Memorandum submitted by Morrisons (SFS 38)

 

 

 

Executive Summary

 

· Morrisons' business model is different from many other supermarket retailers. We source most of our meat and produce direct from farms and prepare and process it ourselves. This supply chain gives us an unrivalled opportunity to provide customers with fresh quality food at affordable prices.

· Morrisons' vision for the future of British farming is a highly productive and efficient supply chain developed within a framework that ensures good science-based ethical and environmental standards delivering competitive products that are affordable.

Recommendations:

 

· Morrisons recommends that an additional strategic policy objective should be added to the Government's vision as set out in "Food Matters: Towards a Strategy for the 21^st century", namely the securing of "a re-structured British farming base focused on driving productivity and efficiency".

· Morrisons recommends that DEFRA ensures that new regulations taking forward the Health Check of the CAP do not unduly focus on schemes to protect the natural environment, but are targeted at schemes that drive farm and supply chain productivity and efficiency without damaging the environment. This does not mean a re-introduction of production coupled payments to support specific farming sectors, but does mean that targeted funding is available to facilitate structural change to British farming focused on long term viability and profitability.

 

· Morrisons recommends that the Government is consistent in its implementation of animal welfare and food safety standards and does not 'gold plate' the already strong welfare legislation coming from the EU. The Government should also adopt a better risk-led approach to safety regimes, targeting the likely hotspots of potential danger.

· Morrisons recommends that DEFRA champions within government the establishment of financial instruments, e.g. a futures market, particularly within the red meats sector, that can help retailers, processors and farmers manage price volatility and provide more security within the supply chains to help reduce shrinkage in the British farm base.

1. Introduction

 

1.1 Morrisons welcomes the opportunity, as a retailer and food manufacturer, to respond to the EFRA Committee's inquiry 'Securing food supplies up to 2050: the challenges for the UK.' This response summarises some of Morrisons' practices to help ensure the security of food, including our commitment to British farming and a sustainable supply chain.

1.2 The response also sets out key issues for the Government and wider public policy to ensure the long-term viability of food production in the UK.

 

2. Morrisons - helping secure the long-term viability of British farming[1]

 

2.1 Morrisons' vision is to be the "Food Specialist for Everyone". Our business model is different from many other supermarket retailers. We source most of our meat and produce direct from farms and prepare and process it ourselves. This supply chain gives us an unrivalled opportunity to provide customers with fresh quality food at affordable prices. As we are closer to source, it also gives us first-hand understanding of the issues faced by farmers in the supply chain and drives our commitment to help secure the long-term viability of British farming.

2.2 Morrisons is the only major retailer to sell 100% fresh British beef, pork and lamb. Our buyers visit farms to source animals directly of the highest quality. Livestock is transported to Morrisons' owned abattoirs. From there the fresh meat is supplied direct to stores in large cuts ready for our trained butchers to prepare it to our customers' requirements. We make use of the whole carcase by sending the meat that is not cut in-store to Farmers Boy, our food manufacturing facility, where it is used in products such as pies and sausage rolls. By maximising the utilisation of the carcase we are able to give a fair price to the farmer.

2.3 Similarly we operate 'whole crop purchasing' from the fields of arable farmers so that they are not left trying to offload some of their crop not taken by other retailers. We believe this offers farmers a fairer deal. We wash, grade and pack the produce ourselves. This allows us to price individual products so, for example, with broccoli we can sell sizes that are often rejected by other retailers.

2.4 Our commitment to help secure the long-term viability of British farming has led us to establish a series of producer groups. These are developing programmes to help drive the efficiency and effectiveness of the supply chain, including the application of on-farm research. These programmes will be rolled out in 2009 to help strengthen our supply chain with British farmers.

 

3. Response to inquiry questions

 

How robust is the current UK food system? What are its main strengths and weaknesses?

 

3.1 The current UK food system operates on free market principles. However, it is an unbalanced market. The UK operates its own national market. It also operates within the European Union. Together, the UK and EU operate in the global market, having to work within trade barriers.

3.2 The robustness of the UK's food system is dependent on the direct and unintended consequences of interventions at all three levels of this unbalanced market. For example, the European Union legislates for animal welfare standards. These are widely held to be the best in the world. When implemented in the UK, the Government often seeks to ensure that they are implemented to the highest standard and advocates further improvements.[2] However, animals entering the UK from outside the EU are not necessarily subject to any of these additional welfare standards. This unbalanced market is a major constraint to competitive food production.

3.3 Perhaps the most fundamental intervention into the market that affects the robustness of the UK food system is the Common Agricultural Policy (CAP) and its reform. The progression from direct payments to the single farm payment and now the shift towards environment and rural development schemes will have the single most dramatic effect on the future of British farming. The withdrawal of single farm payments will help create a freer market, but the long-term viability of British farming is threatened if the focus of grant assistance is not on the efficiency and profitability of the industry. Many farmers will struggle to adapt to the dismantling of the CAP over the next decade, given its development over the past fifty years. Put crudely, the UK may be able to sustain the environmental heritage of our farming landscape, but may struggle to provide livestock and crops for its food system.

3.4 There are strengths in the UK food system, notably the suitability of our natural resources, e.g. temperate climate, and the quality of animals and crops that can be produced. But there are also weaknesses. Many of them are structural. Our farming base is fragmented, with too many holdings that operate on an insufficient scale. This makes for a long, and often convoluted, supply chain, which inherently means that British farming has a higher cost structure.

3.5 For a retailer like Morrisons that is committed to supporting British farming and only selling British fresh beef, lamb and pork this could impose long-term constraints on our business. With a declining farm supply base, customers wishing to purchase fresh British meat may find it increasingly uncompetitive in price compared to imported product. (Note: the current weakness of Sterling against the Euro means that British product is at this time competitive on price, but this makes it even more suitable for export thus further constraining supply for our domestic market).

3.6 A further weakness likely to affect the robustness of the UK food system is the risk associated with the rising average age of British farmers. The Government may wish to consider whether individual financial incentives may be necessary to encourage the next generation of farmers.

Recommendation: Morrisons recommends that an additional strategic policy objective should be added to the Government's vision as set out in "Food Matters: Towards a Strategy for the 21^st century", namely the securing of "a re-structured British farming base focused on driving productivity and efficiency".

How well placed is the UK to make the most of its opportunities in responding to the challenge of increasing global food production by 50% by 2030 and doubling it by 2050, while ensuring that such production is sustainable?

 

3.7 Land in the UK, however fertile, is finite and will inherently play a limited role in increasing global food production. Nevertheless, the high quality of livestock and crops produced in the UK means there is opportunity to meet the growing demands of our domestic, as well as the international, market.

3.8 If we are to seize these opportunities, farmers in the UK should be encouraged to make further improvements in productivity or profitability. Environmental stewardship grants may currently serve as disincentives to farmers to focus on the measures needed to dramatically increase efficiency, yield and profitability of livestock and crops if we are to meet the demands of rising population. For example, our fragmented pig industry struggles to compete with large scale farms in Denmark capable of handling tens of thousands of pigs a week through an integrated supply system. The challenge for British pig farmers is how to sustain high welfare standards at a larger scale that brings productivity benefits.

3.9 Morrisons' vision for the future of British farming is a highly productive and efficient supply chain developed within a framework that ensures good science-based ethical and environmental standards delivering competitive products that are affordable. This does not mean more intensive farming for the sake of it. It does mean driving out current inefficiencies in the supply chain where possible. For example, in the beef herd a head of cattle may move 4 times from being bred to being slaughtered. If this movement can be reduced, it may not only help improve welfare but also drive cost efficiency enabling British livestock to remain competitive.

3.10 Morrisons' commitment to 100% British fresh meat shows that it is possible to focus on encouraging British production. However, action is needed to ensure fairer competition for farmers, making it easier for them to produce high quality food at competitive prices in the UK.

Recommendation: Morrisons recommends that DEFRA ensures that new regulations taking forward the Health Check of the CAP do not unduly focus on schemes to protect the natural environment, but are targeted at schemes that drive farm and supply chain productivity and efficiency without damaging the environment. This does not mean a re-introduction of production coupled payments to support specific farming sectors, but does mean that targeted funding is available to facilitate structural change to British farming focused on long term viability and profitability.

 

 

In particular, what are the challenges the UK faces in relation to the following aspects of the supply side of the food system:

- soil quality
- water availability
- the marine environment
- the science base
- the provision of training
- trade barriers
- the way in which land is farmed and managed

 

3.11 The fundamentals of much of the British supply side of the food system are reasonably strong: diverse and rich soil quality complemented by good rainfall and reasonable water management. The science base is present, if under-invested, and world leading training exists for the relatively small cohort of future farmers.

3.12 As discussed in paragraphs 3.1 to 3.3 above there are trade barriers that unbalance the market and hinder the potential competitiveness of British farming, not least by focusing too much attention on preservation of the environment ahead of farming practices. More significantly the fragmented way in which land is farmed and managed, is hindering the opportunity to increase production significantly.

3.13 Enabling larger farms and driving productivity gains across the industry will strengthen the supply side of the food system, and enable better sustainable development. Morrisons is seeking to play its part by improving our own supply chain and investing in on-farm applied research.

 

What trends are likely to emerge on the demand side of the food system in the UK, in terms of consumer taste and habits, and what will be their main effect? What use could be made of local food networks?

 

3.14 The key demand side trend is value, expressed as a combination of quality and price. British consumers are increasingly looking for value. They are unwilling to compromise on the quality of the fresh food that they buy, and they are very price conscious. Provenance matters, but there are signs in the market that they are not prepared to pay regularly a premium for local products. For example, that is why Morrisons has introduced a regional focus to our standard milk, rather than differentiating it as a separate premium product.

3.15 British farming produces excellent high quality products. The challenge on the demand side is to ensure that they are affordable for British consumers and not just for the premium export market. Morrisons' vertically integrated supply chain for livestock enables us to pay farmers a fair market price and provide our customers with great quality fresh meat at market leading prices. In the future this may become harder, for example if animal welfare and safety standards become more stringent or are unevenly enforced.

3.16 While a viable UK farming industry needs appropriate standards to inspire consumer confidence in the quality and safety of its produce there is a case for a better balance between consumer safety and over-regulation.  A well-balanced regulatory system would see consistency of approach across the chain, ensuring that scientifically-based standards apply to animal feed as well as to the welfare of the animals when they are being reared and finished, and to the standards in the abattoir and final processing.

3.17 At present there is a disproportionate focus on safety in the fresh meat part of the chain. Large scale providers with a consistent throughput of similarly graded animals are regulated to the same degree by the Meat Hygiene Service as smaller abattoirs with a mixed range of stock and carcase specification. Moreover, with final processing cooked meats receive far less attention than fresh meat despite having a potentially higher safety risk as they will not be cooked again before consumption.

3.18 Affordability may also become harder, if local food networks are unduly promoted as a panacea for the UK food system. Morrisons has been trialing a local food range in Yorkshire. Sales are good for chilled ambient products, but they inevitably retail at a less competitive price because of the differences in the supply chain - both the cost of production and its distribution. In comparison to our national supply chain, local food networks cannot deliver the combination of good quality and affordable price that the majority of our customers expect and demand. For example, when it comes to fresh red meat, our customers are delighted by the high quality associated with its British provenance and are willing to pay prices that are very competitive against other food retailers. Local food networks for fresh meat are unlikely to be able to compete with imported products.

Recommendation: Morrisons recommends that the Government is consistent in its implementation of animal welfare and food safety standards and does not 'gold plate' the already strong welfare legislation coming from the EU. The Government should also adopt a better risk-led approach to safety regimes, targeting the likely hotspots of potential danger. The Meat Hygiene Service could introduce self-regulation to top tier processors.  

What role should Defra play both in ensuring that the strengths of the UK food system are maintained and in addressing the weaknesses that have been identified? What leadership and assistance should Defra provide to the food industry?

 

3.19 As discussed above, the priority for DEFRA should be to focus on driving higher productivity from the British farm supply base without compromising environmental protection. At present, from a food manufacturing and retailing perspective the emphasis is much stronger on environmental protection with less effort devoted to ensure structural reform of British farming to ensure its long-term viability in producing high quality livestock and crops.

3.20 Two measures that DEFRA could champion to help drive long term viability of farming are the introduction of a futures market and better supply chain finance.

3.21 With prices becoming more volatile for British products, particularly red meat, a clear system for forward pricing could enable farmers and others in the supply chain to plan more confidently for the future. This could also enable further structural change. DEFRA could lead work with the Agriculture and Horticulture Development Board to develop the financial tools that would enable a futures market to be established.

3.22 DEFRA could also lead work with H.M. Treasury and BERR to ensure that farmers are able to access finance for their businesses. For example, herds are getting smaller partly because farmers increasingly cannot get a mortgage on their stock. They require funding up front to buy and rear their stock before they can hope to make a return but securing finance is becoming harder. New instruments that are able to include the stock as security, not just land and other capital holdings, could ease a constraint that is undermining the fundamental structure of British farming.

3.23 Labelling is another important issue that DEFRA is rightly championing. Morrisons welcomes DEFRA's new drive to ensure greater clarity on the country of origin labelling for food. This could also be extended to improving the requirements and sensible enforcement of traceability when unforeseen events arise.

3.24 Finally, where synergies between retailers could help to increase efficiencies and the volume of UK produce, e.g. the creation of regional hubs for small producers, the Government would need to support this explicitly and drive its implementation as retailers would be unable to collaborate on such a project under current competition laws.

 

Recommendation: Morrisons recommends that DEFRA champions within government the establishment of a futures market and better supply chain finance to help reduce shrinkage in the British farm supply base. DEFRA should also continue to strive for greater clarity on country of origin labelling.

How well does Defra engage with other relevant departments across Government, and with European and international bodies, on food policy and the regulatory framework for the food supply chain? Is there a coherent cross-Government food strategy?

 

3.25 Morrisons would like to see DEFRA be the champion of the farming and food production industry. DEFRA needs to remain focused on taking an holistic approach to policy that works across the whole food production chain. The foundation for the cross-Government food strategy should be increasing the sustainability of British farming by integrating environmental, animal, safety and social needs with supply chain development, efficiency and improving final product value.

 

What criteria should Defra use to monitor how well the UK is doing in responding to the challenge of doubling global food production by 2050 while ensuring that such production is sustainable?

 

3.26 In addition to criteria that measure welfare, safety and environmental performance, Morrisons holds the view that increasing the productivity and efficiency of the British farming supply chain should also be a key performance indicator.

 

 

January 2009

 

 

---

[1] Morrisons: Top 5 food producer in the UK: 3 abattoirs, 7 packhouses and food production sites, 3 bakeries. Only major retailer to sell 100% fresh British beef, pork and lamb. 380 stores; 117,000 employees; 10 million customers / week

 

[2] e.g. Government's Initial Response to the Farm Animal Welfare Council report on the welfare implications of farm assurance schemes (2006).