Memorandum submitted by Morrisons (SFS
38)
EXECUTIVE SUMMARY
— Morrisons' business model is different
from many other supermarket retailers. We source most of our meat
and produce direct from farms and prepare and process it ourselves.
This supply chain gives us an unrivalled opportunity to provide
customers with fresh quality food at affordable prices.
— Morrisons' vision for the future
of British farming is a highly productive and efficient supply
chain developed within a framework that ensures good science-based
ethical and environmental standards delivering competitive products
that are affordable.
Recommendations:
— Morrisons recommends that an additional
strategic policy objective should be added to the Government's
vision as set out in "Food Matters: Towards a Strategy for
the 21st century", namely the securing of "a re-structured
British farming base focused on driving productivity and efficiency".
— Morrisons recommends that DEFRA ensures
that new regulations taking forward the Health Check of the CAP
do not unduly focus on schemes to protect the natural environment,
but are targeted at schemes that drive farm and supply chain productivity
and efficiency without damaging the environment. This does not
mean a re-introduction of production coupled payments to support
specific farming sectors, but does mean that targeted funding
is available to facilitate structural change to British farming
focused on long term viability and profitability.
— Morrisons recommends that the Government
is consistent in its implementation of animal welfare and food
safety standards and does not "gold plate" the already
strong welfare legislation coming from the EU. The Government
should also adopt a better risk-led approach to safety regimes,
targeting the likely hotspots of potential danger.
— Morrisons recommends that DEFRA champions
within government the establishment of financial instruments,
e.g. a futures market, particularly within the red meats sector,
that can help retailers, processors and farmers manage price volatility
and provide more security within the supply chains to help reduce
shrinkage in the British farm base.
1. INTRODUCTION
1.1 Morrisons welcomes the opportunity,
as a retailer and food manufacturer, to respond to the EFRA Committee's
inquiry "Securing food supplies up to 2050: the challenges
for the UK." This response summarises some of Morrisons'
practices to help ensure the security of food, including our commitment
to British farming and a sustainable supply chain.
1.2 The response also sets out key issues
for the Government and wider public policy to ensure the long-term
viability of food production in the UK.
2. MORRISONS—HELPING
SECURE THE
LONG-TERM
VIABILITY OF
BRITISH FARMING[118]
2.1 Morrisons' vision is to be the "Food
Specialist for Everyone". Our business model is different
from many other supermarket retailers. We source most of our meat
and produce direct from farms and prepare and process it ourselves.
This supply chain gives us an unrivalled opportunity to provide
customers with fresh quality food at affordable prices. As we
are closer to source, it also gives us first-hand understanding
of the issues faced by farmers in the supply chain and drives
our commitment to help secure the long-term viability of British
farming.
2.2 Morrisons is the only major retailer
to sell 100% fresh British beef, pork and lamb. Our buyers visit
farms to source animals directly of the highest quality. Livestock
is transported to Morrisons' owned abattoirs. From there the fresh
meat is supplied direct to stores in large cuts ready for our
trained butchers to prepare it to our customers' requirements.
We make use of the whole carcase by sending the meat that is not
cut in-store to Farmers Boy, our food manufacturing facility,
where it is used in products such as pies and sausage rolls. By
maximising the utilisation of the carcase we are able to give
a fair price to the farmer.
2.3 Similarly we operate "whole crop
purchasing" from the fields of arable farmers so that they
are not left trying to offload some of their crop not taken by
other retailers. We believe this offers farmers a fairer deal.
We wash, grade and pack the produce ourselves. This allows us
to price individual products so, for example, with broccoli we
can sell sizes that are often rejected by other retailers.
2.4 Our commitment to help secure the long-term
viability of British farming has led us to establish a series
of producer groups. These are developing programmes to help drive
the efficiency and effectiveness of the supply chain, including
the application of on-farm research. These programmes will be
rolled out in 2009 to help strengthen our supply chain with
British farmers.
3. RESPONSE TO
INQUIRY QUESTIONS
How robust is the current UK food system? What
are its main strengths and weaknesses?
3.1 The current UK food system operates
on free market principles. However, it is an unbalanced market.
The UK operates its own national market. It also operates within
the European Union. Together, the UK and EU operate in the global
market, having to work within trade barriers.
3.2 The robustness of the UK's food system
is dependent on the direct and unintended consequences of interventions
at all three levels of this unbalanced market. For example, the
European Union legislates for animal welfare standards. These
are widely held to be the best in the world. When implemented
in the UK, the Government often seeks to ensure that they are
implemented to the highest standard and advocates further improvements.[119]
However, animals entering the UK from outside the EU are not necessarily
subject to any of these additional welfare standards. This unbalanced
market is a major constraint to competitive food production.
3.3 Perhaps the most fundamental intervention
into the market that affects the robustness of the UK food system
is the Common Agricultural Policy (CAP) and its reform. The progression
from direct payments to the single farm payment and now the shift
towards environment and rural development schemes will have the
single most dramatic effect on the future of British farming.
The withdrawal of single farm payments will help create a freer
market, but the long-term viability of British farming is threatened
if the focus of grant assistance is not on the efficiency and
profitability of the industry. Many farmers will struggle to adapt
to the dismantling of the CAP over the next decade, given its
development over the past fifty years. Put crudely, the UK may
be able to sustain the environmental heritage of our farming landscape,
but may struggle to provide livestock and crops for its food system.
3.4 There are strengths in the UK food system,
notably the suitability of our natural resources, e.g. temperate
climate, and the quality of animals and crops that can be produced.
But there are also weaknesses. Many of them are structural. Our
farming base is fragmented, with too many holdings that operate
on an insufficient scale. This makes for a long, and often convoluted,
supply chain, which inherently means that British farming has
a higher cost structure.
3.5 For a retailer like Morrisons that is
committed to supporting British farming and only selling British
fresh beef, lamb and pork this could impose long-term constraints
on our business. With a declining farm supply base, customers
wishing to purchase fresh British meat may find it increasingly
uncompetitive in price compared to imported product. (Note: the
current weakness of Sterling against the Euro means that British
product is at this time competitive on price, but this makes it
even more suitable for export thus further constraining supply
for our domestic market).
3.6 A further weakness likely to affect
the robustness of the UK food system is the risk associated with
the rising average age of British farmers. The Government may
wish to consider whether individual financial incentives may be
necessary to encourage the next generation of farmers.
Recommendation: Morrisons recommends that an additional
strategic policy objective should be added to the Government's
vision as set out in "Food Matters: Towards a Strategy for
the 21st century", namely the securing of "a re-structured
British farming base focused on driving productivity and efficiency".
How well placed is the UK to make the most of
its opportunities in responding to the challenge of increasing
global food production by 50% by 2030 and doubling it by
2050, while ensuring that such production is sustainable?
3.7 Land in the UK, however fertile, is
finite and will inherently play a limited role in increasing global
food production. Nevertheless, the high quality of livestock and
crops produced in the UK means there is opportunity to meet the
growing demands of our domestic, as well as the international,
market.
3.8 If we are to seize these opportunities,
farmers in the UK should be encouraged to make further improvements
in productivity or profitability. Environmental stewardship grants
may currently serve as disincentives to farmers to focus on the
measures needed to dramatically increase efficiency, yield and
profitability of livestock and crops if we are to meet the demands
of rising population. For example, our fragmented pig industry
struggles to compete with large scale farms in Denmark capable
of handling tens of thousands of pigs a week through an integrated
supply system. The challenge for British pig farmers is how to
sustain high welfare standards at a larger scale that brings productivity
benefits.
3.9 Morrisons' vision for the future of
British farming is a highly productive and efficient supply chain
developed within a framework that ensures good science-based ethical
and environmental standards delivering competitive products that
are affordable. This does not mean more intensive farming for
the sake of it. It does mean driving out current inefficiencies
in the supply chain where possible. For example, in the beef herd
a head of cattle may move 4 times from being bred to being
slaughtered. If this movement can be reduced, it may not only
help improve welfare but also drive cost efficiency enabling British
livestock to remain competitive.
3.10 Morrisons' commitment to 100% British
fresh meat shows that it is possible to focus on encouraging British
production. However, action is needed to ensure fairer competition
for farmers, making it easier for them to produce high quality
food at competitive prices in the UK.
Recommendation: Morrisons recommends that DEFRA
ensures that new regulations taking forward the Health Check of
the CAP do not unduly focus on schemes to protect the natural
environment, but are targeted at schemes that drive farm and supply
chain productivity and efficiency without damaging the environment.
This does not mean a re-introduction of production coupled payments
to support specific farming sectors, but does mean that targeted
funding is available to facilitate structural change to British
farming focused on long term viability and profitability.
In particular, what are the challenges the UK
faces in relation to the following aspects of the supply side
of the food system:
— the provision of training
— the way in which land is farmed and
managed
3.11 The fundamentals of much of the British
supply side of the food system are reasonably strong: diverse
and rich soil quality complemented by good rainfall and reasonable
water management. The science base is present, if under-invested,
and world leading training exists for the relatively small cohort
of future farmers.
3.12 As discussed in paragraphs 3.1 to
3.3 above there are trade barriers that unbalance the market
and hinder the potential competitiveness of British farming, not
least by focusing too much attention on preservation of the environment
ahead of farming practices. More significantly the fragmented
way in which land is farmed and managed, is hindering the opportunity
to increase production significantly.
3.13 Enabling larger farms and driving productivity
gains across the industry will strengthen the supply side of the
food system, and enable better sustainable development. Morrisons
is seeking to play its part by improving our own supply chain
and investing in on-farm applied research.
What trends are likely to emerge on the demand
side of the food system in the UK, in terms of consumer taste
and habits, and what will be their main effect? What use could
be made of local food networks?
3.14 The key demand side trend is value,
expressed as a combination of quality and price. British consumers
are increasingly looking for value. They are unwilling to compromise
on the quality of the fresh food that they buy, and they are very
price conscious. Provenance matters, but there are signs in the
market that they are not prepared to pay regularly a premium for
local products. For example, that is why Morrisons has introduced
a regional focus to our standard milk, rather than differentiating
it as a separate premium product.
3.15 British farming produces excellent
high quality products. The challenge on the demand side is to
ensure that they are affordable for British consumers and not
just for the premium export market. Morrisons' vertically integrated
supply chain for livestock enables us to pay farmers a fair market
price and provide our customers with great quality fresh meat
at market leading prices. In the future this may become harder,
for example if animal welfare and safety standards become more
stringent or are unevenly enforced.
3.16 While a viable UK farming industry
needs appropriate standards to inspire consumer confidence in
the quality and safety of its produce there is a case for a better
balance between consumer safety and over-regulation. A well-balanced
regulatory system would see consistency of approach across the
chain, ensuring that scientifically-based standards apply to animal
feed as well as to the welfare of the animals when they are being
reared and finished, and to the standards in the abattoir and
final processing.
3.17 At present there is a disproportionate
focus on safety in the fresh meat part of the chain. Large scale
providers with a consistent throughput of similarly graded animals
are regulated to the same degree by the Meat Hygiene Service as
smaller abattoirs with a mixed range of stock and carcase specification.
Moreover, with final processing cooked meats receive far less
attention than fresh meat despite having a potentially higher
safety risk as they will not be cooked again before consumption.
3.18 Affordability may also become harder,
if local food networks are unduly promoted as a panacea for the
UK food system. Morrisons has been trialing a local food range
in Yorkshire. Sales are good for chilled ambient products, but
they inevitably retail at a less competitive price because of
the differences in the supply chain—both the cost of production
and its distribution. In comparison to our national supply chain,
local food networks cannot deliver the combination of good quality
and affordable price that the majority of our customers expect
and demand. For example, when it comes to fresh red meat, our
customers are delighted by the high quality associated with its
British provenance and are willing to pay prices that are very
competitive against other food retailers. Local food networks
for fresh meat are unlikely to be able to compete with imported
products.
Recommendation: Morrisons recommends that the
Government is consistent in its implementation of animal welfare
and food safety standards and does not "gold plate"
the already strong welfare legislation coming from the EU. The
Government should also adopt a better risk-led approach to safety
regimes, targeting the likely hotspots of potential danger. The
Meat Hygiene Service could introduce self-regulation to top tier
processors.
What role should Defra play both in ensuring that
the strengths of the UK food system are maintained and in addressing
the weaknesses that have been identified? What leadership and
assistance should Defra provide to the food industry?
3.19 As discussed above, the priority for
DEFRA should be to focus on driving higher productivity from the
British farm supply base without compromising environmental protection.
At present, from a food manufacturing and retailing perspective
the emphasis is much stronger on environmental protection with
less effort devoted to ensure structural reform of British farming
to ensure its long-term viability in producing high quality livestock
and crops.
3.20 Two measures that DEFRA could champion
to help drive long term viability of farming are the introduction
of a futures market and better supply chain finance.
3.21 With prices becoming more volatile
for British products, particularly red meat, a clear system for
forward pricing could enable farmers and others in the supply
chain to plan more confidently for the future. This could also
enable further structural change. DEFRA could lead work with the
Agriculture and Horticulture Development Board to develop the
financial tools that would enable a futures market to be established.
3.22 DEFRA could also lead work with H.M.
Treasury and BERR to ensure that farmers are able to access finance
for their businesses. For example, herds are getting smaller partly
because farmers increasingly cannot get a mortgage on their stock.
They require funding up front to buy and rear their stock before
they can hope to make a return but securing finance is becoming
harder. New instruments that are able to include the stock as
security, not just land and other capital holdings, could ease
a constraint that is undermining the fundamental structure of
British farming.
3.23 Labelling is another important issue
that DEFRA is rightly championing. Morrisons welcomes DEFRA's
new drive to ensure greater clarity on the country of origin labelling
for food. This could also be extended to improving the requirements
and sensible enforcement of traceability when unforeseen events
arise.
3.24 Finally, where synergies between retailers
could help to increase efficiencies and the volume of UK produce,
eg the creation of regional hubs for small producers, the Government
would need to support this explicitly and drive its implementation
as retailers would be unable to collaborate on such a project
under current competition laws.
Recommendation: Morrisons recommends that DEFRA
champions within government the establishment of a futures market
and better supply chain finance to help reduce shrinkage in the
British farm supply base. DEFRA should also continue to strive
for greater clarity on country of origin labelling.
How well does Defra engage with other relevant
departments across Government, and with European and international
bodies, on food policy and the regulatory framework for the food
supply chain? Is there a coherent cross-Government food strategy?
3.25 Morrisons would like to see DEFRA be
the champion of the farming and food production industry. DEFRA
needs to remain focused on taking an holistic approach to policy
that works across the whole food production chain. The foundation
for the cross-Government food strategy should be increasing the
sustainability of British farming by integrating environmental,
animal, safety and social needs with supply chain development,
efficiency and improving final product value.
What criteria should Defra use to monitor how
well the UK is doing in responding to the challenge of doubling
global food production by 2050 while ensuring that such production
is sustainable?
3.26 In addition to criteria that measure
welfare, safety and environmental performance, Morrisons holds
the view that increasing the productivity and efficiency of the
British farming supply chain should also be a key performance
indicator.
January 2009
118 Morrisons: Top 5 food producer in the UK:
3 abattoirs, 7 packhouses and food production sites,
3 bakeries. Only major retailer to sell 100% fresh British
beef, pork and lamb. 380 stores; 117,000 employees;
10 million customers/week. Back
119
e.g. Government's Initial Response to the Farm Animal Welfare
Council report on the welfare implications of farm assurance schemes
(2006). Back
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