Food security - Environment, Food and Rural Affairs Committee Contents

5  Supply chain resilience

75. In most cases, unless we purchase our food directly from the farmer, the food we eat has traded hands a number of times before we purchase it, often from a supermarket, or has been processed beyond its original state into other products before final purchase. We have previously published two reports which focused on traceability and labelling in relation to horse meat contamination, so we focus in this chapter on how supply chains can best withstand possible shocks such as trade wars or severe weather.[94]

Length of supply chains

76. Short supply chains involve fewer transactions in the production of any one product. They are most common in primary products including fruit, vegetables and raw meat rather than processed or pre-prepared foods. Where the components of such products are imported volatility in global supply chains means that, for some goods, at some times, access to supplies at an affordable price for all may be constrained.

77. In addition to price concerns, consumers want assurances that food supplies will not run-out. We were told that a diversified food system, with short supply chains creates resilience by making the supply chain less vulnerable to extreme weather events, changes in global markets or the closures or takeovers of large businesses.[95]

78. We were assured that there is ongoing work between Government and industry to prevent or minimise the impact of such events in the UK:

    The final element of resilience is around very short-term resilience in terms of the supply chain. Officials have previously had meetings with some of the retail chains in the UK to ensure that if, for instance, we were to have a serious fuel strike and had fuel lorries going on strike, there would be sufficient resilience to ensure that we got food to the shelves. Work is going on continually at all those levels, and it is something that we are keen to promote.[96]

Andrew Opie told us that the British Retail Consortium (BRC) worked with Defra in their food chain emergency liaison group, to pass information back and forth through the supply chain, with groups like the NFU and the Food and Drink Federation.[97]

79. However, while securing our ports and ensuring good trading relationships are important aspects of food security for which the Government is largely responsible, ensuring good relationships with primary food producers is the responsibility of the food industry as a whole, and that of the supermarket sector in particular.[98]

80. David Croft, Managing Director of Waitrose, the only supermarket to respond to our call for evidence, told us about the model they used in the John Lewis Partnership. He said, they nurtured short supply chains which kept them in close contact with farmers in the UK and abroad. He said:

    for those farmers, the longevity of a working relationship with Waitrose as a customer is something that really makes a difference in terms of access to capital. As a result, we are thinking that that is something that can help stimulate investment from farmers into the sector to build growth, with the confidence that they have a long-term trading relationship with Waitrose. [99]

He said Waitrose was also thinking about "contingencies, building robust producer groups that help us to work closely with farmers and understand their needs and what might be barriers to entry for them into the marketplace".[100]

81. We also discussed whether supermarkets seek to sell seasonal British products where possible or simply seek the lowest price. Waitrose told us it would always take British fresh produce in season:

    At the time of the British apple harvest, we will seek to dominate all of our apple offers with British apples. I think I am right in saying that we offer the greatest variety of British apples during the season. That is a commitment we make to farmers upfront. We are working through our suppliers to balance supply across different farms, throughout the course of the season, to maximise that offer on-shelf. What we will also do is work with those farmers to help manage if there are fluctuations in supply, because of adverse weather, for example. In one case, we have promoted weather damaged apples to make certain that those farmers are still able to provide a retail offer and get the best value for their crop.[101]

He discussed ways of ensuring that a bumper crop did not push prices down too low. Such initiatives were possible, he said, because Waitrose maintained long term relationships and ongoing dialogue with its farmers.

82. Andrew Opie told us that all of the major retailers promoted British plums and apples in season. Given that the UK is part of a single market, it is to be expected that there will be products from other EU member states on our supermarket shelves. Out-of-season, retailers had relationships with farmers in the rest of Europe or beyond to supply UK supermarkets, and this diversity of supply helped to ensure continuity of supply:

    There will be times of the year, for example, when we have adverse weather conditions here, even for root vegetables. We might need to take some more supply from France, or close to the continent, to supplement that. The preference, in season, is growing awareness for UK produce.[102]

83. Nevertheless the NFU told us that the UK food system must work better to ensure long term resilience. It should:

    deliver transparency and traceability through; shorter supply chains, fair distribution of margin, better information sharing across food businesses (from farm to pack) and a joined up approach to managing volatility and risk in order to safe-guard the longer-term resilience of UK food."[103]

The Government told us that its review into the integrity of supply chains, which was due to be published in the spring of this year, would address many of these issues.[104]

84. Shorter supply chains minimise the threat of disruption and therefore help food security. As we said in our Report on Food Contamination, we are concerned about the length of supply chains, particularly for processed and frozen meat products, and we welcome the efforts made by some retailers to shorten these. As a result of horsemeat contamination in 2013 the Government commissioned a review of supply chain resilience. We look forward to the final report on this matter, and to receiving any evidence that supply chains in general are becoming shorter.

The Grocery Code Adjudicator

85. One challenge of supply chain relationships is keeping the price of food at a competitive level, while also ensuring that farming remains an economically viable industry. UK food price inflation has slowed of late: it was 0.8% in March, fell to 0.7% in April and has remained at that level.[105] Nevertheless many people are using food banks.[106] As Professor Benton commented:

    At the moment, with nominally 4 to 5 million people in food poverty in the UK and half a million people or so accessing food banks, food security is already an issue for us in terms of the nutritious side of the diet.[107]

We will explore the use of food banks in our second report which will focus on the demand for food.

86. Professor Benton cautioned against unrealistic expectations. He said, "we want to have locally produced, high welfare, low environmental impact but cheap food available all year round, and we cannot have all of these."[108] The CLA, which represents landowners, wrote that "producers wish to see higher food prices in order to maintain viable margins. For farmers, where input prices have often risen at a rate above inflation, static pricing or even reduced returns, make it harder for farmers to compete."[109] It said retailers had a responsibility to share risks and profits fairly:

    It is incumbent on the retail sector to ensure the relationship between the producer and the retailer is both fair and equitable. To make farming more sustainable, there needs to be an equitable share of risk and profit along the food supply chain, and some form of investment from the larger retailers in the producer's business, to help secure the ability to supply. Whilst it is accepted that a cheap food policy is being pursued by the Government, there has to be a realisation that the increasing costs of producing food will lead to many exiting the industry, which is a threat to food security.[110]

87. When we visited the Cornish Blue Cheese Company we were told that, as a small business, it did not sell to the supermarkets because the margins were too low. It was better to sell the cheese abroad, and in farm shops or delicatessens. The owners also told us about the slow, bureaucratic process of getting approval to expand their successful business.

88. It is important that the farmers who produce the food we eat are paid adequately and fairly for their work. And, as discussed in the previous section, they also need a level of certainly about the price they will receive over time. The creation of the role of the Grocery Code Adjudicator (GCA) is thus a welcome step.

89. The purpose of the Adjudicator is to help ensure that markets operate transparently and price signals are properly transmitted through the supply chain.[111] The Government says that the GCA should also promote "a stronger and more efficient groceries market, bringing better value to consumers through increasing trust between suppliers and retailers by changing their behaviour to follow the Groceries Supply Code of Practice." In principle the GCA should help to ensure a fairer relationship between big retailers and their suppliers and should prevent supermarkets passing on excessive risk and cost to suppliers.[112] We previously considered the draft legislation for the Bill which created the role. The evidence received then recommended that the office of the GCA should have the ability to proactively initiate investigations into malpractice, rather than waiting for a complaint to be made.[113]

90. Written evidence said that the Adjudicator's role must be properly resourced; look at wider issues than price; and alert BIS to any emerging harmful practices.[114] The National Federation of Women's Institutes talked about the importance of ensuring that supermarkets paid a fair price to dairy farmers. They said the "difficulties that UK dairy farmers had following the collapse of the international cream market last year […] demonstrates how farmers are often held at the mercy of food processors.[115]

91. We want to ensure that the role of the Grocery Code Adjudicator works for farmers and buyers, and therefore ultimately the consumer, so that the farming industry remains both sustainable and efficient. If farm incomes are squeezed unduly, farmers are unlikely to make the necessary investments in sustainable production. The creation of the role is welcome and must be properly resourced as part of a wider effort to promote food security.

92. We recognise that assessing "fairness" in relation to producer and consumer prices is fraught with difficulty, not least those of determining whether markets are working efficiently and transparently. However, we fully support the role of the Adjudicator in assessing whether contractual and other commercial practices may be unfair within the supply chain, or prejudicial to farmers and the longer run viability of their businesses, and whether there is evidence of abuse of market power in the supply chain.

93. We request an update on progress made and outcomes achieved to date from the Office of the Grocery Code Adjudicator. We suggest that it would be better if the Office had the power to initiate an investigation rather than waiting for a referral to be made.

94   Environment Food and Rural Affairs Committee, Eighth Report of Session 2012-13, Contamination of Beef Products, HC 946 and Fifth Report of Session 2013-14, Food Contamination, HC141 Back

95   Q11; Nourish Scotland (FSY 0009) para 28 Back

96   Q233 Back

97   Q139 Back

98   Large grocery retailers account for about 85% of the total market, with Asda, Morrisons, Sainsbury's and Tesco accounting for two-thirds of the total, House of Commons Library Standard Note, Supermarkets: the Grocery Code Adjudicator,1 March 2013 Back

99   Q133 Back

100   Q139 Back

101   Q135 Back

102   Q138 Back

103   NFU (FSY 0029) para 5 Back

104   Q265 Back

105   BRC, Food price inflation, June2014 Back

106   NFWI (FSY 0037) para 12 Back

107   Q3. This issue will be discussed in more detail in our next report. Back

108   Q52 Back

109   CLA (FSY 0043) para 2.2 Back

110   CLA (FSY 0043) para 2.4 Back

111   Defra (FSY 0044) para 36-37 Back

112   CLA (FSY 0043) para 4.5 Back

113   Oral evidence taken on 14 June 2011, HC (2010-12) 1199, Q4 [NFU] Back

114   CLA (FSY 0043) para 2.5; FDF (FSY 0027) para 15; Friends of the Earth (FSY 0036) para 13 Back

115   NFWI (FSY 0037) para 17 Back

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