Memorandum submitted by Tesco (SFS 75)
1. A NOTE OF
EXPLANATION
1.1 It may be helpful to explain the limitations
of this paper.
1.2 Tesco is not and cannot be responsible for
food security and indeed agricultural policy in the short, medium
or long term; that is a matter for Government.
1.3 Tesco is a retailer and contributes to the
economy via innovation and product improvements like many other
large firms. It deals largely with food products and has considerable
expertise in some technical areas including food safety and quality
and the supply chain. None of this makes us experts in long term
food security.
1.4 In recent years we have also sought
to develop in expertise in how food retailing can contribute to
Government objectives on climate change.
1.5 That said, we are informed observers
of the current state of affairs and would offer the following
comments on the issues which interest the Committee to supplement
the evidence given by Tesco at the Hearing on 25 February 2009.
2. CONTEXT
2.1 We recognise the widely-held view that
global food production will need to increase by 50% by 2030 and
by 100% by 2050 to meet the needs of a growing world population.
2.2 We share the view that some of the key constraints
on growing production to these levels include:
2.2.1Limitations on the amount of agricultural
land, particularly as many parts of the world become more developed
and more urban.
2.2.2The challenge of climate change: the need
to lower greenhouse gas emissions while increasing agricultural
production; and the likelihood that increasing global temperatures
will make some areas which currently produce food unable to do
so in the future.
2.2.3Other sustainability challenges, including
the challenge of water depletion in many parts of the world.
2.3 We do not believe that—particularly
set against these constraints—the right route to secure
the increases in production required lies in an outdated protectionist
approach to food production. Such an approach helped to secure
large increases in global production in some countries—including
Europe and the US—after the Second World War. However this
was at the cost of huge economic inefficiencies, financial burdens
on consumers and taxpayers in many countries and severe damage
to the agricultural economies of many developing countries.
2.4 We believe that the right approach to
the modern challenge of food security lies in competitive markets
which enable comparative advantages to flourish, and which encourage
the innovation and productivity increases that will be needed
to feed a growing world population.
2.5 As an international business operating
in 14 countries in Europe, Asia and the US, our sourcing policy
in the face of these challenges can be summarised as:
2.5.1A commitment to international sourcing,
so that consumers around the world benefit from the widest range
of quality products at the best prices.
2.5.2A commitment at the same time to source
locally wherever possible. Consumers often express a preference
for locally-produced products, and there can be significant advantages
in terms of responsiveness to consumer demand, freshness and lower
distribution costs and emissions. In the UK, approximately 90%
of our fresh chicken, 95% of our fresh beef, 80% of our fresh
pork and 80% of our fresh lamb is British, as are 100% of our
fresh eggs and milk. We have also in recent years significantly
increased our commitment to local sourcing, opening a network
of regional offices across the UK with dedicated buying, marketing
and technical teams. We currently stock 3000 local lines which
we promote through events, point of sale and marketing.
2.5.3A determination to ensure that agricultural
production for Tesco meets strong environmental standards. This
is achieved through our "Nurture" scheme, an independently
accredited global quality standard for fruit and vegetables which
covers 15,000 growers in 70 countries. Alongside ensuring full
traceability for our fruit and vegetables, Nurture requires adherence
to high standards of wildlife protection and landscape conservation,
sustainable farming practices, including the use of energy and
natural resources, and the rational use of artificial pesticides,
fertilisers and manures. Each grower is audited on an annual basis.
3. SUPPLY SIDE
FACTORS
3.1 We agree with the recent Chatham House
report that some factors—in particular water scarcity, climate
change, land availability and the rising costs of agricultural
inputs—require special attention and we address these below.
3.2 Water Scarcity
3.2.1 Water scarcity is a significant and growing
global issue. 70% of water used worldwide goes towards agriculture
and food production. As the climate changes, some parts of the
world will face fresh water shortages and by 2025, two-thirds
of the world's population may be impacted by scarcity.
3.2.2 We have begun to respond to this challenge
by implementing water-saving initiatives in our businesses across
the world. Our Chinese business uses rainwater harvesting and
grey water for car washing and toilets; there are closed circulation
car washes in our Polish distribution centres; and in the Czech
Republic we have installed specially designed water efficiency
fixtures and fittings. In the UK, our newly developed environmental
blueprint for stores incorporates rainwater harvesting techniques
which reduce potable water used by the store by 50%. We also use
other water saving technologies such as taps with automatic shut
offs or electronic sensors and low dual flush toilets. We have
run consumer information campaigns, for example in schools in
Turkey.
3.2.3 We recognise that more needs to be
done in understanding and reducing the water footprint of the
whole food supply chain. We are therefore working with the Sustainable
Consumption Institute, established by Tesco at the University
of Manchester, to understand better the issue of water scarcity,
how it will impact on the supply chain in the future and the role
we can play in mitigating it. The results will be shared freely
so that the whole food industry can benefit. Areas for consideration
include:
3.2.3.1The cause and nature of the problem of
water scarcity.
3.2.3.2The possible solutions at a global level,
including the role of technology and of water efficient production
methods.
3.2.3.3The scale of this issue for our business.
3.2.3.4The role that we can play, by tackling
the issue in our own business, working with our supply chain,
and helping customers play their part.
3.3 Climate change
3.3.1 Long-term sustainability and growth
around the world depends crucially on an effective response to
the global challenge of climate change. A failure to act effectively
could mean we are threatened with significant and increasing economic
and social disruption on the scale of the great wars and economic
depression of the last century. Indeed there was a very interesting
recent article in Science (November 2008) which suggests the fall
of the Chinese Dynasties was linked to weakening monsoon power
which reduced rainfall and hit harvests. There was also a dry
period during the decline of the Mayans in Central America.
3.3.2 Tesco is committed to playing a leadership
role in tackling climate change, in particular by innovating and
investing in sustainable technologies and buildings, and using
our relationship with customers to empower them to take part in
a revolution in green consumption. As part of our climate change
strategy, we are making significant investments in developing
low-carbon stores and distribution centres. These investments
will help us meet our long term targets set in 2007:
3.3.2.1To reduce the CO2 emissions from our existing
stores and distribution centres by at least 50% by 2020, against
a baseline of 2006. By the end of 2008, our UK energy use per
square foot was half what it was in 2000.
3.3.2.2To reduce by 50% the amount of CO2e used
in our distribution network to deliver a case of goods by 2012,
against a baseline of 2006. Last year in the UK we achieved a
saving of over 10%.
3.3.2.3To reduce CO2e emissions from new stores
by 50% on average by 2020, from a baseline of 2006, developing
environmental formats. Our recently opened Cheetham Hill store
near Manchester has a carbon footprint 70% less than an equivalent
store built in 2006 and will be a model for future stores.
3.3.3 Consumers account directly and indirectly
for 60% of carbon emissions. We believe that engaging and empowering
them is therefore a crucial aspect of tackling climate change.
As an example, we are—alongside DEFRA, the Carbon Trust
and the British Standards Institute—developing an accepted
and commonly understood measure of the carbon footprint of every
product we sell to enable customers to easily compare products,
in the same way that they can compare products' nutritional content.
So far we have labelled 100 products with their carbon footprint
and we are working to footprint further products. We are also
making it cheaper and easier for our customers to make green choices,
through for example halving the price of energy efficient light
bulbs and our Greener Living range.
3.3.4 In 2007 we began a five-year, £25
million funding programme for a new Sustainable Consumption Institute
(SCI) at the University of Manchester. The SCI has been established
as a leading centre for sustainable consumption research to develop
research to define and accelerate the steps required to make a
successful transition to a low-carbon economy and society; research
that will be published and freely available. We are also working
with suppliers to develop low carbon supply chains, products and
services. This is particularly important in the food supply chain
given what we know about the environmental impacts of agriculture.
Through our Sustainable Beef and Dairy Projects, and the Dairy
Centre of Excellence, we are working with suppliers to understand
how the environmental impacts of production can be reduced.
3.4 Land Availability
3.4.1 There are many competing demands on
land, including for food, feed, timber, paper, fuel and development.
This is on top of the impact of soil loss through erosion and
desertification. It is therefore important that the right balance
is struck in terms of land allocation and management.
3.4.2 Agricultural techniques have a particularly
important role to play, with unsustainable methods leading to
the deterioration of existing land stock and a lowering of yields.
We are therefore committed to high standards of land stewardship,
environmental protection and sustainable production within our
supply chain.
3.4.3 One of the ways we approach this is
through our Nurture scheme, summarised above.
3.4.4 On livestock, we are a core supporter
of the Food Animal Initiative at Oxford University which has as
one of its areas of focus the development of food production systems
that deliver improved farmland environments, while the Tesco Sustainable
Beef Project and the Dairy Centre of Excellence are both working
towards finding solutions to the problem of land degradation.
3.4.5 We also recognise wider challenges
in terms of land use, for example the production of biofuels.
Biofuels have the potential to reduce greenhouse gas emissions
compared to conventional fuels. There are, however, concerns about
the energy used in growing the crops as well as the risk of deforestation,
reduced biodiversity and diversion of production away from food
crops such as corn or soy and the impact this may have on food
prices. Recognising these concerns, and the conclusions of the
Gallagher Review, we are working with the Sustainable Consumption
Institute at Manchester University to formulate a long-term policy
on sustainable biofuels.
3.5 The Rising Costs of Agricultural Inputs
3.5.1 The price of agricultural inputs has
risen, driven in particular by increases in energy, fertiliser
and feed costs although there has been some easing since the peaks
of 2008.
3.5.2 A healthy and sustainable base is at the
heart of our business and we are committed to working with our
suppliers to understand and respond to cost pressures in the chain.
Our Sustainable Dairy Group is an example; we have a direct relationship
with our dairy farmers and the industry-leading price we pay for
milk, which we review on a six monthly basis, reflects the actual
cost of production. Through this Group we are also exploring opportunities
for group buying of key inputs to reduce costs and for greener
energy and energy saving initiatives.
3.5.3 Through our Nurture scheme we help
growers reduce their input costs. This includes encouraging farmers
to use manure instead of artificial fertilisers, looking at water
storage and capture and auditing energy use to see how savings
can be made, through for example the routine maintenance of machinery.
4. INNOVATION
4.1 Innovation is a constant feature of
economic life, most notably agriculture if you take a very long
term view. Historic breakthroughs included crop rotation systems
which dispensed with the need for fallow; refrigeration which
allowed imports of meal and dairy products from distant lands;
and the advances in genetics of the last 50 years. As already
explained to the Committee the Internet is a good illustration
of the potential of innovation, sometimes coming from unexpected
directions.
5. THE UK PERSPECTIVE
5.1 We are confident that UK agriculture
can benefit from an approach based upon open competitive markets
which enable comparative advantages to flourish, and which encourage
innovation and productivity growth. But we believe that other
factors will be important in ensuring that these opportunities
are translated into actual benefits, in particular: 5.1.1An
understanding of changing consumer demographics and demand.
5.1.2An increased emphasis on, and investment
in, agricultural R&D.
We address each of these points in more detail
below.
5.2 Changing consumer demographics and demand
5.2.1 Our approach in Tesco is to understand
changing consumer habits and demands, and to communicate these
to our producers and suppliers so that they can adapt and respond
to them. We do in a number of ways, including through individual
relationships, our producer clubs, our dedicated farming website
(www.tescofarming.com)
and TescoLink, which enables suppliers to access data such as
store level sales of their products. This approach ensures that
UK industry can develop to exploit changing markets and secure
competitive advantage as a result. Some current significant trends
include: 5.2.1.1Price and value remain a fundamental factor
in determining food choices, particularly in the current recession.
Sales of our discount and value ranges are up by 65% on the year.
5.2.1.2On a longer-term perspective, consumers
are increasingly health conscious, care about local provenance
and quality, are looking for convenience and want to contribute
towards protecting the environment. It means making healthy choices
more accessible through clear labelling, information and promotions.
5.2.1.3Looking beyond the UK (which could provide
growing markets for UK production), rising incomes eg in Asia
are leading to increased consumption of meat and dairy products.
In the short term this has led to increased demand for grain,
which has in turn impacted on food prices in the UK and elsewhere.
5.2.2 By working with our suppliers and
building long-term relationships with them we can help them grow
and innovate. We have over 1,500 suppliers who have been working
with us for five years or more, and many who have been with us
for decades. An example is family-run Premier Vegetables in Lincolnshire.
They started by supplying 60 trays of cauliflowers a day to our
Corby depot in 1983 and now supply us 2.6 million trays of cauliflowers,
cabbage and spring greens a year, employing more than 200 people
at peak times.
5.3 R&D
5.3.1 Research and investment will have
a fundamental role to play in delivering the sustainable, competitive
and innovative agricultural systems needed to meet the challenge
of food security. We share the NFU's concern that there has been
a substantial cut in publicly funded agricultural science, in
the UK and worldwide, since the 1980s. The lack of public investment
in agricultural R&D undermines productivity and innovation.
5.3.2 Tesco is committed to playing its part
in investment in research and development. For example we sponsor
the Sustainable Consumption Institute at Manchester University,
the Dairy Centre of Excellence at Liverpool University and the
Oxford University Food Animal Initiative.
5.3.3 However a much more focused and co-ordinated
approach to research is needed. It must recognise the interdependencies
of different policy areas and the need for outputs to have practical
relevance and direct applicability for the supply chain. Areas
that would benefit from more R&D include:
5.3.3.1Climate change: reducing the carbon
impacts of food production, distribution and consumption.
5.3.3.2Sustainable resource use: water
management, land use (sustainable agricultural techniques, land
for food versus fuel etc).
5.3.3.3Production methods: improving yields,
production efficiencies, organic versus conventional production,
reducing input costs.
5.3.3.4Disease: cause, cure and prevention
of animal and plant disease.
5.3.3.5New technologies: GM, nanotechnology.
Tesco Plc
March 2009
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