Growers still complain of poor treatment by supermarkets

Have UK supermarkets been behaving better since the introduction of the Groceries Code Adjudicator? What is the impact of the retailer price war? Farmers Weekly looks at what fresh produce growers have to say.

Three years ago, when the NFU asked fresh produce growers about their relationships with retailers, they reported a series of practices that would now be illegal under the Groceries Supply Code of Practice.

These practices included retailers expecting growers to pay them as a condition of being a supplier and asking that growers guarantee them a minimum profit margin.

In addition, growers faced capital deductions and last-minute unagreed price cuts, poor forecasting and the risk that buyers would fail to purchase the end-crop that had been grown to order.

See also: Fruit and veg growers face retailer ‘battlefield’ as imports soar

The effect on producers’ ability to plan ahead, manage their cashflows and turn a profit were plain and the NFU warned that if things didn’t improve, growers would keep cutting back on production and the UK’s reliance on imports would continue to increase.

What do growers face now?

So what has changed? Since the Groceries Code Adjudicator (GCA) was introduced two years ago, there has been progress, say growers in the NFU’s updated report Catalyst Revisited 2015.

But experiences are mixed and the NFU warns that “the job is far from done”. While there have been some “notable positive developments”, they appear to be “the exception rather than the rule”.

Growers now face an additional squeeze from the supermarket price war that has engulfed UK retail for the past 12 months – and are being asked to deliver at ever-lower prices.

This is leading to a “return to bad habits”, says a potato grower in East Anglia.

“Growers describe the current trading environment as a battlefield, and they’re on the weaker side,” the report says.

“Consequently, and as the NFU warned in 2012, imports of fruit and vegetables on supermarket shelves are now at record levels as British growers cut back on home production.”

Just one month ago Scottish growers and NFU Scotland raised fears about the effect of the “New Living Wage” (due to come in on 1 April) on a sector still heavily reliant on labour. This is likely to squeeze margins further, particularly if the prices paid by supermarkets do not reflect the increased cost of production.

A squeeze on prices and production

Already the fresh produce sector has lost many growers as the industry consolidates. Potato grower numbers, for example, have fallen from 5,000 in 1999 to 2,000 last year and in a more niche market – cucumbers – the area cropped has shrunk below 100ha for the first time.

If the British horticulture sector continues to contract and lose market share to imported products, we could see negative consolidation where processors are reluctant to invest and the industry gradually becomes less competitive, warns the NFU.

Alternatively, the sector could consolidate with a drive towards further innovation and efficiencies.

Either way, such a reliance on imported fruit and vegetables puts the UK’s food security at risk. With demand for food growing globally, the UK will have to compete with other importers for available food.

As a field vegetable grower in the North East says: “Retailers need to take a more strategic look at the consequences of putting growers under pressure. The UK’s self-sufficiency in produce is falling and will continue to do so if growers don’t get the rewards they need to cover the risks they take.”

Retailer pressures on fruit and veg suppliers in 2015

The NFU asked growers about the pressures they were facing in the supply chain. Here’s what they said:

Supermarket price wars

A race to the bottom to attract shoppers with the lowest possible prices has squeezed suppliers as retailers look down the chain to recoup margin. In response to ever-lower prices, suppliers are cutting back on production.

• “We’re selling higher volumes, but the value has decreased. Growers are being asked to supply at lower prices to compensate retailers for the price war.” Brassica grower, East Midlands
• “Price has overtaken quality on a retailer’s list of priorities.” Protected edibles grower, North East
• “Retailers’ orders are following the lowest prices rather than the growers who have the best track record on quality and service.” Field vegetable grower, East Midlands

Groceries Code breaches

Some growers say the Groceries Code Adjudicator (GCA) has made a difference to the way they are treated by retailers; others say they see little change.

Growers complained to the GCA that retailers were asking for lump sum payments and contributions to margins. The Competition and Markets Authority is reviewing this.

Overcharging for customer complaints is still something some suppliers are experiencing, despite the GCA having removed it from its list of top issues. Suppliers say it is now easier to go to packaging suppliers different from those the supermarkets want them to use – but this is still an issue in haulage.

• “The GCA has given growers better protection in a challenging market.” Field vegetable grower, West Midlands
• “X [supermarket] still has a designated haulier, which is more expensive than others. Growers are scared to switch from ‘preferred’ or ‘approved’ suppliers because of the penalties.” Protected edibles grower, North East

Poor forecasting

Retailers are starting to plan ahead more on volumes and there appears to be a move towards earlier, less-frequent tendering rounds. But progress is mixed, with some retailers yet to be more strategic on forecasting and some serious concerns about the accuracy of volume forecasting.

The NFU report says: “Growers are carrying an excessive and disproportionate level of financial risk – both at the time of planting and at harvesting – by managing the fallout of peaks and troughs in retail forecasts, which bear little relation to the orders actually placed.”

• “Retailers are still following a ‘just in time’ ordering policy.” Brassica grower, East Midlands
• “My buyer is in discussions now for price and volumes in 2016/17 – they have come a long way.” Field vegetable grower, North East

Contracts

There is mixed progress on contracts, with many growers in receipt of emails specifying weekly orders, or tender agreements, but outside of this there are very few formally agreed written contracts. However, some retailers and processors appear to be seeking longer-term deals with suppliers.

• “I’ve been offered a three-year rolling contract. It’s a good example of a long-term commitment with price security.” Potato grower, East Anglia
• “Growers have invested thousands in new varieties at the retailer’s request and have been left high and dry when the retailer decides they don’t want it after all.” Potato grower, South West