Examination of Witnesses (Questions 849
- 859)
WEDNESDAY 12 DECEMBER 2007
Ms Heather Jenkins and Mr Duncan Sinclair
Q849 Chairman:
Hello and thank you very much for coming along and helping us
with our inquiry. We are having a look at CAP reform and the future
of the Common Agricultural Policy. Let us just say a few things
to begin with. Firstly, we are webcast so there is a possibility
that somewhere someone may be listening. We have never actually
found out whether anybody is; we have our doubts! Secondly, this
is a formal evidence session and so a note will be taken and you
will get the transcript and be able to have a look and correct
any errors that have crept in. As I say, thank you very much for
coming. The only slight difficulty is that I come from the north
of Scotland and the name Waitrose means nothing to me unfortunately!
What would you like to do? Would you like to start and make a
brief opening statement and then go on to questions and answers,
would that be suitable to you?
Ms Jenkins: Yes, that will be fine.
Q850 Chairman:
Away you go.
Ms Jenkins: I am Heather Jenkins and I am the
Head of Buying for meat, poultry, fish, dairy, frozen products
at Waitrose. We are the food shops of the John Lewis Partnership;
we are employee-owned; and our shares are held in a trust and
therefore we are not answerable to the City. In terms of the discussions
today and CAP reform, we have taken a long-term approach to our
supply arrangements many of which have been in situ for 15 years
or more. We have an established producer group structure representing
in excess of 30 livestock schemes. The principles are based on
cost reduction, continuous improvement and reward for quality
and consistency. We also have a communication structure in place
to motivate those livestock schemes and provide clear understanding
of the role of each sector and how it makes up the supply chain.
Lastly we take a practical approach to running our schemes, supporting
farmers, but we also take a stick and carrot approach to achieve
the performance and the focus that we need to serve our customers.
Q851 Chairman:
Okay fine, and your colleague, Duncan Sinclair, who are you?
Mr Sinclair: I am the Agricultural Manager at
Waitrose so I manage the 30-odd livestock schemes right across
the piece, from the meat side to fish and dairy. Approximately
we have 2,500 farmers supplying us feeding their product into
the various supply chains.
Q852 Chairman:
I wonder if I could kick off with an opening general question.
Being the House of Lords, in order to look forward we always look
back. The European Commission initiated a "health check"
with the intention really of building on the 2003 reforms. Did
you notice any impact from what happened in 2003? Has it had any
impact on your company's operations? Then I suppose looking forward,
what do you see are the long-term objectives of the Common Agricultural
Policy and did 2003 head in the right direction?
Ms Jenkins: There has been significant impact,
and given the background the producers involved in our schemes
had a headstart in understanding more about getting returns from
the market-place. As a result of the 2005 deadline, we upped the
focus on what that actually meant, so what decoupling actually
meant from a market position. That included instigating benchmarking
and sharing best practice and trying to create awareness, first
of all, of the realities of getting a return from the market-place
and the realities of getting farmers to focus on performance.
I guess from a retailer perspective it would be very easy for
us to be seen as dictating to farmers, but I think that as a result
of our work we do not have any contracts, it is all based on trust,
sharing best practice and information and dealing with difficult
issues as well as celebrating the successes. Fundamentally, what
we were trying to do was to interpret what the CAP policy meant,
and from our perspective it was absolutely right that there was
no subsidy on production because what that was doing was focusing
on volume and not the cost of getting there nor indeed the consistency
of the quality. Those have been some of the impacts and they continue
because there is different understanding in different sectors
of what the best way forward is. One of the things that we have
been able to do (because we do have a joined-up approach) is to
show farmers what happens at the processing stage and what happens
at the retail stage. Once they leave the farm gate many people
think that retailers have a propensity to take advantage with
little understanding of what happens to an animal once it has
left the farm gate, so we have undertaken to take them through
the processing stages in many forms, including literally taking
them through factories and showing them what actually happens,
but also to drive home the importance of not having any waste.
In the 30 livestock schemes that make up our supply chain, it
is absolutely crucial that we use every piece of those animals
that are reared exclusively for us, and in doing so our challenge
is to add value, not to devalue it, because if we devalue it from
a retail perspective then that reduces the amount of profit available
to go back down the supply chain. We are probably unique in the
way that we approach balancing carcasses whereas our competitors
are probably cherry-picking the bits that they want and leaving
the rest available to market forces.
Q853 Chairman:
And 2003 helped you in that direction, did it, with your suppliers
to make them more conscious?
Ms Jenkins: I would say that 2003 created awareness.
It also created a significant amount of work and a huge amount
of focus and intensity, and farmers needed leadership because
a lot were like rabbits in the headlights.
Q854 Chairman:
What you have described seems to me to be absolutely distinctive.
Are there other supermarkets, either in the UK or the EU, that
have gone down that road and, if not, why not?
Mr Sinclair: I cannot really speak about Europe.
I do not know the European retail sector that well. I am not aware
that that model is replicated anywhere. I think that Marks &
Spencer's do a fair amount but I am not aware really that any
other retailer is involved to the extent that we are. Part of
that is to do with the type of business that we have, being a
partnership, but the other part of that is about looking ahead
and wanting to have those supply lines in place to serve our customers
in 10 or 15 or 20 years' time. That is very much how we approach
our supply strategy, hence the reason that it has been evolving
over time.
Baroness Jones of Whitchurch: Could I
just pursue this uniqueness for one second because we have just
heard from the Food and Drink Federation that the key thing that
drives consumers, whatever they say, is the price. Price is the
thing that really determines where they shop and so on. Obviously
that does not apply in Waitrose. Are you resigned to being a niche
supplier or do you think the principles that you are now espousing
--
Chairman: That is why they avoid Aberdeen!
Q855 Baroness Jones of Whitchurch:
--- could roll out across a much wider consumer base?
Ms Jenkins: I think if we were resigned to being
a niche we would not have a future because at the end of the day
price is very important to everybody, and whether you are a Waitrose
customer or another retailer's customer price is still important.
Customers enjoy a bargain, value for money; they do not enjoy
being ripped off, they do not enjoy being misled, so I would say
that the model is achievable by anybody, but you need to take
a long-term view and understand the supply chain. We are in a
different supply and demand situation today than we were in 2005
or even 2000, there is an awareness now in terms of shortages
of commodities that perhaps could focus others' minds. I think
it is disappointing that we need to see industries disappear before
action is taken, notwithstanding the fact that there are performance
issues out there in every sector. One of the key things that we
have driven through benchmarking is to get farmers to think in
the same way as any other business about performance and what
is good and what is bad and how it could be improved and how there
can be a benefit for them as a result.
Q856 Lord Palmer:
Could I ask a very quick supplementary. Can you just remind us
what percentage of the UK grocery trade Waitrose claims to have
now?
Ms Jenkins: As a multiple retailer we represent
4% of the market. In the area that I am responsible for, it is
anything between 4 and 10%, so in the primary agricultural sectors,
from beef through to chicken and fish, so we generally out punch
our weight in those sectors.
Mr Sinclair: On the organic sector we have a
market share of something like 18%, so that is significantly higher
than the overall market share.
Q857 Chairman:
That tells us something about your customers, does it not?
Ms Jenkins: It does but, if I might add, we
feel it is really important and right that in terms of the policy
going forward that all of us should get our return from the market-place,
but there is a role for the market-place to play in terms of transition
and acknowledgement that we have to get from A to B before we
can actually make that happen.
Chairman: Lord Plumb on the environment
and animal welfare.
Q858 Lord Plumb:
There are three questions to this but I would like to put them
into one, if I may. Environmentally of course everybody says they
want everything produced in an environmentally friendly way yet
of course the market-place determines the price at the end of
the day. How many of your customers therefore will say yes they
will pay more if the product is produced under environmental terms
which are acceptable than they might do otherwise? Customer behaviour,
in other words, is really the question I am asking about and whether
that reflects the concern both on environmental issues and on
animal welfare. People talk a lot about the importance of making
sure the animal is well looked after and we would like to know
what proportion of your customers or consumers generally are prepared
to pay that premium. Then, thirdly, the extent to which consumers
are willing to pay a premium, could this in your view provide
a way of rewarding farmers monetarily for the public benefits
that they provide? Do you anticipate that there will always be
a residual role for the government in this area, be it through
subsidies or other instruments? Might I just add to that, since
you mentioned the organic production and the sale of organic goods,
what is your concern in this field—because I accept and
I am with you all way on your initiative, I think it is excellent
that people are demanding more organic goods—how many people
in this country are consuming a vast amount of soya, for example,
that is produced in America that is not necessarily organic and
certainly 98% of it is genetically modified, and yet they are
against that sort of thing and it is a totally different base
that the product is coming from? I think those are areas of concern—the
environment, animal welfare and how the consumer reacts.
Mr Sinclair: Taking the first point, in terms
of the environment I think one of the key drivers for us is to
make sure that our own farmers involved in our various livestock
supply chains are fully engaged in the various schemes that are
available out there in the industry. We have developed a specific
scheme on select farm milk producers, which I think is probably
a leading standard in terms of where commercial farm and habitat
and agri-environment can actually work hand-in-hand together.
We set them a target to have 10% of the farm area devoted to wildlife
and habitat and when we did an audit in spring this year we found
something like just over 20% of the farm area was actually devoted
to habitat and agri-environmental features. We have other supply
chains which do not appear to be fully engaged in the agri-environmental
schemes as we would like. I understand the Red Meat Industry Forum
have just done a survey of livestock farmers in the West Midlands
and found that out of a group of 150, only 10% of them for example
had actually signed up to an entry level scheme. When challenged,
the reaction appeared to be apathy at the farm level in terms
of they did not want to have to fill out another form to prod
out that funding. In the post-decoupled era I think it is important
that farmers are business focused and that they actually sign
up for the agri-environmental menu of options as well. We are
using resources to produce food and I think we have a responsibility
collectively to actually deliver some of the environmental benefits
back for the general public. It is certainly something that we
are working on at the moment to get all our various supply chains
engaged, and certainly in England signing up to the entry level
scheme, or the equivalent in Scotland or Wales, because we feel
that is a very important thing.
Q859 Lord Plumb:
And the consumer will pay a premium for that product?
Mr Sinclair: At the moment it is difficult to
know from the market research that we have seen. There was some
IGD work that was done in spring this year which definitely showed
that things like price and brand were leading drivers of consumer
patterns and at a much lower level were agri-environmental and
environmental issues. That may well have changed because of the
high profile that the environment and climate change has taken
on through the course of the year. Things like animal welfare
and organic production were much lower in the pecking order as
well. For us our position in the retail market-place out there
is such that from a brand perspective our customers expect us
to be doing a lot of these things, actually taking responsibility
and being able to deliver the agri-environmental benefits to take
a proactive stance to ensure that we have high standards of animal
welfare and care for the animals through their lifetime. We have
done a significant amount of research, in conjunction with some
of our suppliers, looking at how we can actually raise the animal
welfare situation within our various supply chains and in time,
as more of that information becomes available and we have projects
complete, we will be incorporating that into our production protocols.
We are continually looking to raise the level of animal welfare
credentials, as it were, moving forward. We have got to be practical
and it helps if there is good scientific evidence to justify that,
but there is an expectation from our customers that we are working
to make sure that animals have been treated with respect, et cetera,
through their lifetime. There is a relatively small proportion
of the public who may well look for these high welfare products,
but I think it is part of an overall bundle of expectations, and
I think at the moment in terms of some of the ethical drivers
but some diet and health and healthier options, as it were, are
at the moment some of the main drivers and they are taking a higher
priority in terms of driving purchasing decisions than maybe just
environment or welfare, but for us it needs to be the entire package.
We have done work right across the board so it feeds in in terms
of the various different strands that make up our production protocols,
and we need to make sure that we are delivering a consistent,
good-quality product that tastes good and that is produced to
high standards with environmental credentials as well as animal
welfare credentials.
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