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:

2.2.1. Limitations on the amount of agricultural land, particularly as many parts of the world become more developed and more urban.

2.2.2. The 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.

2.2.3. Other 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particularly set against these constraints - the right route to secure the increases in production required lies in an outdated protectionist approach to food production.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:

2.5.1. A commitment to international sourcing, so that consumers around the world benefit from the widest range of quality products at the best prices.

 

2.5.2. A 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.

 

2.5.3. A 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:

3.2.3.1. The cause and nature of the problem of water scarcity.

3.2.3.2. The possible solutions at a global level, including the role of technology and of water efficient production methods.

3.2.3.3. The scale of this issue for our business.

3.2.3.4. The 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:

3.3.2.1. To 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.

3.3.2.2. To 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%.

3.3.2.3. To 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:

5.1.1. An understanding of changing consumer demographics and demand.

5.1.2. An 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:

5.2.1.1. Price 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.

5.2.1.2. On 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.

5.2.1.3. Looking beyond the UK (which could provide growing markets for UK production), rising incomes e.g. 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 2.6million 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:

5.3.3.1. Climate change: reducing the carbon impacts of food production, distribution and consumption.

5.3.3.2. Sustainable resource use: water management, land use (sustainable agricultural techniques, land for food versus fuel etc).

5.3.3.3. Production methods: improving yields, production efficiencies, organic versus conventional production, reducing input costs.

5.3.3.4. Disease: cause, cure and prevention of animal and plant disease.

5.3.3.5. New technologies: GM, nanotechnology.

 

Tesco Plc

March 2009