Supplementary written evidence submitted
by the British Retail Consortium (BRC)
Thank you for your letter dated 15 February and please
find my response to the questions raised in it.
1. Is it a problem for retailers if EU farmers
go out of business
Before answering this in detail I would like to clarify
that it is inevitable that some EU farmers will go out of business
in the future as part of further consolidation in the sector.
That in itself is not a problem if it improves efficiency, output
and management of farms as was raised by other contributors to
the inquiry. My response, therefore, assume the question is asking
whether a major reduction in available food produced in the EU
would pose a problem for retailers.
UK retailers source the majority of their food from
this country with the bulk of imported food coming from EU countries.
A reduction in available food from the EU would pose significant
problems for retailers.
Firstly, retailers need secure, reliable supply chains
where they can work closely with their suppliers to supply food
produced to their customers' requirements. We are fortunate in
this country to have a highly skilled, efficient farming sector
who can meet the demands of the UK consumers. Production here
and in the EU is easy to manage in terms of audits to control
safety and quality.
Secondly there are sound financial reasons for sourcing
food from the UK and EU. Our climate is well suited to the production
of basic commodities which should be able to compete in terms
of global pricing, particularly when transport costs are taken
into account. Having secure supply chains also avoids the problems
of competing to source commodities on the global markets which
due to fluctuations in production and trade could lead to increased
price volatility for consumers.
Thirdly, sourcing from the UK and EU has advantages
in terms of the environmental impact of food production. This
will be an increasingly important consideration for consumers
and could be reflected in the price of food if it accounted for
more of the external costs of environmental impact.
Finally, there is a continuing and growing interest
in the origin of food amongst consumers. This is driving demand
for more locally produced food. A trend that is likely to continue
as awareness of sustainable food production increases.
For all these reasons it makes practical and commercial
sense for retailers to source the vast majority of their food
from the EU, with the bulk of it from the UK. Anything that forced
a change in sourcing policy would affect food security and price.
2. If the income support provided by the CAP
were to be removed, what steps would you anticipate retailers
might take to ensure their security of supply?
Securing food supply is something retailers are always
working on for all the pragmatic reasons listed above and a key
part of that is working with UK farmers. The removal of income
support will not in itself make any difference to that work.
The key issue for retailers is ensuring farmers receive
an adequate price for their produce that allows them to reinvest
in their business for a sustainable future. They work closely
with their supply chains and have a good knowledge of farming
costs and will factor that in to their decisions on price. Retailers
will pay the necessary market price to secure food to meet their
consumers' demand. We know, for example, that many consumers are
interested in UK produce and the retailer will ensure they secure
sufficient supply to meet that demand. The UK food retail sector
is extremely competitive and all retailers know if they do not
meet the expectations of demanding customers they will take their
business to one of their competitors.
There are already agriculture sectors that operate
without income support, such as fruit and vegetables, and retailers
have worked with their producers to secure supply. Potatoes and
soft fruit are good examples of how sectors have moved from an
interventionist to a market based approach without damaging UK
production. The market is key and buyers know if they want secure
supply they have to pay the appropriate price. This will put farmers
in a strong position in the future as global food production struggles
to keep up with increases in population and demand for meat and
dairy products.
A good example of how retailers are working with
groups of farmers to ensure secure supplies in an uncertain and
challenging market is their support for dedicated supply chains,
the most prominent in dairy. Retailers working with processors
have secured the volume of milk they need for their business with
groups of UK farmers paying them a premium price to ensure their
long term production. Retailers have taken this step to secure
the necessary supply of UK milk for their customers. Of course
this will not help all dairy farmers as retailers only require
a portion of the milk produced in the UK. Other parts of the food
sector, such as catering, manufacturing and government procurement
appear less concerned in securing long term UK supplies but retailers
are confident their investment is appropriate to meet their customers'
needs.
1 March 2011
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