Examination of Witnesses (Questions 188
- 199)
WEDNESDAY 25 FEBRUARY 2009
MS LUCY
NEVILLE-ROLFE
Q188 Chairman:
I welcome everyone to our third evidence session of the Committee's
inquiry into securing food supplies up to 2050: the challenges
for the United Kingdom. I formally welcome Lucy Neville-Rolfe,
Tesco's executive director. Thank you very much for agreeing to
come and give evidence to us this afternoon. By way of introduction,
perhaps I may ask whether the issue of food security is one that
Tesco recognises in the wider context. Bearing in mind that it
was something that travelled very quickly up both the national
and international political agenda last year, culminating with
the world food summit in Rome in June, what are your general observations
about the policy response to the sudden increase in world commodity
prices and some of the food riots that occurred in the less developed
world which have triggered the current debate and response to
the subject of food security?
Ms Neville-Rolfe:
Thank you for the honour of being invited to give evidence today.
The issue of food security is obviously one that we recognise.
Over the past two or three years we have experienced a gradual
rise in commodity prices that ended up with huge peaks last year.
One can only be concerned by things like food riots around the
world particularly as we now operate as a retailer in 14 countries.
We are probably engaged in nearly 100 countries if one looks at
all the different parts of the food and non-food supply chain.
I am delighted that the Committee is taking a long-term perspective
on this issue and grappling with what seems to be a very complex
issue. It is very easy to lose sight of the longer-term issues
when considering food policy. As the Chairman will probably know,
this has a lot of resonance for me. Not only do I come from a
farming background; I started my career in MAFF, now DEFRA, and
in my current capacity within Tesco I see all aspects of production
in the food chain both here and around the world.
Q189 Chairman:
At the heart of my question is whether you recognise the debate
on food security as an issue; in other words, is there a potential
threat to the long-term supply of food? As a major world business
in the food industry your principal task must be to keep the shelves
of your shops full for your customers. Therefore, your view of
what one might call food security may be more a matter of food
procurement and a logistical challenge as opposed to the centre
of the debate that is focused on the long-term supply of food
to feed the world. Is there a Tesco-specific view and a world
view? I just wonder whether you see the world issues. You might
have observed all those people trooping off to Rome to discuss
the problem of food security but not seen a problem at all, just
carrying on doing what you do which is to fill up the shelves
and get the job sorted.
Ms Neville-Rolfe: As a company
we try to take a long-term view. Obviously, our main job is to
try to fill up the shelves with the right range and quality of
goods at the time and wherever we operate, but we go overseas
and into new markets. It is because of the growth of population
particularly in China but also India that some of the longer-term
projections to which you refer implicitly have been made. We have
also done quite a lot of work on climate change because we recognise
it almost as an opportunity but also as a risk assessment. Climate
change will make a very big difference to the planet and the areas
in which we operate.
Q190 Chairman:
I accept that as a company you take it seriously, but against
the background of an issue like climate change where your business
expands into new markets how does it plan strategically to take
into account some of the big long-term issues when you take as
an example procurement strategies? When the FAO sets targets,
such that the world should increase its food production by 50%
by 2030 and double it by 2050, how do you as a business react
to it? Do you recognise those as valid targets and, if so, what
is Tesco's reaction to the impact of those targets on the agricultural
supply chain?
Ms Neville-Rolfe: We would always
be very respectful of science, so if those sorts of things are
being said and that is the way forward we will say that the scientists
appear to have come to that view, in the same way that Stern and
others have come to a view on climate change, and we had better
plan within that framework. We are not the government and there
is not all that much we can do, but we can do something within
our strategic planning to think in what direction things are going.
One of the issues you do is make sure you continue to have good
supply relations in each of the countries in which you operate
so you get a good supply of food of the right quality. The second
thing we would look at is whether the science base is appropriate
for the medium to longer term. One of the things I would be happy
to talk about is how we have tried to do some applied research
that used to be done by people like ADAS but is no longer done
to help producers to be more efficient in the UK. I am sure that
similar initiatives will take place increasingly in Korea, Thailand
or wherever.
Q191 Chairman:
We shall talk specifically about research and development later
on. I understand that recently you have been to China. Whilst
for you as a company it represents an opportunity it is also a
potential challenge because it is the most populous nation on
the planet. The former Prime Minister of China, Zhou Enlai, used
to say that his task was to ensure that 1.2 billion people had
three meals a day. That is quite a task. The perception about
food security issues and the challenge to ensure that China's
burgeoning population is properly fed is the context in which
a business like yours might eventually have to trade. Perhaps
you can give us an insight into how you see the food security
issue from the other side of the planet in a place like China.
Ms Neville-Rolfe: China has been
growing and has a very large population. In the eastern part of
the country where we currently operate there is increasing wealth.
Logically, that is a good place in which to think about establishing
a retail business. One of the reasons the Chinese seem to be pleased
with Tesco's investment is that we bring the experience of Britain
in terms of food safety and productivity. One of the pieces of
work we have been doing, and will do increasingly, is to share
learning on the supply chain work that you will have heard about
from people like the IGD. Does that answer your question?
Q192 Chairman:
The reason I ask that question is that it has been said one of
the drivers of the debate on food security is, first, the growing
demand through sheer numbers of a country like China and, second,
the changing dietary requirements of the Chinese as they move
from an arable-based diet to one which involves livestock and
all that goes with that. If you are developing a business in China
you must decide on the supply chain and therefore the security
you can apply to it if you are to meet the needs of your new customers.
I am just interested to know where Tesco and China look to secure
the supply chain. Does it look to developing indigenous agriculture
or to the major suppliers in the southern hemisphere like Brazil
as a way to secure food inputs to sustain a business like yours?
Ms Neville-Rolfe: Everywhere it
will be a mix, but the vast majority of food tends to be sourced
in the country in which we operate. Although you suggest that
the Chinese will eat more meat and so on the big sellers are oil,
rice, seaweed, supplies and all the things that you would see
in their stores. We are quite flexible in our business model.
We do research in the market and look at customer trends and then
work with local staff to try to build up a consumer offer that
is attractive and that will include a lot of local food. We will
work with local supply-based entrepreneurs and also bring in things
from overseas particularly where there is a climatic difference.
Obviously, the seasons change and that is as true in China and
Korea as it is in the UK, but as in the UK we have strong relations
with very local suppliers, because China equals about 25 UKs;
it has many different regions and provinces and each area in which
we operate is separate.
Q193 Chairman:
In April of this year Chatham House produced a research paper
on this subject which highlighted a number of key supply side
factors that it believed would have a very important impact on
prices and the supply of food in future.[1]
It referred to the rising cost of agricultural inputs especially
energy; scarcity of water on a global basis; the competing demands
on land for all the things you do; and climate change. You indicate
that Tesco clearly recognises climate change as an issue, but
does it recognise the other factors referred to by Chatham House
as key influences on the security of the food supply chain? If
so, bearing in mind your earlier comments that Tesco thinks strategically,
how are you dealing with those issues strategically in terms of
both your Western European business and your growing presence
in the Far East?
Ms Neville-Rolfe: We would have
all those issues on our agenda. We have spent a particular amount
of time on research into climate change about which I am happy
to talk to you. Several years ago we also highlighted water as
a geo-political issue. We try in a practical way to make sure
that water is used sensibly in our own operations whether it is
in stores or depots. We work with our supply chain to try to minimise
the use of water. Going forward, we see that the clever use of
water will be very important to the sustainability of different
areas in which we work. The UK is lucky because it has a very
good supply of water although, unfortunately, it is not always
in the right place, but if the government looks forward to 2020
or 2050 one of the things it needs to think about is how to ensure
we have enough water.
Q194 Chairman:
I think it would be helpful if perhaps by means of correspondence
you could develop some of the points of your policy approach to
this to give us an idea in practical terms of what you are doing
to address these issues, particularly taking into account the
perspective of the two FAO targets I have mentioned. To move to
the role of DEFRA as the government department which is tasked
to be in charge of food, perhaps you would say a word on Tesco's
view of what it should be doing in order to hold the ring as far
as concerns the government's response to the challenges of food
security that we have been discussing for the past few minutes.
Ms Neville-Rolfe: As I see it,
DEFRA has the strategic role within government of tackling these
sorts of issues and bringing together those various issues for
the agricultural production and food industries. Climate change
has now been hived off into a separate department, but in a sense
that is an opportunity for DEFRA because it means it can spend
time thinking about what is needed for the agricultural resources
and supply base, food and retailing, because it is our sponsoring
department and brings together what is done in different departments.
In my experience there is a tendency in Whitehall for departments
not always to be as joined up in policy as they need to be. To
that extent I think that is a role for DEFRA. I know that in the
past the Cabinet Office has done some work, but in a sense that
has now been put back with DEFRA so it can think about these things.
These are very long-term issues. I believe that the department
has to think about both the shorter-term and longer-term issues.
Therefore, one needs a strategy going forward to 2050 and to think
what that will mean in the shorter term.
Q195 Chairman:
You understand better than a lot of people how government works
from the inside, but you are now looking at it from the outside.
In terms of the way DEFRA has again embraced its role in food
as one of the leading retailers in this area in the country have
you been involved in any of the discussions with the department
about how it re-engages in the whole question of its responsibility
towards security of food supply?
Ms Neville-Rolfe: We have certainly
made submissions to the various inquiries. We are not involved
in its particular advisory committee on food but it has one of
the other retailers on that. It works closely with the British
Retail Consortium of which I am a leading supporter. I think it
does want to listen and it is also interested in the practical
angle that we are able to bring to it, so where a new regulation
comes in the question is: will it or will it not work? Where something
is to be done, whether on the framework directive on water or
new CAP regulations, can it talk to us, as it has done ever since
the days of BSE, in terms of what we can practically do? I think
its main focus tends to be more on the production and food chain
industries to whom you will be talking and increasingly non-governmental
organisations.
Q196 Chairman:
Apart from getting a lot of people round the table to talk about
it, what do you think DEFRA could be doing? First, what do you
think a government department should be doing in an area which
is essentially a private sector supply operation? Food has been
sub-contracted out to the supermarkets, the food service companies
and so on; in other words, the old days of the ministry of food
have gone. Apart from getting people to talk about the key issues
we mentioned earlier, what do you think DEFRA ought to be doing
to address the issue?
Ms Neville-Rolfe: I disagree.
I think that it does two or three important basic issues: one
is to oversee the regulatory regimes within the UK and, crucially,
its job is to negotiate in Brussels and increasingly in WTO and
other world fora, with the US and China now becoming more important,
on what should be done, how regulation should be formulated and
even on climate change. That is a matter for Mr Miliband, but
implementation of any climate change policy in our sector and
the agricultural sector will be overseen by DEFRA. Therefore,
it has a very important regulatory role in terms of what is the
right thing to be done, doing it in a way that helps the industry
rather than gets in its way. As I hinted I think it needs to be
good at negotiation in these international fora because our interests
here are not necessarily the same as those of the French, Germans
or other states. We have businesses in Eastern Europe and in Ireland,
so we have an interesting perspective. It is terribly important
that DEFRA does its bit and takes a whole chain approach from
the consumer—I hope that we shall touch on consumer research
at some point—right the way back to the farmer and the tractors
and things that he needs to produce food. It seems to me that
it has the time, expertise and energy to take a whole chain approach.
As to R&D, it oversees long-term programmes that may take
20 or 30 years to change society. Who in 1990 would have known
we would all have the Internet? In those days only the military
had it. Research will be life-changing and in my view it is likely
to lead to a big change in the challenge that faces us in 2030,
2040 and 2050.
Q197 Chairman:
Do you talk to other major European retailers about what role
you think the European Union should play in addressing this issue
taking into account the fact that by 2013 there will be a further
fundamental look at the Common Agricultural Policy? The origins
of the policy were to secure Europe's post-war food supply and
once again that issue resurrects itself. On the other hand, the
changes which have occurred in the CAP have been designed to move
away from central influence on production with strong emphasis
on the environment and sustainability. Do you have a view? Do
other European retailers discuss with you their perception of
this problem?
Ms Neville-Rolfe: It is a very
interesting question. When I was a young civil servant the main
concern was food mountains and now people worry about whether
there is enough to eat because of the problem of population growth
about which we were talking at the start. We are members of Eurocommerce
which is the retail association for Europe and the European Retail
Round Table where big retailers come together to discuss these
issues. We have talked about climate change and have spent a lot
of time on food safety. We discussed GM food a few years back
when it was an issue. We have not had a discussion in a collaborative
sense looking forward to 2030 or 2050 and I think it would be
a rather good idea to put it on our agenda for a future meeting.
We have the mechanisms to do it. In a sense it is not our job
but the job of the European Union to think about these things.
They come forward with papers and experts try to translate them
into something that is understandable and practical.
Chairman: We will probably have produced
our report by the time they get round to doing that, so we must
present it to your meeting.
Q198 Dr Strang:
In the UK at the present what do you say are the main food supply
issues that concern the directors of Tesco who are responsible
for buying food?
Ms Neville-Rolfe: I asked that
of one of my commercial colleagues this morning. When I asked
him what kept him at awake at night he said that it was the consumer
changing in a way that he had not anticipated. Obviously, at a
time of recession people change their habits and tighten their
belts, so we are always very aware of what the consumer is doing.
Even the people who are buying always think: what will the consumer
want and buy? That is the way we run our business and why we have
been successful for a number of years. We always look at the consumer.
Q199 Dr Strang:
In the past 10 or 20 years, perhaps longer, following the end
of the Milk Marketing Board which presumably you will remember
as you were in the ministry at the time, there has been a lot
of discussion in the media and so on between the dairy sector
and the supermarkets. The crisis that the dairy sector has had
to meet has meant that it has not been able to expand and that
is now reflected in the supply of liquid milk in this country.
Do you have a comment on that?
Ms Neville-Rolfe: I have a lot
of sympathy with the point. A couple of years ago we decided to
change the way we dealt with dairy producers in the UK partly
because of the trends you suggest. We moved away from buying milk
directly from the processors to buying it through the processors
but via a triangle that involved producers. We now get our milk
from Tesco dairy farmers and pay them over 28p which is one of
the best prices in the industry. We then get the comfort of security
of supply and quality from dairy farmers. That has been a good
move. Having been brought up in farming and in the area of agricultural
policy I think the health of dairy farming is completely pivotal
to the health of farming in general in the UK because obviously
with the grass and so on that we have it is a very important area.
We have also tried to support the dairy sector by putting the
Red Tractor label on cheese and so on. It is an important area
where I know DEFRA has tried to bring the supply chain together
to improve productivity and some of the R&D, to which we shall
come, is dairy-linked.
1 Chatham House, Rising Food Prices: Drivers and
Implications for Development, April 2008 Back
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