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Memorandum submitted by Tesco (DFOB 33)
DAIRY FARMERS OF BRITAIN: SUBMISSION TO EFRA SELECT COMMITTEE, OCTOBER 2009
1. We welcome this opportunity to give evidence to the Committee's inquiry into Dairy Farmers of Britain (DFB). We recognise the importance of the dairy industry not only to British agriculture and farmers but to rural communities across the country and through the Tesco Sustainable Dairy Group are committed to playing our part in ensuring its long-term sustainability. We were therefore disappointed to see DFB go into administration after a positive two year relationship with them.
2. In particular we are pleased to clarify the nature of our relationship with DFB and to make clear that, contrary to the assertion in the receiver's report, at no point did we take a decision to delist Local Choice milk. It is also important to note that Tesco only ever represented 4% of DFB's business.
3. We thought it would be helpful to the Committee to set out the history of our relationship with DFB, from the launch of our Local Choice milk in May 2007 to the receivership of DFB in June this year.
3.1. In 2007 we established direct relationships and contracts with over 1,100 dedicated Tesco Dairy Farmers. As a result of this arrangement we provide farmers with a guaranteed price for their milk which is independently reviewed twice a year. This price has consistently been at the top-end of the market.
3.2. In May of the same year we launched Local Choice milk. Direct contracts were given to Local Choice farmers through DFB, Milk Link and Grahams. These farmers received a premium on top of the farmgate price that our Tesco Sustainable Dairy Group farmers received in recognition of the challenges and additional costs smaller dairy farms can face.
3.3. We initially launched the Local Choice line in 14 regions but this rose to 20 regions by March 2008. In the first year we sold 11 million litres of Local Choice milk. In 2008/9 this grew to 35 million litres. By the beginning of 2009 average sales were one million litres a week. This was supported by promotional activity and profile raising among customers, for example through the Tesco Magazine, in-store promotions, competitions and events involving our Local Choice producers in their local stores. While it was only ever going to be a specialist product, we had hoped to continue to increase Local Choice sales.
3.4. However, in February 2009 DFB closed its sites at Portsmouth and Fole. This meant we lost supply of Local Choice milk from eight Local Choice regions: Dorset, Somerset, Cheshire, East Midlands, South East, Lancashire, West Midlands and the Home Counties. It was this rather than any decision to delist that led us to stop selling Local Choice lines in these regions
3.5. In April 2009, DFB asked us to stop supplying our North and South Wales Local Choice lines and to replace it with their own Cadog brand to help improve their efficiencies. We agreed to this request.
3.6. The receivers were appointed on 3 June. Not having heard, we contacted them on 5 June to establish the situation. We were informed that our Local Choice farmers would not be paid for the month of May and that supply could not be guaranteed. We therefore took the decision to postpone our orders until we could be reassured that the farmers would be paid and that our supply would be guaranteed.
3.7. At this time of uncertainty and distress for DFB farmers, through a concerted effort we took on half of the literage of those farmers who had previously supplied Local Choice milk as seasonal suppliers through the Tesco Sustainable Dairy Group.
3.8. We have unfortunately been unable to replace supply in the majority of the regions we previously offered Local Choice but continue to look for alternatives. The exceptions are Devon, Cornwall and the Isle of Man.
Tesco
October 2009
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