Horsemeat: Tesco’s pledges, one year on

1. To “source more meat closer to home” and “where reasonable” to source from British suppliers.

2. Shorten supply chains and work directly with farmers and growers.

3. Offer two-year contracts to “all suppliers who want them”.

4. From July 2013, to source all fresh chicken from UK farms.

5. Source all chicken in all products – fresh and frozen – from the British Isles.

6. Work towards transparent relationships with suppliers and customers.

7. Undertake a root-and-branch review of the whole Tesco supply chain.

8. Appoint a Tesco agricultural director to lead the development of the sustainable farming groups and provide a single point of contact for farming.

9. Set up a new independent panel of experts to improve supply chain practices and hold Tesco to account.

10. A promise on labelling/traceability that only what’s on the pack is what’s in the product.

11. Undertake DNA testing on all processed beef.

12. Extend the Tesco producer network (a social network of producers) to more suppliers, to share knowledge and communicate better, starting with dairy farmers.

13. Introduce a Tesco standard so shoppers know the product has been vigorously tested.

14. Set up an interactive website to give customers insight into what’s in their food and to show Tesco testing works.

15. Put video in the supply chain so customers can trace from farm to fork.

A key shift is that Tesco’s top management is genuine about organisational and cultural change, says Prof Chris Elliott, author of the Elliott Review into the horsemeat scandal. Some important initiatives have begun as a result.

These include shortening supply chains, introducing two-year contracts, sourcing 100% fresh chicken from British farms, appointing a larger agricultural team and an independent panel, and generally engaging more openly with its farming groups and the farming industry.

The agricultural team is showing enthusiasm and helping the retailer to listen and engage more with its farming groups and the NFU, while Tom Hind, formerly director of corporate affairs at the NFU, has been appointed Tesco’s agricultural director.

A root-and-branch review of beef and lamb supply chains has been conducted and work is under way to shorten supply chains. This has already created winners and losers as the retailer concentrates on fewer companies and has stopped working with 30 beef processors and abattoirs.

Two-year contracts are slowly being introduced, and have been taken up by 200 lamb and 100 beef farmers, while contracts for pig farmers are being developed with the help of the National Pig Association (NPA). The retailer has also committed to sourcing 100% Scottish chicken for Scottish stores and is looking into extending the British lamb season by sourcing more regionally.

Talking to Tesco suppliers, one dairy farmer said he felt “less scared” about not attending Tesco workshops this year, and a poultry supplier said there had been an improvement in relations and an increase in resources.

There are some positive developments in transparency, too. Prof Elliott has been invited to see Tesco’s testing regime, the DNA test results of more than 5,000 meat products have been published online, and testing for country of origin has been introduced.

Progress has also been made on developing more transparent packaging. However, there have still been labelling issues, in one case where lamb chops were labelled as British and New Zealand in one pack. Tesco’s solution was to re-label the chops as British “or” New Zealand.

To hold Tesco to account on its pledges, an independent advisory panel has been appointed and has so far met twice. It includes three farming figures – Bill Mustoe, former chairman of First Milk, Paul Wilkinson, farmer and chairman of Fengrain, and Poul Christensen, dairy farmer and president of NFYFC.

However, there is disappointment Tesco has not honoured its original invite to the NFU and other industry bodies by including them in the panel, and critics warn the panel must be given the necessary tools.

These adjustments are welcome and have taken place over a difficult year for Britain’s biggest retailer. Tesco has suffered weak trading figures and a loss of market share in a year blighted by horsemeat revelations, lowered consumer confidence, and the growth of Sainsbury’s and discounter retailers such as Aldi and Lidl.

Farming wants and needs Britain’s biggest retailer to succeed, but there is widespread concern that the message of change is not being heard loudly throughout the business, and that most farmers are yet to see the benefits.

“We would have expected more changes towards the pledges by now,” says Philip Hudson, head of food and farming at the NFU.

Critics warn that bad trading figures have put the pledges on the backburner, and that the agricultural team is being stifled by the actions and targets of the buyers, who do not seem to have changed their practices.

Farmers Weekly spoke to Tesco suppliers who had damaging changes to contract agreements imposed at short notice, others who had been unable to move from short-term rolling contracts, or who described feeling stuck in a supermarket price war.

There are anecdotal accounts of farmers being asked to pay for beef DNA testing, and reports of Tesco asking suppliers for money up front to boost its trading figures and to pay for shelf positioning. This sort of behaviour prompted one senior industry source to describe Tesco as “the most sophisticated in stretching what was OK”.

A lack of trust among Tesco suppliers is still a significant issue – no Tesco suppliers were willing to go on record and be named in this investigation for fear of retaliation.

There is also scepticism – and confusion – over Tesco’s commitment to “source more meat closer to home.” The pledge was widely believed in the farming industry to mean sourcing more from the UK, says Mr Hudson. However, when asked for figures on increased sourcing of British meat, a Tesco spokesperson said the pledge was “not about percentages, but about shortening links in the supply chain”.

Investigations were unable to find much evidence of the retailer increasing its sourcing of British meat, other than in fresh chicken.

British beef on Tesco shelves fell by 7.9% to 82% in November 2013 compared with the previous year, taking it below the average retailer stocking of 83%. There are rumours of more Irish beef creeping in, but despite asking twice for clarification, Tesco would not give a breakdown of percentages.

British pork and ham on Tesco shelves fell by 2.5% compared with last year, says the NPA – most probably as a result of higher UK prices. There also seems to be little progress on sourcing 100% British chicken for frozen and ready-meals.

A senior industry source believes the supermarket is failing in its commitment to UK lamb producers and says there is “no improvement in confidence in this supply chain”. British lamb on Tesco shelves increased by 0.7% to 75% last year, but the sheep industry claims this is more likely due to market conditions. Tesco’s commitment to promoting British lamb was questioned when it was found to be selling New Zealand lamb in the height of the British season, telling customers UK lamb was out of season.

The worry is that when the going gets tough, Tesco will switch away from British. At the moment there is strong consumer demand for UK produce, but if this changes, where will that leave producers? “It does raise the question of how much are British retailers using the brand of British farming, but not delivering value back to the farmer,” says Deborah Cawood, head of food chain at the NFU.

With the new two-year contracts, there is criticism that Tesco does not understand the needs of the different sectors. Beef farmers complain two years is not enough security to invest, pig farmers are worried the retailer has not understood their relationship with processors, and the lamb industry says contracts focus on a minority of premium suppliers and risk alienate others.

Tesco has a number of challenges to turn itself into a better business partner for British farmers. If it can’t do this, it faces the possibility that “its reputation may really affect its ability to source closer to home”, says one senior industry source.

Kevin Grace, Tesco’s group commercial and supply chain director, says farmers need to work with Tesco to increase production capacity. Unsurprisingly, many farmers and processors are not feeling confident enough to do this.

To up production, Tesco needs to work harder to demonstrate its commitment and overcome the large amount of negativity surrounding it, says NFU president Peter Kendall. “We were all expecting the world, and generally, we’re disappointed at the speed of progress, although there is lots of activity. At the moment we’re missing some big bangs which will show real change.”

Mr Clarke will have to drive an organisational and cultural shift in a vast and complex business during a trading downturn.

Tesco needs to stand confidently by its pledges and be more transparent on its progress. The sort of “risk-averse management speak” given by Mr Grace, that avoids the detail, does little to instil confidence in farmers looking for news of progress, says Mr Kendall.

Louder and clearer communication from the management is key. “I get a real sense that there is a desire for change at the top, but you have to beg the question of whether this is being heard as loudly and clearly as possible throughout the organisation,” he says. “The challenge is to make sure the words of the CEO are what the organisation then does.”

In his speech last year, Mr Clarke acknowledged that building a better and more productive partnership would rely on giving farmers the certainty to grow their businesses. So far Britain’s biggest retailer has taken some important, but tentative steps. To convince everyone it means business – a different kind of business – Mr Clarke must now drag the rest of Tesco along with him. We are all waiting.

Writing exclusively for Farmers Weekly, Kevin Grace, Tesco group commercial and supply chain director (pictured), sets out progress on the retailer’s pledges one year on.

Last year Philip Clarke set out our new approach to food sourcing at the NFU Conference, which I reaffirmed at the NFU Council with some specific commitments. We’ve made very good progress on those commitments, and I will come to some examples shortly.

Before I do that I wanted to be clear that those commitments are milestones in a more significant change that we must make. When I say we, I mean farmers, processors, and retailers, and I mean we must do it together.

Currently, we spend too much time highlighting our differences of opinion, setting one vital link in the food chain against another and measuring the value we deliver for our customers in unproductive ways.

Given the extent of all our different priorities, we will always find that different views exist. However, the challenges we face and the changes we need to make together will only be successfully delivered if we focus on where we have common interest.

The most significant and beneficial area of common interest, I suggest, is engaging customers to buy more of farming’s production and increasing production capacity – they go hand in hand.

We must work together to change because the world is changing faster than we are, and the challenges are insurmountable if we act alone. Climate change and its effect on weather patterns, health, food shortages and food waste, and the impact of emerging economies’ purchasing power are all examples of the challenges we must face together.

Over the next 10 years, emerging economies are expected to grow three times as fast as European economies. Every two years, the growth in demand for pork in China is equal to the entire amount of pork consumed in the UK. As customers spend more, they create more demand for food, reshaping and refocusing our industry.

Another example – commodity prices are rising and becoming more volatile. Cereal prices doubled in 2008, halved the following year, and have since returned to their peaks. This makes securing supply more challenging, business planning harder, and increases uncertainty for customers.

These challenges must increasingly form the future agenda we set ourselves and the basis of the relationship we must create. Trust is paramount in building relationships, and delivering on our sourcing commitments helps build that trust. So let me tell you what progress we have made.

We said that, where it is reasonable to do so, we will shorten our supply chains and source closer to home. We have made very significant improvements and we remain proud to be UK agriculture’s biggest customer and supporter.

Put simply, we buy more British produce than any other retailer, which in turn means more customers buy British produce from us than from anywhere else. All our own-brand fresh eggs, milk and butter are 100% British, as are almost all of our root vegetables, parsnips and carrots.

Uniquely, 100% of our beef across fresh, frozen, and ready-meals is British and Irish; we sell more British lamb than any other retailer; all of our sausages are British; and as we promised last year 100% of our fresh chicken is now British because we have been able to find the supply. This means an additional 20,000t of chicken every year from the UK – the equivalent of about 200 new chicken sheds.

We also promised to build better relationships with our farmers. We have now offered two year contracts to more than 200 lamb and 100 beef farmers, with more planned. Our Sustainable Farming Groups, pioneered with liquid milk, have already been extended to beef and lamb, and the model is currently being trialled with cheese.

We have appointed Tom Hind as our agriculture director and our independent panel is now in place, and together they will help us to better understand and respond to farmers.

Looking to the future we have launched the Future Farmer Foundation, funded by Tesco, offering leadership training, business planning advice, mentoring, supply chain experience and networking opportunities for young farmers across the UK.

We are the first to offer over 100 young farmers the help they need to make a success of a career in farming.

We promised to put in place better controls over our supply chain, and we have done so. We have carried out authenticity tests on many thousands of products across our businesses, and we are now using stable isotope ratio analysis to examine country of origin.

We have shared all these results with our customers online. The programme has become part of the way we do business, and alongside the work carried out by our quality team, means that Tesco products are now more rigorously tested than ever before.

These are some of our achievements over the past year, but as I said earlier the challenge is far bigger. I have spent a great deal of my time talking to farmers and others in agriculture to better understand the underlying issues, the impact of global changes in demand and the concerns of farmers for their businesses.

My belief is that the challenge for UK farming is to win more customers, not win round more supermarkets, and we are uniquely placed to work with you to do just that.

We are the biggest single part of the UK food market, British agriculture’s biggest customer, buying over 20% of all the meat produced on British soil, and for example, 30% of the retail production of British chicken.

When it comes to vegetables, we buy 25% of the British onion crop, 12% of the potato crop and 19% of the carrot crop, which is considerable given that a great proportion of these vegetables are destined to sectors other than retail. We can, with your help, change the market.

We should focus on what it will take to produce enough food to meet the need of the whole UK market and make it affordable for customers. What is at stake is much more than a retailers’ beauty contest and we need to move on from comparing Tesco with other retailers that can fill their relatively smaller volumes with UK produce.

Tesco in the UK is as big as Sainsbury’s and Morrisons combined, so comparing our percentage of UK food is meaningless. It misses the real challenge, and opportunity, which is that as a farming industry we simply do not yet produce enough of to be affordably self-sufficient year-round.

This is why I say my proposal is to look at Tesco not in the traditional way, as a challenge, but instead to look at Tesco as a partner in a joint endeavour, to increase both supply and demand in the market as a whole.

My argument is best illustrated with an example. We buy and sell more British asparagus than anyone, but customer demand is greater than UK supply. When we run out of UK supply, we buy from South America because our customers want asparagus and we exist to serve them.

If we didn’t import, we could claim to be 100% British in asparagus. That wouldn’t help the customer trying to buy asparagus. Nor would it help the UK grower because we would be actively restricting, not growing, demand.

So we work with our UK growers to increase capacity, give them the confidence to invest in equipment to extend the season, knowing that the demand will be there, so that next year we will sell more UK asparagus. Everyone wins because we’ve met increased demand with more supply.

We have many examples of a similar approach. Take mushrooms, where we have increased UK mushroom volume by 25% to half our total supply by working with our strategic partners, G’s Fresh, to build a new dedicated production and packing facility in the Fens producing 100t of closed-cup mushrooms a week.

Or curly kale, where we partnered with Emmett UK to work out how we increase production and meet the ever increasing demand. Sales are up 100% in volume on last year.

It is in protein that we are most often challenged to source more from the UK. We have made good progress as I outlined earlier, with beef and chicken especially. But it is not simply a matter of Tesco choosing to sell more meat from the UK and less from overseas.

Our competitors will tell you that they source British and sales are strong, but their volumes are low enough to be met by existing capacity without an increase in price. There is not capacity in the UK for the whole market to be 100% British without making protein unaffordable for customers, so we need to solve the capacity problem and ensure demand grows.

The capacity constraints in supply are complicated by carcass imbalance in pork, chicken and lamb particularly. Customers in the UK value different cuts of different species and because we don’t breed four-breasted chickens or eight-legged lambs, meeting the demand for the whole UK market is not just a matter of will.

We need to increase production to meet demand but also work on finding customers for other cuts, often in other markets around the world. We won’t achieve either without working together and agreeing a common agenda.

I am determined that part of that common agenda is to change our measure of success from increasing percentages to increasing volumes, which is the real prize.

More volume means we have created more customers. British agriculture needs to sell more to prosper, to create more markets, to look globally and outwardly not focus ever inwardly on a measure of success – 100% British – which can be achieved without ever increasing volumes.

I want to sell more to customers, in Britain and globally. Across the world, we compete for products and commodities with buyers servicing Brazil, Indonesia, the Middle East – every fast growing economy with huge demand for protein and the commodities which support it.

By focusing on volume growth we will develop a global, not a national, view of the opportunity.

We have made very good progress in the past year, and you can trust us to deliver against our commitments. Looking ahead, we must focus on the issues we jointly face.

The interests of the customer are the unifying factor for us all. It is the challenges they face and those they set us that we must tackle together.

We must increase capacity in an affordable way for customers, in order to increase consumption of our products both in the UK and across the world. We must help improve the nation’s health and reduce waste, and we must invest in the future of the farming industry to ensure long-term growth.

These are the real challenges we face and how our industry’s future success will be judged. In this fast-changing, challenging environment, if we work together in partnership, I believe we will achieve great success.