relating to the provision of business rate relief in respect of the retailing of local produce would work,[404] but instead said that the recommendation needed to be teased out as the report was implemented.[405]

208. There was support for the idea of developing local food initiatives from a number of our other witnesses. The RSPB said that it was aware of an "entrepreneurial spirit" amongst farmers and thought that there were "quite a lot of initiatives developing".[406] Friends of the Earth argued that Regional Development Agencies should put strong local food economies at the centre of their policies to "regenerate and sustain local business and employment".[407] (In fact, some are doing so. Yorkshire Forward is developing the concept of business clusters, of which one is food.) The Council for the Protection of Rural England said that it was "very much in favour of the development of local food economies", and added that it had shown that schemes which aimed to link farmers directly with consumers "help to generate jobs and generate greater amounts of revenue within local economies and actually contribute to rural regeneration".[408]

209. However, some of the support was more cautious. Professor Hughes pointed out that local or regional food "will only be successful if consumers think it is relevant", and that "not everything has value because it is local or regional".[409] This need for caution was borne out by the comments of the supermarkets: Tesco confirmed interest in 'local' produce but said that its customers were "more concerned about health, safety, animal welfare than ... about local [food]".[410] Furthermore, research conducted by the Institute of Grocery Distribution suggests that local food might not necessarily add value to the farmer, once processing and other costs are taken into account. The Institute found that "although the majority of consumers are willing to pay more for such local food, 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".[411] However, it is clear to us that marketing and advertising can establish strong markets for regional products such as Scottish and Yorkshire beef, Wiltshire bacon, Lincolnshire potatoes, Lakeland or Welsh lamb, and Wensleydale cheeses (even if it is not made there). We take the view that regional branding holds out good marketing prospects.

210. Whitbread cited the example of a farmer who had taken advantage of the fragmented nature of the food service sector to supply local restaurants. In doing so he had demonstrated that need for farmers to be "entrepreneurial".[412] Opportunities will not just fall into farmers' laps. They need to understand the market and be able to spot opportunities. Although the local food market remains relatively small a number of successes have already been recorded. This is because people have tested their ideas in the marketplace and responded if they have received favourable feedback. The Rural Enterprise Scheme has a role to play in the development of local food initiatives, but it remains the case that the true basis for success is producing something that the consumer wants. Creating regional or national food brands may be a more fruitful way of exploiting local identity, though producer organisations like co-operatives have traditionally lacked the financial muscle to be able to develop and promote new national brands.

361 Evidence taken on 27 February 2002, Ev 95, Q.431. Back

362 Memorandum submitted by Asda, Ev 85. Back

363 Memorandum submitted by J Sainsbury plc, Ev 86-87. Back

364 Memorandum submitted by Tesco Stores plc, Ev 94, Annex 2. Back

365 Evidence taken on 27 February 2002, Ev 115, Q.527. Back

366 Evidence taken on 27 February 2002, Ev 115, Q.527. Back

367 Evidence taken on 27 February 2002, Ev 115, Q.525. Back

368 Evidence taken on 27 February 2002, Ev 115, Q.527. Back

369 Evidence taken on 27 February 2002, Ev 115, Q.527. Back

370 Evidence taken on 27 February 2002, Ev 115, Q.527. Back

371 Evidence taken on 27 February 2002, Ev 98, QQ.447-454. Back

372 Evidence taken on 8 May 2002, Ev 294, Q.980. Back