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
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.
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.
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
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.
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. 
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".
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.
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.
83. Nevertheless the NFU told us that
the UK food system must work better to ensure long term resilience.
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."
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.
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.
Nevertheless many people are using food banks.
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.
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."
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."
It said retailers had a responsibility to share risks and profits
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.
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.
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.
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.
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.
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.
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
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
Q11; Nourish Scotland (FSY 0009) para 28 Back
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
NFU (FSY 0029) para 5 Back
BRC, Food price inflation, June2014 Back
NFWI (FSY 0037) para 12 Back
Q3. This issue will be discussed in more detail in our next report. Back
CLA (FSY 0043) para 2.2 Back
CLA (FSY 0043) para 2.4 Back
Defra (FSY 0044) para 36-37 Back
CLA (FSY 0043) para 4.5 Back
Oral evidence taken on 14 June 2011, HC (2010-12) 1199, Q4 [NFU] Back
CLA (FSY 0043) para 2.5; FDF (FSY 0027) para 15; Friends of the
Earth (FSY 0036) para 13 Back
NFWI (FSY 0037) para 17 Back