Memorandum submitted by Waitrose (Pigs
05)
1. EXECUTIVE
SUMMARY
Waitrose recognises that the English pig industry
is in decline and is aware of the issues that have contributed
to the situation, including:
— increases in other costs;
— the plethora of legislation;
— environment and welfare; and
— a weak marketplace for the farmer.
The Waitrose supply chain has continued to grow
and develop, consisting of Waitrose, BQP and Dalehead Foods and
is widely recognised as the best practice in the sector. This
supply chain is founded on seven important elements:
(i) Delivering on consumer preferences.
(ii) A retailer who is committed to a supply
base of producers.
(iii) Genuine focus on carcase utilization.
(iv) Committed processors with a stable pig supply.
(v) Committed producers who have a clear message
on production standards and volumes required.
(vi) Good communication throughout the chain.
(vii) Structured farmer groups.
Waitrose has invested significantly in the long-term
support and growth of the pig industry, and has made substantial
progress in assisting the pig industry.
2. WAITROSE—BACKGROUND
2.1 Waitrose, the food shops of the John
Lewis Partnership, has 192 supermarkets in England, Scotland and
Wales, and combines the convenience of a supermarket with the
expertise of a specialist shop. As a co-owned Partnership, everyone
who works for Waitrose owns the business.
2.2 We also extend a notion of partnership
to our suppliers. At the heart of our supply chain are our producer
groups that we operate across our livestock, milk, farmed fish,
fruit and vegetable categories.
2.3 These groups offer farmers a forum where
they can share best practice and set mutual business objectives.
At present we operate more than 30 distinct groups for livestock
alone, from Angus beef to Select Farm chickens.
2.4 The groups give farmers an assured market
and a clear direction and in return offer us quality, reliable
supply and total traceability.
2.5 This submission consists of a description
of the unique and highly successful Waitrose pig industry supply
chain, followed by responses to the Committee's questions.
3. WAITROSE'S
RELATIONSHIP WITH
THE PIG
INDUSTRY SUPPLY
CHAIN
3.1 It is clear there are significant issues
within the English pig industry which have resulted in a continuing
decline in the sector. Causes of this decline include high feed
prices, increases in other costs, the plethora of legislation,
including both environment and welfare, and a weak marketplace
for the farmer.
3.2 However, within the industry there are
examples where a financially sustainable system is working. One
of these is the Waitrose supply chain and its association with
Dalehead Foods, BQP and other independent farmers. During the
time the industry has decreased in size this supply chain has
continued to grow and develop. The Waitrose supply chain, widely
recognised as the "best practice" in the sector, comprises
BQP coordinating the pig farmer supply base, Dalehead Foods processing
the wide range of pigmeat based products and Waitrose as the retailer
marketing and selling the final products.
3.3 This supply chain is founded on seven
important elements.
(i) Delivering on consumer preferences.
The Waitrose understanding of its customers' needs and preferences
means that the supply chain has been developed to consistently
deliver the best possible taste and eating quality in all the
pork products we sell. It does this in a number of ways, including
by ensuring high husbandry and welfare standards through to the
use of bespoke genetic breeding programs.
(ii) A retailer who is committed to a supply
base of producers. This is manifested in:
— a long term view on requirements;
— clear definitions of production standards
for specific lines at retail level;
— sustainable prices for the farmers
involved; and
— sustainable prices for the processor
involved in both directions.
(iii) Genuine Focus on carcase utilisation.
Our own label producers of pork products and other "pork
users" throughout Waitrose work closely together to ensure
a much high level of carcase utilisation than if the premium pig
produced was only used for just fresh pork, sausage, bacon and
ham. In doing so, we use as much of the premium British pig as
possible. However to achieve this has taken literally decades
of work. It is easy to identify as an issue, but less easy to
resolve quickly.
(iv) Committed processors with a stable pig
supply and the confidence to invest into new processing facilities
to add value or lower cost, making a virtuous circle of financial
sustainability.
(v) Committed producers who have a clear message
on production standards and volumes required. The pricing
is based on a number of factors including cost of production,
and this has helped to make the agricultural element of the supply
chain more sustainable, particularly during the recent high feed
prices. This approach allows for effective and positive long term
business planning. Waitrose has ambitious plans for growth and
as such, it is important that our suppliers and farmer partners
are focused on delivering long term, stable and sustainable production.
In respect of pigmeat products, the Waitrose pig supply chain
achieves precisely that.
(vi) Good communication exists through the
chain with genuine feedback both ways from the retailer through
the processor to the farmer. This is fundamental to the success
of the supply chain. Waitrose has also invested in significant
training for our counter staff selling pork products, ensuring
that positive agricultural, quality and animal welfare messages
can be communicated to consumers. In addition, our communication
extends to clear labeling on specifically defined production standards.
(vii) Within the Waitrose Supply Chain there
are structured farmer groups that meet regularly to discuss
and advise on best practice and communication both up and down
the chain. These groups are an essential part of obtaining the
farmer's commitment to improving the supply chain.
3.4 Issues do still arise at certain times,
but the success of the sustainable supply chain is that it is
based around our ability to recognise and resolve issues, without
there being a cost to a particular part of the chain. By this
process, trust is built up and the chain becomes stronger.
3.5 This is a brief summary of a complex
supply chain which is underpinned by a transparent and mutually
beneficial relationship in which each party is respected and rewarded.
Others often seek to replicate parts of this chain for short periods
of time hoping to end up with a similar result, but without the
genuine long term commitment from the retailer it cannot be reproduced.
4. RESPONSES
TO THE
SELECT COMMITTEE'S
QUESTIONS
1. What is wrong with the Pig industry in
England? Are present problems more than just a cyclical imbalance
between supply and demand?
— The English industry is in the main
structured in a fragmented manner and is generally adversarial
between producers, processors, retailers and manufacturers. Few
examples exist of integrated supply chains (either partial or
completely) where all the parties work together and add value
for the benefit of all in the supply chain, thereby driving sales
of English pigmeat where profitability is respected and delivered
for all the parties involved.
— The English industry operates at
a higher welfare standard than the rest of the EU. This follows
a decision 10 years ago by the UK government to unilaterally ban
the use of stalls and tethers ahead of the rest of the EU. This
has placed the UK at a cost disadvantage with the need to recover
this cost from its customers. In some cases, a significant part
of the carcase will be sold on promotion, without actually obtaining
its maximum value. The efficient utilisation of the carcase, delivering
carcase balance, is essential for sustaining the supply chain.
— As a result of lack of investment
due to volatile prices being received in the UK, output of English
breeding herds has lagged behind other major EU producers. Some
of this lack of investment has also been created by the loss of
export markets caused by:
— Classical Swine Fever (CSF); and
— Foot and Mouth Disease (FMD) outbreak.
In addition the impact of PDNS and
PMWS, diseases which entered the UK in 1999, amplified by the
effects of CSF and FMD, has further reduced the efficiency of
the English breeding herd.
— The industry has suffered as a result
of the exchange rate being of advantage for imported supplies
of pigmeat products. Much of this has been removed in recent times
as a result of the weakening of the GBP to the Euro, where the
English pig producers are now more competitive for exports and
imports are more expensive.
— The present problems of profitability
have been compounded by the significant increase in raw material
prices over the last 18 months, which have increased the cost
of production by circa 40%. Some retailers, against the
background of plentiful supply of pigmeat in the EU, have not
always been prepared to increase prices paid to producers, allowing
them to recover some of these price rises during this period.
This has resulted in losses of a magnitude hither to not seen
in the English pig industry, and a subsequent reduction in the
UK pig herd. If this continues, more producers are likely to exit
the industry as their business cannot take the variability of
profit/loss.
— A key way to avoid the challenges
of volatile raw material prices in the future is to better educate
producers on the use of various tools available to manage and
reduce their risks. Examples include the forward buying of raw
materials, the use of options, and the use of alternative sources
of protein, other than imported soya.
2. Are domestic pig welfare standards a principal
reason that English producers have problems competing with those
outside the UK?
— English production standards are
at higher levels than the majority in the EU, resulting in higher
costs of production. In addition smaller processing factories
than some other EU countries add to the cost base. In the UK,
processing throughput has declined in the last ten years, while
throughput elsewhere in Europe has increased.
— The English pig industry is unique
in that circa 35% of breeding herds operate out of doors as compared
to minor percentages on other EU countries. This produces significant
welfare benefits to the sows but as result produces fewer pigs
per annum than intensively kept sows, and thus higher costs of
production.
— Some non-EU countries would, in some
cases, be using raw feed materials not allowed in the UK, for
example, GM based products and meat and bone meal. While this
offers a point of difference to English pig producers there is
an additional cost that, unless reflected in the price paid to
producers, will reduce their profitability.
— The clear labeling of English pigmeat
products to highlight the differences in welfare standards is
currently insufficient. There is also a need for a consistent
approach on country of origin labelling. A related issue is the
proliferation of on-pack labels which, alongside those of the
retailer brand, can also confuse the consumer about the point
of difference between products.
3. What could supermarkets and the hospitality
industry do to alleviate the pressure on the domestic pig industry?
— Supermarkets could help by communicating
more effectively the points of difference of English production.
Consumers are then more aware why English products may cost more
than imported products. BPEX has an important role to play in
encouraging and supporting retailers in this regard.
— Carcase balance is a key issue, especially
where pigs are produced to higher standards/costs. The use of
lower value cuts, such as shoulder, could be encouraged, especially
in the hospitality/cost sector thereby also increasing the overall
carcase value. It is essential that English pigmeat is used across
as wide a product range as possible including in pies, ready meals
and pizza toppings.
— In-store promotional activity should
be more focused on eliminating carcase balance challenges (e.g.
offer on shoulder cuts) rather than stimulating the demand for
higher value cuts already in short supply (e.g. loins), which
may then use imported product to meet sales demand.
— The catering sector has in recent
times used pork more widely (for example, belly of pork and specialty
sausages). Pork price and quality competitiveness as compared
to beef and lamb could be communicated more widely to increase
demand in a sector where pork has historically struggled.
— Contracts should be developed which
encourage more stable pricing for all in the supply chain, allowing
for longer term investments. This will reduce the adversarial
aspects between the parties in the supply chain where price is
often the only issue discussed.
4. Can the government do more to support the
industry either directly or through its public procurement policies?
— Increased welfare and environmental
standards in the UK have led to increases in the cost of production,
as compared with other European countries where standards lag
behind. This has reduced the UK industry's competitiveness and
it has, overall, not proved possible to price UK products, produced
to higher standards, at a premium over imported pigmeat. BPEX
(the pig industry sector of the Agricultural and Horticultural
Development Board) has a leading role in successfully differentiating
UK products from non-UK products. This is not intended as a criticism
of the UK's higher welfare standards. Rather, it is important
to recognise the effect on competitiveness given the variability
in such standards across Europe. The government should ensure
the English pig industry does not ever again burden itself with
higher welfare or environmental standards than the rest of the
EU. Where new initiatives/standards are put in place across the
EU, the government can assist by ensuring these do not add further
unnecessary costs in the future.
— Given the significant damage caused
by the outbreak of FMD, the Government could assist confidence
levels in the industry by increasing disease monitoring.
— BPEX should invest in the development
of mature supply chains, enabling them to grow and improve. Over
the last five years, the need for a central organisation to undertake
promotional activity has declined. Instead, individual retailers
have engaged in promotional activity according to their own business
planning cycles.
— Pigmeat is a lean, safe and nutritious
food. The industry produces a wide portfolio of products to suit
a variety of meal occasions and disposable incomes. In current
economic conditions this should represent an opportunity for the
industry. Government procurement policy should reflect these factors,
and pigmeat should be a food of choice across the public estate.
September 2008
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