April 2009 - Posts
Tesco may have a love/hate relationship with farmers but it would be churlish not to acknowledge the retailer as a great British success story on a global scale.
It’s pre-tax profits of more than £3bn have drawn mixed feelings. Comments from forum users on fwi.space.co.uk range from the furious “its blood money, bled from suppliers” to the pragmatic “success comes at a price”.
Those farmers supplying the retailer are justifiably proud of their contribution and connection to the Tesco brand and the benefits it brings to the national economy. After all, it is a remarkable performance under terrible economic conditions and there’s the promise of another 11,000 new jobs created through store expansion. Let’s not forget that many farm businesses are expanding too as a result of this growth.
About one third of all supermarket sales are now made in a Tesco store and British shoppers, despite the recession, are still spending on food thanks to the quality and value offered by British producers.
But we are probably at the point where its dominance has gone too far. Primary producer margins have been relentlessly squeezed for years and Tesco’s image as a bully within the food chain is renowned.
Global brands thrive when they clearly demonstrate responsibility to their customers, suppliers and shareholders. In Tesco’s case it is the suppliers that are getting the raw end of the deal. Most consumers, even in difficult times, understand that cheap prices are not everything and that fairness to farmers is vital if we want sustainable food chains. Tesco’s proposition will never be as good if its cavalier methods force too many suppliers out of business.
Paying a price to all that fairly reflects the costs of production is a reasonable request that Tesco will not honour voluntarily. Therefore the only way of ensuring a more equitable approach is to introduce a supermarket watchdog with real teeth. The Competition Commission is to make a decision on an ombudsman and code of practice for the grocery trade any day.
Chief executive Terry Leahy and his opposite number at Sainsbury’s Justin King have lobbied hard against regulation but their greed may get the better of them.
A recent YovGov poll of shoppers found that 80 per cent were in favour of an ombudsman if it led to better treatment of farmers. Some 60 per cent were prepared to shop somewhere else to support the fairer retailers It’s funny how the big boys have selective hearing. If the customer is always right, why aren’t they listening?
For more Tesco analysis see Phil Clarke’s business blog at http://www.fwi.co.uk/blogs/agribusiness/2009/04/tesco-profits-prompt-abuse-and-admiration.html
One of the biggest challenges facing us all is learning to cope with volatile markets. It's a subject that has come up a lot in discussions in the FW office in the last week or so in meetings with Mcdonalds, Dairy UK and The Grocer magazine and website.
If farmers can survive the market peaks and troughs better than they can certainly benefit long term from the great opportunities that lurk around the corner as we come out of this recession and take advantage of global demographics.
The dairy sector is probably the best example of this. Jim Begg, Director General of Dairy UK, is worried that some in the sector are in danger of talking themselves into an early grave over pricing. As more dairy farms decide to exit, it is clear that we're in danger of losing a lot of critical mass if we are not careful. This would be a tragedy as the longer term prospects for British dairy products are very good if we can just be more resiliant through the tough times.
Jim Begg believes there is more Farmers Weekly can do to build farmer confidence in sticking with it and seeing the opportunities that lie ahead. I agree that there is a future if only dairy businesses can ride out the tough times like now. We have to report the angst that's going on about milk prices here and now but we should do it in the context of the bigger picture. Global demand for milk is on a massive trajectory but we have to find new approaches to helping producers cope with the ups and downs. All ideas welcome.
It's certainly not all doom and gloom. Global population growth and economic expansion mean that demand for dairy products will remain strong. Weaker sterling means higher single farm payments and more competitive commodity production. With low interest rates, finance is cheaper than it's ever been and input costs like fuel and power are falling. UK consumers make up one of the most developed markets for food anywhere in the world. So there's more reasons for optimism than many might think.
To help you make sense of volatile markets, look out for Phil Clarke's business blog http://www.fwi.co.uk/blogs/agribusiness/2009/04/alarm-bells-ringing-despite-buoyant-meat-prices.html
Livestock producers deserve to be confused and extremely angry. You’re being asked to pay for something over which you have no control - exotic diseases currently not originating in this country. And there’s a wealth of other measures coming in to overhaul animal health and welfare, which are a minefield to get your head around.
The NFU and other industry bodies are is rightly spitting blood over the latest DEFRA consultation on responsibility and cost sharing. It is a complex set of arrangements that aims to cut and share the cost of animal disease, improve prevention and management and build industry confidence in coping with the risks. The aims are sound, it’s the method of achieving them that is of concern.
A new independent body for animal health policy and delivery is a positive move if it enables the livestock sector to determine its own future and is truly independent. The new body could have real power if it takes over DEFRA’s funding of disease management and is run by people with a real understanding but politics needs to be taken out of the decision-making.
The idea of farmers paying an annual levy for research and surveillance of diseases, many of which are not of their making, will be hard to swallow as will the bureaucracy that comes with it. Mandatory insurance to cover unbudgeted disease costs will be even more difficult. Farmers will rail against it and as yet there’s little infrastructure to support it. Asking an insurance company to insure a business against a disease such as foot and mouth is akin to seeking buildings insurance after your home has collapsed.
These represent the most significant changes to hit the sector in years and many will be wondering whether they can survive it. There is no doubt that animal health policies need modernising. The current set up fails farmers, government and consumers because, at times, there is a serious breakdown in trust and a lack of rigour in implementation. A new strategy and vision is needed.
But why should the livestock sector foot the bill when Government is not doing enough to stop diseases coming into our borders? It cannot even guarantee safety from its own licensed laboratories as we know to our cost with the 2007 foot and mouth outbreak. The final straw continues to be its failure to tackle bovine TB effectively.
Taking responsibility is something farmers do naturally but that does not mean we get it right everyday. Biosecurity is still inadequate on many farms and a proactive approach to herd health planning is not widespread.. Remember the terrible risks taken by those who refused to participate in the bluetongue vaccination programme.
A new partnership is long overdue between Government and industry but it looks further away by the day. Forcing yet more costs on farmers that are all too frequently caused by inefficiencies by others is not a good starting point.
Let us know what you think about the changes by responding to this blog or going to www.fwi.co.uk/costsharing
Full reports from the FW team available at www.fwi.co.uk/Articles/2009/03/30/114952/disease-cost-and-responsibility-sharing.htm