Select Committee on Environment, Food and Rural Affairs Minutes of Evidence

Examination of Witnesses (Questions 440-459)



  440. Well, the processors are going round saying, "Retailers are taking margins out of them" and now the processors are taking margins out of the farmers.

  (Mr Merton) I think we need to be clear about what goes on here. We buy milk from our processors and the processors decide the price they buy the milk from the farmers at. We all understand the concerns, and severe concerns about the British farming industry and dairy sector. There are other ways to get costs out to increase returns for farmers. We have been doing quite a bit of work through our dairy forum where we have had all the farming interests round the table discussing with the milk processors, eye to eye , what the real issues are and how they might find ways to reduce costs in the chain to make sure the farmer can get better returns. There is no simple solution overnight but we are finding we can make some pretty good headway in sharing the understanding. At the end of the day I think the milk price is governed by the availability of display in the market place. Obviously our milk processors, the people who process the milk, buy the milk not us.

  441. Surely the milk price is determined by long term contracts. If farmers are being told now that they have got to reduce the price by which they are expected to sell their milk, that is not the market, that is what people predict that they think that milk can be sold for. You have a big influence on that. You need to be honest with the consumers and say, "You cannot buy milk for this price unless you take more of a hit in terms of your margins".

  (Mr Merton) Yes. I think we have all got a role to share here. Again, through our partnership meetings, that is exactly the debate we are having. We are trying to be real. What milk processors as part of their job have to decide is how to constructively go forward with the farming community. At the end of the day they have got to get a return that is viable otherwise we will not have an industry. That is my concern, and that is certainly Sainsbury's concern, we want a thriving dairy industry as we go forward but we are one aspect of that chain. The way to solve it is not by arguing between us who is at fault, it is getting the issues on the table together and looking at ways to solve it together. It is surprising what you can do when you do that.

Mr Jack

  442. We are inquiring about the possibility of subsidy being removed over time from British farming. That implies that farmers will have to find other ways to increase their income. Your analysis of the food market suggested that more value would be added by the development of convenience and out of home food consumption. That takes the farmer further away from the points at which extra revenue can be gained because value is being added by people other than the farmers. How do farmers get in on the act of acquiring additional revenue against the background of a scenario that you three have painted?

  (Ms Coates) I should think that on the convenience food market, one thing we should not forget is we still need the raw materials that we needed if people were cooking from scratch. Although some of the preparation may be taken away from home, the need for the raw materials and the continued growth and requirement for raw materials is still there.

  443. Let me just interrupt you and say that in the milk sector farmers are debating whether they should vertically integrate, should they? What is your recommendation, Mr Merton, when you have your cosy milk groups? What are you saying to farmers? Should they go to get their hands on the value further up the chain or stick to being very efficient primary producers?

  (Mr Merton) I do not believe they are cosy milk groups, number one. They are certainly very active and promote a lot of good debate. The question I think is how we take this forward as an industry together. We have talked about co-operatives in the past, that is one aspect which could be done, which would help. Working and being part of the milk processing industry would be another one. For example, when we take added value lines, we do pay in the end more price for a better quality product because that is what it is based on.

  444. Who gets the benefit?

  (Mr Merton) If I can give you an example of something like meat. In "Taste the Difference" meats, we are charging a premium to the customer and she is paying that premium because there is a real difference. She can see that difference and taste the difference and we pay both our processor and the farmers more money for that sort of product. That is the way we can share in added value. We all have to have a complete understanding of the whole chain of events which is important for the farmer so they know what to produce to get those premiums.

  445. One other very quick question. Wal-Mart, what lessons are you getting from them about the farmer-supermarket relationship against the background of the United States where farmer co-operation is very well developed and powerful branding of primary products is the norm?

  (Ms Coates) I think to answer that honestly, the amount of interaction that we have with Wal-Mart, particularly within the food business, is actually quite minimal. We are a subsidiary of Wal-Mart, as you know. On the general merchandise side of the business, Wal-Mart have had more influence because that is their area of expertise, their participation in the food market is relatively small. There are plans for us to get together later this year and see what best practice learning can be transferred but that is not happening until the summer time. At the moment very little is the answer.

Mr Martlew

  446. Firstly, there was a comment made before that there was as much food sold for the catering sector as the supermarkets. Is it your view that less local product goes into the catering sector than the supermarkets?

  (Mr Merton) From surveys we have done on the whole that is a reasonable general statement that the catering market tend not to look at that sort of area although I think there are clearly some restaurants which specialise in those sorts of things. As a generality, for the bigger catering sector, from my understanding of it, that would be the case.

  447. If that is the case perhaps we should talk to some of the big catering companies. You said you had 3,000 local lines.

  (Mr Merton) Yes.

  448. I presume that is 3,000 local lines throughout the country by the very fact they are local, they are not 3,000 in each shop or supermarket.

  (Mr Merton) Yes.

  449. How many food lines do you have altogether?

  (Mr Merton) 20,000, within the total of the store about 20,000.

  450. Really although you have 20,000 in one store you will only have about 300?

  (Mr Merton) That would depend on the store.

  451. It is a very, very small percentage, is it not?

  (Mr Merton) It depends on the store. There are some stores which would have a very strong demand for some local products and if so we would range accordingly.

  452. What I am really saying is you are not doing very well if you are only got 300 or 400 out of 20,000?

  (Mr Merton) I understand your question, I would say it is worth £60 million a year so I do not call that small.

  453. How much?

  (Mr Merton) £60 million.

  454. Out of a turnover of what?

  (Mr Merton) £14 billion.

Mr Simpson

  455. The three of you represent large supermarkets that in size, the number of people you employ, your share of the market means that you are incredibly powerful organisations, certainly as far as the British farming and food industry is concerned. You slightly give us the impression, both in your written submission and what you say today, that you are passive in the sense that you have to respond to what the customer wants and to market trends. I would suggest to you that you can be highly proactive. What are you doing in terms of being proactive to help the British farming industry? You have used some management speak, one piece of which I have now got because I did not understand it. Putting aside the gobbledegook what are you doing? To give one very, very quick example. There is a lot of ambivalence as far as we are all concerned. We want to buy British, we want food safety but we are not prepared to pay a vast price. What are you doing in terms of informing the public that if they decide to opt to buy this piece of poultry it is produced under conditions which would not be acceptable within the United Kingdom or perhaps in the EU as against another piece? Do you actively promote on your supermarket floors that kind of information so that the consumer can make the choice, if they want to pay an extra 20 pence or 50 pence for a product that meets those standards or do you regard that as naive?

  (Mr Merton) I do not think it is naive at all. I think it is a very good point. If you look at some of the things that we are selling, and you look at our packaging, we do state certain things about particular products, for example welfare, and that tends to be in some of the areas where we have a slightly different quality and why it is different. We explain to customers why it is. A good example from our perspective would be "Taste the Difference" where we do list a lot of issues about what those controls or differences are and make that apparent to customers for them to choose. I think colleagues here do very similar things.

  (Ms Neville-Rolfe) Could I add something to that? On British sourcing, you will have seen from our submission that we do source a lot of our meat, milk and so on in the UK and we have been big supporters of the NFU Red Tractor Scheme, which I am sure you will ask them about to see how they feel that is going, and similar schemes in Northern Ireland, Wales and Scotland. Another thing we have tried to do which I hope responds to your question is about transferring of know-how so we are investing in Newcastle and Aberdeen in research into organics, which we have identified as a big area, and we are then, through the NFU and through master classes, trying to transfer some of that knowledge. I think that is a concrete thing we can do where we can share and help people to move forward. We have realised, also, on organics, 80 per cent—we do not make any secret of this—of our organic food and drink is imported. We have set a challenge, a target of a billion pounds of sales within five years and we are trying to ensure that the British farmer gets more of a call on that market. We have had some success over the last two or three months in bringing in extra eggs and lamb and other things which I can give you the details of. I think also what is important is the industry working together. It is not something we do very naturally but we do have the Institute of Grocery Distribution and they have done a lot of work on trying to promote British produce and made us work together in that respect. That work I think is going to be taken forward more strongly following the Curry Report.

  456. Can I just say, Chairman, I heard what Mr Merton said but as a reasonably frequent shopper in Sainsbury's, it has passed me by, I have to tell him, and it is largely because I represent a constituency that has got quite a lot of farming, I have to search to find the kind of details that you are putting. I would just suggest, and I am sure you are absolutely sincere on this, that it needs to be put much further upfront. I am looking for it, most customers it just passes them by completely.

  (Mr Merton) If I may respond to that. We are conscious we can do more and I think as you see us go forward you will start to see a change in our packaging with that in mind.

David Taylor

  457. What we are hearing is it not just tokenistic window dressing? Come on, let us be frank, the local food that you talk about, I think you gave the answer to Eric Martlew a moment or two ago, £60 million out of £14 billion, is that right? One fortieth of one per cent, is that supposed to be a serious attempt to work with British agriculture in terms of marketing local food?

  (Ms Neville-Rolfe) If I might say, I think there is confusion between what is British and what is local. There is the local, the 3,000 lines.

  458. I am talking about food.

  (Ms Neville-Rolfe) We are very big customers of British agriculture.

  459. Go back to local foods, that was the question I asked.

  (Mr Merton) The local food has started probably to gain momentum in the last couple of years as this has become a customer requirement. Remember we are coming from the customer angle. I think a lot of these suppliers are extremely small and are not capable of producing large volumes, although some of them go on to be potentially national producers for us in some of the areas. I think by pulling this together—and remember they are very small producers—we need to encourage them to get bigger and bolder and obviously we are looking very carefully at that with our customers in deciding how we take that forward to get stronger. I think it is quite an achievement because it is quite small volumes relative to the local community but very important in terms of the direction we are all trying to go in and particularly for British agriculture.

previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2002
Prepared 30 April 2002