Examination of Witnesses (Questions 200
- 219)
WEDNESDAY 25 FEBRUARY 2009
MS LUCY
NEVILLE-ROLFE
Q200 Dr Strang:
Last year City University produced a report on sustainable food.
One of the points it made was that where the major supermarket
suppliers, not necessarily Tesco's, wanted to move down the road
of producing food more sustainably this would not be reflected
in the price. Is there a problem there? If they want to produce
what they supply to you in a more sustainable way are you not
able to reflect that in the price you pay them?
Ms Neville-Rolfe: Obviously, there
are different bits of the market, for example organics. I explained
the contract we had. But there is also a compelling point that
a lot of people in this country need cheap food and therefore
you have to work with the industry to try to ensure the food is
available at a price that people can afford. That has been a particular
problem in recent months. Equally, the dairy and other industries
have responded well. Indeed, the depreciation in sterling has
given them a little bit of an opportunity in terms of import substitution.
Q201 Mr Williams:
But is that not a little disingenuous? You are now moving towards
a decent price for milk, but because for so many years the price
was very low, in many cases below the cost of production, the
production of British milk is now nearly one billion litres less
than it was. The production of milk in Britain is going down at
such a rate that liquid milk is being imported for processing.
That is a huge waste in terms of transport and goodness knows
what. Over a very long period of time you took the rather cynical
view that to press down on the price of milk was a good thing
for consumers but in the long run it has proved to be a very bad
thing for them because British production has been reduced and
now they cannot access what they want, namely British milk?
Ms Neville-Rolfe: I am not sure
I see it quite like that. The dairy and other markets are competitive
ones set within the framework and tone of the CAP. I think that
a lot of the problems we have had in the dairy sector have stemmed
from the regime in which we work. There is a limit to what we
can do. It is a competitive market out there. You will probably
be aware that we were asked by the government a few years ago
to put up the price of milk and that ended up with an allegation
by the Office of Fair Trading that we had in its view co-ordinated
to get the price to move up. We did not agree that what we did
was wrong though other supermarkets have accepted that they did,
but ironically that was all in an effort to try to increase the
price for the dairy farmer. The important thing about DEFRA is
that you need the correct regulatory framework in these areas.
Q202 Mr Williams:
I simply do not understand that. You might be saying that the
European policy of intervention buying encourages production which
forces down the price of milk, but surely if you look to the medium
or long term in the interests of your business and the consumer
you will look for a price that encourages investment in the business
to ensure it is maintained so that British dairy farmers can produce
the products that British consumers want which is British milk?
Ms Neville-Rolfe: I agree that
what you want is a flourishing dairy sector in the UK. One of
the problems is that there are a number of differences in efficiency
within the dairy sector. That is one of the interesting aspects
of the work we are doing at the University of Liverpool. All the
farmers who supply us under contract also give data to the university
on yield, mastitis and the environmental situation. That data
is by cow, not tank of milk, and it will allow the academics at
Liverpool to do the sort of thing that MAFF experts used to do
when trying to improve the productivity of cattle, sheep or whatever
in a period when government policy was to try to improve self-sufficiency.
I believe that there is value in that sort of research, possibly
in a publicly-funded way, if you can find the money, so you get
the benefit of that right across the board. Obviously, our research
results within the university will be published. Universities
always publish their results for peer review which seems to me
to be completely right. The dairy sector is difficult and we have
to work to improve things.
Q203 Chairman:
Before we leave supply chain issues, some people have expressed
concern that the days of strategic stocks of basic commodities
have gone and for a retail enterprise like yours a just-in-time
delivery philosophy is the order of the day. If the taps of basic
supply were turned off how long would it be before the shelves
of Tesco emptied? Put another way, do you take into account supply
chain disruptions of differing types in laying out your stall
to try to ensure that you have continuity of supply of food? I
am quite interested to know whether as a company you believe there
should be strategic stocks of things at national, European or
even world level in the event of serious crop failures in some
of the major area of production for example?
Ms Neville-Rolfe: This is a difficult
issue. Our approach is to make sure we have good supply chains
and extremely good traceability. We have a higher level of traceability
than many others for safety reasons but also for reasons of continuity
of supply. We try to have very good intelligence, so if it looks
as if the price of rice will go up, say, we hope to find out about
it relatively soon and are able to buy quantities forward to make
sure that our consumers will be in a good place. Obviously, we
also practise and have very clear crisis team management. A couple
of us at the top of Tesco can press the button and that process
will start with phone calls round the world if need be, lists
and things. That means we are probably as well placed as anyone
to deal with a crisis when it arises, but if you have a really
serious crisis and suddenly lose two counties of Britain you must
have proper government crisis systems that step in, as they did
in a minor way when the chicken disease occurred in Suffolk. I
was rather impressed by the way the government and local authority
moved in to control it.
Q204 Chairman:
I think it involved turkeys and avian influenza.
Ms Neville-Rolfe: It involved
avian `flu which is obviously a very worrying disease. We place
emphasis on having good teams and practising. We had a practice
last week on an avian `flu-type crisis where we had a lot of putative
fatalities in Scotland, unfortunately. We worked that through.
It teaches you a lot about how to deal with these crises. I am
not convinced that the sorts of stores we used to have many years
ago where corned beef and other things in tins had to be turned
over every two years are terribly germane to solving crises. You
need to know what you are doing and move in, cut off supply and
ration if necessary and quickly and with confidence bring in the
people you need, with government being seen to be ahead of the
curve and having links into it, rather than trying to build up
a lot of strategic stocks. Obviously, you want to buy stuff from
your own country because in time of war or strife that is a more
secure base, but I do not think we have moved quite as far as
the Chinese who have been buying things in Madagascar, Africa
and so on. Because we operate round the world we probably have
some advantage in terms of intelligence about different supply
chains.
Q205 Lynne Jones:
What does Tesco think are the main trends in food on the demand
side?
Ms Neville-Rolfe: The long-term
trends are influenced by population and we talked earlier about
how that will lead to greater demand for food. As to what in particular
British people think, what emerges strongly from our research
is health. We have an ageing population. Certainly, in Britain
the salient issue of health has grown in importance. People want
to buy more healthy food and also want more health, beauty and
fitness equipment. Therefore, health is a trend. There are people
who live on their own who need small amounts of food, take-away
food and so on. In the past four to five years, particularly when
incomes have gone up strongly, we have seen an interesting trend
in provenance and localism, so people do not buy British so much
as local produce. We have responded to that by bringing in local
buying officers in a number of places round the country, for example
buying local cakes or mushrooms for a few stores. Therefore, we
have been able to access the supply base that we were unable to
access when we said that they would have to deliver food into
hundreds of Tesco stores across the UK. We have exceeded our targets
and local sourcing has grown to over £600 million in two
to three years. That was based on the trend for localism and provenance
with people wanting to know where things came from. Another trend
is green. If you ask customers to list why they shop environment
comes in at no.4. It is not exactly clear what "environment"
is; it may include health and safety, but even when we have had
more financial trouble in the country that still comes through
and we reflect that in low-energy light bulbs, insulation, more
fruit and vegetables and so on.
Q206 Lynne Jones:
You mentioned the impact of the recession. Has that affected the
demand for different types of food?
Ms Neville-Rolfe: I think people
have become more price and deal conscious and, therefore, we have
had to change our ranges. We have brought in something called
"discount lines" to make sure customers can get the
same good quality items at a lower price. We find that people
respond to lots of deals—I am sure you have seen that everywhere—such
as three for one, Valentine's dinner, link what you buy to a holiday,
days out and those sorts of things. People use shopping lists
to a greater extent and generally try to save money, but they
still want to be able to go for a ride in the car and have a meal
out at a restaurant which is why they want the deals. The more
peripheral things are less important in their lives. Authenticity
is more important. They spend more time at home which affects
entertainment sales. I am sorry; I am going beyond food in these
comments.
Q207 Lynne Jones:
Obviously, in some ways the trend might be that perhaps people
eat out less and so they want something special at home. On the
one hand, there might be a demand for more expensive food and
at the same time people look for bargains. In this era of climate
change what has been the effect of what may be considered more
responsible purchasing such as greater concern about the environmental
consequences of food and animal welfare? Have trends been dampened
by the recession or do they still come through strongly?
Ms Neville-Rolfe: Though it does
not come that high up in the list if you take everybody, people
do not change their values just because they have a little less
money. You tend to find that on something like Finest products
they will move from the more expensive to the less expensive items
and the same on organics; and if they care about animal welfare
that is something they still look for. They look for what is authentic,
but they may stop eating at a restaurant and therefore trade in
to some of the Finest lines. There is less impulse behaviour;
people try to avoid spending money needlessly and cut down on
waste. One tries to give them products that will help to avoid
waste.
Q208 Lynne Jones:
You said you responded to what you detected as consumer trends,
but to what extent do you think supermarkets have a responsibility
for encouraging responsible trends, say, on environment, animal
welfare or even location? Some supermarkets, for example, have
decided to source all their bacon and pork from entirely British
sources. To what extent do you follow the demand and attempt to
lead it?
Ms Neville-Rolfe: We will always
be following consumers, but there are certain things that they
care about and which we need to apply to all products: health,
safety, minimum welfare standards and ethical trading. We apply
minimum standards to those, so to some extent we exclude things
in that way. We see produce produced close to home as a choice
issue which is why we have tried to produce more local food. That
is not to say that everybody must produce food close to home which
would lead to an unproductive system within the UK. You would
not get the comparative advantages of productivity which is needed
to feed all the people we have to feed in the future.
Q209 Lynne Jones:
What determines the minimum standards? Is there a case for limiting
people's choice by requiring certain standards?
Ms Neville-Rolfe: Government and
the EU and the society that influences them obviously limit it
by setting industry wide standards. That means you have a level
playing field between operators which is a good approach. Clearly,
in certain areas like climate change, in which we are very interested,
and organics we have tried to go the extra mile and do more things
for consumers. When people were very well off a lot of the ranges
at the top end were selling well. For something like organics
it is probably flat or going down currently because people feel
less well off, but I was trying to explain that you need to edit
out things that obviously are not safe.
Q210 Lynne Jones:
Is it just the responsibility of regulation to define these minimum
standards or would you as the largest supermarket chain see yourselves
as having a role?
Ms Neville-Rolfe: I think we have
a role in contributing to the debate and what is decided.
Q211 Lynne Jones:
But you would not take a lead on it?
Ms Neville-Rolfe: We have taken
a lead on climate change and we might do so on other things. For
example, we have said we would like to see more responsible drinking,
but there is a limit to what you can do as individual operators.
It is a competitive market. In many ways if you want to get the
right policy prescription there is something to be said for debating
it. On carbon-labelling we try to put an indication on our products
to show how much carbon has been used. We have worked with the
Carbon Trust. We would very much like it if the carbon-labelling
system was unified across the UK, the EU and other countries because
then it would be more useful for consumers.
Q212 Lynne Jones:
What is Tesco's attitude towards GM ingredients in food?
Ms Neville-Rolfe: In our own brands
we do not use GM. I think that if a change were to be made it
would be a matter for government and EU. If they felt that the
benefits of GM, perhaps in terms of health and less use of water
or whatever justified the introduction of products they would
need to explain that and reassure the public. We would go along
with that. At the moment we are where we are with our consumers.
Q213 Lynne Jones:
You said you were respectful of science, but on this it sounds
as though you are just responding to what you perceive as consumer
demand?
Ms Neville-Rolfe: Not entirely.
I am conscious that in some countries where we operate like America
GM ingredients are used quite extensively. My hope is that increasingly
one would see some research coming through on whether or not there
have been adverse impacts on the consumer, wild life or whatever
which a committee like yours could look at, but it is very much
a scientific area where we would not have our own expertise.
Q214 Chairman:
You appear to have accepted the status quo in the United States
on GM. If you sell products to customers you will not set out
to do damage to them in a litigious society like the United States.
Having accepted the status quo there you would not see a leadership
role if, for example, there were good evidence that you could
minimise pesticide usage, water uptake or the use of manmade nitrogen
by the use of genetically modified techniques that might help
overall food security?
Ms Neville-Rolfe: If that sort
of research came through we would want to look at it and debate
it, but GM rightly is a regulated regime.
Q215 Lynne Jones:
But to have a blanket policy for all GM seems to indicate that
it is does not look at the evidence in individual cases. There
is quite substantial evidence that GM soya has been consumed all
across the world with no harmful effects. On the one hand you
claim to be concerned about the environment and are looking at
the possible benefits to the environment but on the other hand
you are also concerned about price. One of the issues now is that
farmers try to source soya but are unable to get non-GM which
pushes up prices.
Ms Neville-Rolfe: That may be
right. Attitudes may change. At the moment GM products are not
marketed in the UK under the various regulatory regimes that exist,
but I take your point that maybe going forward because of the
concern about feeding the increased population of the world will
change regulation.
Q216 Chairman:
There is no regulatory regime to ban GM; it just so happens that
retailers have chosen not to offer it after a brief foray with
tomato paste.
Ms Neville-Rolfe: But no GM is
produced on UK farms, is it?
Chairman: No, but I do not think that
is the point Lynne Jones is getting at.
Q217 Lynne Jones:
But they use a lot of imported soya, do they not?
Ms Neville-Rolfe: Yes, and that
is not reflected in the final product. Perhaps I misunderstood.
Q218 Mr Williams:
What is the policy on GM in this country? As I understand it,
the only policy is that you can label a product as GM free so
long as it does not have more than 0.9% of GM content. That is
the only regulation that is applied to GM products in this country.
Ms Neville-Rolfe: I was talking
about GM being grown in this country.
Mr Williams: We were talking about retail
products.
Lynne Jones: I am talking about imported
stuff. To have a general blanket policy means that it is really
not based on rational thinking.
Q219 Chairman:
You said earlier that you hoped government would provide information
and answers to some of the basic questions that Lynne Jones has
posed. If you as a business take a strategic view of the food
supply chain going forward to 2030 and 2050 you cannot ignore
engaging in the debate about something like GM or any other new
technology. I recognise that as a business you may not have access
to all the answers, but on something like GM, which is a real
issue, have you said to DEFRA as keeper of the faith that you
are struggling to work out what your strategy and approach to
these technologies should be and provided a list of things you
would like to know from government which would help your long-term
strategic thinking? Is that the kind of interplay between a major
retailer like you and government that you think is a legitimate
form of activity as you work through the food security agenda?
Ms Neville-Rolfe: I think it is.
We are always clear with government that we must listen to our
customers and take them with us. Ministers are also very aware
of that because customers of a supermarket chain are also members
of the public. We do not use GM in our own brand foods, but we
need to keep that under review in the light of the latest scientific
advice. If you wanted to re-introduce GM in the UK I think the
government would need to take a position on this.
Chairman: No. To be specific, some of
the evidence we have heard points to a plateauing in recent times
of arable crop yields. There is a suggestion within the scientific
fraternity that if we are to increase arable crop yields arguments
about water scarcity that we referred to earlier, the high cost
of agrichemicals, plants that can fix their own nitrogen and the
increased problems of certain pesticide chemicals come into play
and we might want to embrace GM technology as a way of addressing
those issues over a timescale that stretches into the middle of
the century, but decisions on that must be taken now. Whatever
those decisions are must by definition, if as a business you are
to secure your long-term supplies, be ones in which you are involved.
You cannot wait to follow the consumer; you must be part of the
debate that takes place.
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