Written evidence submitted by the British
Retail Consortium (BRC)
1.0 INTRODUCTION
1.1 The British Retail Consortium (BRC) is the
trade association of the retail sector and is the authoritative
voice of the industry to policy makers and to the media. The BRC
brings together the whole range of retailers across the UK, from
independents to large multiples and department stores, selling
a wide selection of products through centre of town, out of town,
rural and online stores.
1.2 Our membership includes over 90% by turnover
of the UK's grocery retailers, including the all the major supermarkets.
We are therefore at the forefront of discussions regarding the
future of food policy, the way in which consumers buy and consume
food and the way in which goods are sourced, packaged and sold
in UK stores.
2.0 GENERAL VIEW
ON CAP REFORM
2.1 Although the BRC does not have a detailed
position on CAP reform we are actively involved in the food debate
in the UK and continuing food security. We were involved in the
Cabinet Office paper Food Matters in July 2008 and continue
to work with Defra officials and stakeholders in the supply chain
on the relevant points outlined in this report.
2.2 Our general view, considering the major structural
changes in global food supplies, is that the reform of CAP is
timely but needs to be handled carefully. The overall outlook
for farmers is reasonably positive; the UK farming industry is
recognised as being innovative and the need to farm sustainably,
coupled with increased global demand for meat and dairy products
should be beneficial factors in further developing our efficient
and advanced farming sector.
2.3 Having said that we recognise that any reform
must not prejudice our farming sector, and standards and subsidies
must apply equally through Europe. There are also parts of faming
for whom subsidies are more integral to their business and care
needs to be taken in the transition away from subsidies to a more
market focused sector.
2.4 We also believe changes should not ignore
the investment in research and development necessary to help farmers
meet the challenges of future food production. For example, if
we are to increase production sustainably we need to ensure farmers
have the acquire tools and knowledge to meet the challenge.
3.0 RETAILERS'
SOURCING POLICIES
3.1 Retailers are pragmatists and want long term,
sustainable and reliable supply chains that give consumers what
they want. All these reasons make the UK the first choice for
sourcing and this is demonstrated by the proportion of food that
is sourced here, which is better than other parts of the food
sector and even the Government's own procurement policy.
3.2 In terms of staples, all fresh milk, eggs
and fresh chicken sold in major retailers are from the UK. The
vast proportion of our pork, lamb and beef also comes from the
UK as do indigenous vegetables when in season.
3.3 There will be times when retailers source
from abroad due to seasonality, availability, and price. Even
where we do source abroad, however, the vast majority of imports
come from the EU.
3.4 There is no doubt that price is a key factor
for consumers, particularly in the current economic climate, but
that doesn't have a significant impact on retailers' sourcing
policy. Firstly, many of the underlying price factors are global,
both in terms of the costs to farmers such as feed prices or oil
and the price that the food sector has to pay for commodities
such as dairy products. Secondly, consumers buy on value not price
and issues such as sourcing and quality are key factors. Thirdly,
retailers need long term sustainable supply and chopping and changing
suppliers is not a pragmatic approach, particularly with the pressures
of maintaining food security.
3.5 Retailers recognise that some consumers want
more information about the country of origin of their produce.
Retailers have always endeavoured to do this and as a result were
able to sign up to the country of origin principles developed
with Defra at the end of 2010. The protocol sets out clearly how
meat and dairy products should be labelled and has been welcomed
by supplier groups. To date, only the major retail companies have
committed to the protocol. A copy of these principles is attached
as annex one to this evidence.
4.0 POSITION
OF THE
UK IN GLOBAL
MARKETS AND
NICHE SUPPLIES
4.1 The UK is a relatively small player in the
global food market and this is reflected in the influence countries
such as China and Russia have over commodity prices such as wheat.
Commodities such as wheat, rice, sugar and some dairy products
are globally traded and those prices dictate our prices in the
UK. While retailers have been able to insulate consumers from
some of the worst of the price rises, the BRC food inflation figure
of 4% year on year is primarily due to global forces.
4.2 Global prices can be beneficial for UK farmers,
although we recognise that increased volatility presents a new
set of challenges. For example the large rise in demand for dairy
and meat products at the end of the 2000s had a positive impact
on the price UK farmers received, as have the recent price rises
in cereals.
4.3 Although global prices will always underpin
the UK market, it is true to say our market is one of the most
sophisticated in the world which means there is an opportunity
for home producers and continuing product development. For example,
the rise in interest in provenance has provided good opportunities
for small producers and processors in the UK.
4.4 Our view is there is likely to be continuing
pressure on food prices through 2011 and there is likely to be
more volatility in food prices beyond that.
4.5 Current food inflation figures do not account
for all the increases which we are currently facing which have
not worked their way through the chain to the consumer. On top
of that future prices for key commodities such as cereals, soya
and sugar are high and will need to be factored in. The retail
sector has reacted through an unprecedented level of promotions
to insulate consumers from the worst of the price increases however,
there is further upward pressure.
4.6 In the near future, pressure on food prices
will increase as populations increase and become more affluent,
increasing the demand not only for food but for meat and dairy
products. On top of this more erratic weather will have an impact
on harvests, as we have seen recently in Russia and Australia.
The combined effect of variable harvests, more livestock production,
competition for land from non-food crops and increased population
will present major challenges to sustainable food production to
avoid further increases in food prices.
4.7 The UK food market is extremely sophisticated;
we have well informed consumers who are always looking for new
experiences. This means there is a real interest in niche products
that offer something new and are perceived to be of a better quality.
This is a huge advantage for UK producers who are technically
able and adept at meeting changing demand, some of the factors
key to changing trends in food, such as local sourcing and improved
sustainability also offer opportunities.
5.0 FOOD SECURITY
5.1 Food security has always been a priority
for retailers. As explained previously the need for consistent
supply at the quality demanded by discerning consumers means ensuring
food security is a fundamental requirement for food retailers.
5.2 We believe that whilst there are clearer
pressures on food security in the future from the threats listed
previously, the immediate pressures are in animal feed and world
trade. A large proportion of animal feed is imported from outside
the EU and the current controls on GM and the risk of cross-contamination
are making it increasingly unattractive to countries exporting
into the EU. This needs to be resolved quickly to avoid major
problems for our livestock industry. Secondly, we need free trade
to ensure food stocks are available to the market. We have seen
in recent years an increase in the proportion of stocks held by
countries such as China, combined with steps taken by countries
to limit their exports, has meant less grain available to trade.
5.3 In the longer term, there are global issues
which need to be resolved that have been detailed recently in
the Foresight report to increase production sustainably. This
will be a major challenge.
5.4 UK retailers recognise that closer links
with groups of suppliers has many benefits, not least in food
security. Much of this is achieved through long standing relationships
but increasingly they are setting up dedicated supply chains.
Dedicated supply chains ensure consistent supply and also allow
the retailer to work closer with the suppliers to deliver advances
on sustainability, animal welfare and the environment. A number
of these are already operating in liquid milk and proving extremely
successful, for the farmer who receives better returns for his
milk, the retailer who has closer control of his supply chain
and the consumer who receives quality milk produced to the standards
important to them.
6.0 FUNCTIONING
OF THE
SUPPLY CHAIN
6.1 The BRC is following the current discussions
in Europe closely, not least as they are following on from those
in the UK, particularly the Competition Commission's inquiry into
the groceries market.
6.2 It is worth restating that retailers do not
usually have a contractual relationship with farmers. Farmers
would normally supply a processor or manufacturer who would then
supply the retailer.
6.3 In terms of its current work we feel it is
important to recognise the steps already taken in the UK ahead
of Europe. We already have a supplier code (GSCOP) that covers
the 10 biggest retailers and sets minimum standards, enforceable
if necessary through independent arbitration, for their dealings
with their suppliers. We believe GSCOP has answered the questions
that were raised by the Competition Commission and provides the
correct balance between protecting the position of suppliers without
compromising negotiations that benefit consumers.
6.4 We also feel the discussions in Europe have
not appreciated the progressive approach UK retailers have taken
in their dealings with suppliers, and in particular the dedicated
supply chains. We have produced a paper that demonstrates this
and have attached it to this paper as Annex Two.
27 January 2011
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