How does Sainsbury’s CEO view the farming industry?


Where were you born and educated?Cockney by birth and brought up in the West Midlands. I attended Tudor Grange School in Solihull.

Which sports team do you support?Manchester United.

Most embarrassing moment?Being asked to do a blind taste test on BBC1’s Watchdog when working for Asda. I had to tell the difference between our own brand of chocolate biscuit and a chocolate Penguin. I got it right.

Tell us a little-known fact about yourself.My first job was as a paper boy.

How do you relax?I support my children in sport.

What makes you angry?People not trying hard. I’m a great believer that you should make the best of your talents.

Who’s your hero?Ian Botham. He single-handedly won the Ashes in 1983.

How do you justify paying less for milk than most dairy farmers’ cost of production? Is it a loss-leader for Sainsbury’s?

It’s not a loss-leader for us if you mean do we sell it below our cost of purchasing. Milk is a competitive product, it’s one of 20 known value items (KVI), so the price will tend to be aggressively discounted where people are using it as something to drive prices down. We saw this last year with Asda.

There’s usually little connection between the wholesale price and the price we charge – milk is no different. The reality is that the price paid is what the market commands.

If there was a lack of supply the price would increase. But we do pay a premium for milk that is differentiated in some way: GM-feed free milk in-conversion organic milk and organic milk.

Sainsbury’s has announced plans to help a group of dairy farmers from its two main suppliers –Dairy Crest and Wiseman – to source goods and services more cheaply. However, unlike Waitrose, M&S and Asda, you have not established a dedicated group of suppliers that will get a higher milk price. Why, if you really want to help farmers, do you not follow the Waitrose or M&S model?

There are two important points to make about the M&S supply group. First, its scale is about a tenth of ours, and second, the premium is paid only on that which is consumed as milk.

Our thinking in our initiative – the Sainsbury’s Dairy Development Group – is that we will take a substantial amount of milk from it and we will take most of it as milk. What we are trying to do is help the group improve as lower-cost, more efficient producers by helping them tap into our expertise.

How do you intend to promote efficiencies if farmers are dissuaded from investing in their business because there is insufficient profit?

There is still very significant investment in the industry. One of the issues the dairy industry faces is that it has spent too much time talking about the bad news stories in the sector.

The industry has convinced consumers that it is a bad news story. This is the first thing that needs to change. Consumers have to be told that there is a good news story, in terms of the quality of production, the positive contribution to the countryside and the environment.

This banging of the drums about bad news means consumers are turned off to the positive elements farmers bring to society.

Is it fair that Britain’s farmers have to compete with imports from countries that do not have the same welfare standards, and have lower costs and less regulation?

High standards of animal welfare and high standards of food health and safety are what we should seek to achieve. It’s right that we have high standards, but I don’t care if others have lower and different standards provided that it is properly communicated to consumers.

I think it is wrong where a product is bought from countries where the standards are not as high and that is not honestly communicated to consumers. That is why we are committed to including the country of origin of protein included in food.

It’s not a question of fairness, but whether the consumer is in some way being misled. If a well-informed consumer chooses not to pay for food produced with higher regard for welfare and standards, that’s his prerogative.

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With food security becoming a global concern, is it wise for retailers and some media to persist with this negative depiction of GM crops?

One has to start with the consumer. Today the consumer has yet to be convinced that there is a benefit to GM crops. The early development of GM was in areas where the customer could not see the benefit to them but could see the dark hand of business doing something that benefited only themselves.

I am a scientist by training and I don’t have an intellectual problem with GM, but as a retailer representing the views of my customers I do. My customers demand we don’t use GM and I have responded to that.

Are you happy with the balance of power in the supply chain? Should the Competition Commission take a firmer line with retailers?

I don’t think there is a balance of power issue. The supermarket industry is undergoing its third investigation in six years. The rest of the retail world looks on in bemusement because it sees the UK as being the most competitive retail grocery market worldwide.

We have to recognise that there is discomfort within a wide section of society as to what retailers do on behalf of customers. Sometimes that has consequences that consumers may be uncomfortable with. It is our job to help customers unwrap that conundrum.

The best example of this is the recent planning debate surrounding polytunnels. Here [farming] is an industry responding to customer demand for British-grown soft fruit. But it’s those same consumers who are, probably, the ones objecting to having a polytunnel behind their home.

Two thirds of Britain’s beef producers receive less than the cost of production. How do you justify selling it at a price below the cost of production?

There are several reasons for the position we are in with beef. We have been used to a system employing production-based subsidies. The reality of beef is that the right animal produced to the right specification is worth more to us. But the production-based system has drawn no distinction in terms of quality.

The way production subsidies were arranged created a shortfall in supply at Christmas, a period when customers were willing to pay more for beef, and then an oversupply in the new year when demand was at its lowest. There is no doubt that the regime we are moving towards is causing a shock in the market, but out of that will come a connection between the ultimate consumer or seller of beef and the producer that secures the supply.

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How do you see the organic sector developing?

Organic is a very explicit articulation of customer benefit. When customers buy organic they buy an expectation of certain things. According to research it confers higher quality, less pesticide use, better animal husbandry, more local sourcing and fairer prices.

We are seeking a couple of dynamic changes. There is an unnecessary level of importing of organic. Sainsbury’s has resisted this because our customers tell us they don’t want it from abroad if it can be produced in the UK.

I foresee a shortfall in the supply of organic protein and milk, which is why we implemented the “farm promise milk” because we could see the scar left on the industry from the last boom.

We pay a 5p/litre premium to farmers during the conversion period and guarantee to buy it for one year once organic status has been awarded. This is at a great cost to ourselves because we don’t pass on the full cost to the consumer.

Do you think that farmers’ mistrust of the major retailers is justified? If not, how do you explain it?

I don’t. I’ve been a supplier for about 10 years and retailer for about the same time, and while it’s understandable I don’t think it’s justified.

I think retailers do have a responsibility to better articulate what it is we are trying to do on behalf of customers. But the farming industry has a responsibility to engage with the processing industry and recognise that, fundamentally, it is an industry that expects the rest of the supply chain, be it processors, retailers and consumers, to buy and dispose of whatever has been produced.

If you had a 400-acre farm in the uplands of Britain how would you make it profitable?

I’m not a farmer or come from farming stock but in general terms I would consider four variables: what am I good at producing, who is the customer, what price can I charge, and can I produce at a profit considering all my costs, including land? This principle applies to all businesses.

Why do you think other public figures like yourself are reluctant to take a greater interest in farming and agricultural issues?

It’s too hot to handle.

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