Price threat to growers highlighted

Retailers need to grasp the challenges, says Jack Ward

Conference: retailers more likely to source produce from overseas given continuing downward pressure on prices - image: HW
Conference: retailers more likely to source produce from overseas given continuing downward pressure on prices - image: HW

Continuing downward pressure on produce prices can only lead to more overseas sourcing by retailers, British Growers Association chief executive Jack Ward told a conference on the UK food supply chain on 27 April.

With growers' margins as little as one-to-two per cent, "there isn't much flab to cut", he said. "Labour accounts for 40-60 per cent of growers' costs but you're not able to cut that to reduce your costs. So buyers will look to other parts of the world where those costs are lower and more adaptable. If you want to continuously reduce costs, that means looking overseas - that's why the amount we grow has fallen in recent years. Society can debate whether that's good or bad."

He added: "The pressure on price and demands of compliance on sustainability mean you cut corners, you end up on a continuous downward spiral and everyone loses." But he explained: "Some issues are heaped at retailers' doors that actually arise from elsewhere, like the loss of actives. That can, for example, affect aphid damage on carrots as we had last year. It becomes more tense - you can't get the quality, consumers want perfection, retailers say it doesn't meet the spec so they want a lower price."

Retailers also need to better understand the challenges that UK fresh-produce growers face, said Ward. "As a grower, you are juggling the demands of the spec with the effects of the weather. Low temperatures mean slow growth. With a crop like carrots you may only have 80 per cent of what you forecast at a given time, so you harvest early and then run short. Retailers don't necessarily appreciate that."

Last season's weather "wasn't that exceptional", yet it threw up hail in June, high summer temperatures, a doubling of rainfall and low sunlight in August, a warm autumn then flooding in early winter, he pointed out.

"Fresh produce is the flagship of retail stores, but 74 per cent of adults and 84 per cent of children don't meet their recommended intake of fruit and vegetables," said Ward. "There is an opportunity here for the UK supply chain - we should all be working together."

When asked whether growers shouldn't simply produce less to constrict supply and so boost prices, Ward said: "We are seeing food at a level way below anything that influences supply and demand. Promotions are sometimes valuable for the supplier as well as the retailer, when you have quantities of a perishable product that you need to shift. But we got to the point last year where one retailer was offering potatoes for 29p a kilogram - other retailers were wondering if they should simply buy them up, repack and sell them on."

NFU chief food chain adviser Ruth Mason said on this: "I have an issue with loss-leaders - they devalue the product. But that's not going to go away overnight. The retailer needs to demonstrate that this isn't being financed by suppliers."

Calling for "a fair and robust trading relationship", she said this would crucially require transparency, commitment over time and clear indication of price. "No other industry produces products without knowing how much it will be paid for them," she said. "Yet farmers very rarely have the opportunity to negotiate on price."

The NFU also wants to see the remit of the grocery code adjudicator (see box) extended to cover processors and other major suppliers, she said

"Our industry is dominated by large suppliers. We need something to govern the relationship between them and the primary producer."

David Lowe, head of food and drink at international law firm Gowling WLG, noted: "The contrast between food and the automotive industry is stunning. Food suppliers can't invest because they don't know what they will be paid next year, so they can't make five-year capex decisions." Current price pressure means "it is even more price-driven, and negotiations are even more brutal", he added.

University of Warwick professor of supply chain strategy Jan Godsell raised the issue of sustainability, saying: "For suppliers, the penalties of under-producing are greater than for over-producing. A sandwich supplier will sell more sandwiches if he wastes more. But you shouldn't necessarily expect to be able to buy parsnips at 5pm on Saturday."

Guy Moreton, founder and director of horticulture recruiter MorePeople, later told HW: "The National Living Wage means there is less money around. It will drive the move to having fewer, better people."

Adjudicator - Extended remit would mean an entirely different scale

"There are many calls to extend my remit," groceries code adjudicator Christine Tacon told the conference. "Some smaller retailers are dominant in particular areas, and indirect suppliers want suppliers included too, but there are 8,000 of those. It would be a whole different scale. I have a staff of seven.

"I speak to a lot of farmers and rarely hear complaints of things in the code. They are generally looking for a fairer price, which I have nothing to do with. Even if my remit was extended that wouldn't address the issue they are concerned about. If it was changed, that might require a whole new investigation by the Competition & Markets Authority, which right now wants me to work within the code as it stands."

With the adjudicator's role up for review next year, she added: "I don't have second sight and I am concerned about how little I am hearing from suppliers."

Jack Ward told HW: "Growers can already sense the benefit of having the adjudicator in the background."

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