Farmers and supermarkets have never been the best of chums, their relationship often marred by mistrust and claims of exploitation.
But with the dedicated supply group model gaining ground, multiples and producers are getting cosier. So, asks Richard Ford, how do the supermarkets measure up on farm friendliness?
The Tories claim they support UK farming, and sustainability has been a central plank of food policy for a while. Yet much of British output is in decline. It's all too easy to find fault with the supermarkets we've all seen the exposés blaming poor poultry welfare on their demand for low prices but it's over-simplistic to suggest they are chiefly responsible.
Indeed, many are doing more than simply voice their support for the farming industry. Most now have dedicated farmer supply groups, notably in dairy. Elsewhere, however, such groups are conspicuous by their absence. So do they really hold the key to better relations between farmers and retailers across agri-food? Or are they more aggro than they're worth?
To say there is a need for a closer working relationship between farmers and retailers is an understatement, particularly in dairy. The domestic dairy herd has shrunk by a whopping 24% since 1999, bringing milk production to a 30-year low of 11.8 billion litres in 2009.
Waitrose and M&S were arguably the first to appreciate the scale of the problem and five years ago were seen as the only players striving to raise standards and bring security to the dairy industry. "Farmers who were supplying [Waitrose and M&S] seemed to be the ones who were making the investment in their farms," says Sussex dairy farmer William Goodwin, a member of the Sainsbury's Dairy Development Group (SDDG).
But the other supermarkets have since caught up. Now, as well as Waitrose's Select Farm initiative (established in 1999) and M&S's Milk Pledge (introduced in 2003), we have the SDDG (launched in 2006) and Tesco Sustainable Dairy Group (launched in 2007). And over the past couple of months both M&S and Sainsbury's have enhanced their schemes, M&S linking the price the farmer pays to the M&S shelf price and Sainsbury's improving its animal welfare standards.
Dedicated groups were already pretty popular, offering as they did a premium price in return for reaching high herd health standards and reductions in the farm's environmental footprint. But the improvements are likely to make them even more so.
The best groups are nothing less than "win-win" propositions, believes Lee Woodger, head of the NFU's food chain unit. "There's more stability on price and certainly more stability in terms of supply," he says. "It's not free, of course; farmers are expected to do more work, share data and meet higher specifications."
But, attests Goodwin, the investment is rewarded. As a member of the SDDG, he feels Sainsbury's is leading the way as far as standards go. He cites the facts that it pays its dairy farmers a premium of 2.1ppl above the market average and funds farmers' attendance at workshops on lameness and fertility as well as paying for veterinary visits and environmental audits.
More importantly to Goodwin and his peers, the group gives farmers a voice by encouraging full and frank discussion on issues affecting the industry. "It's that investing and understanding that has actually built up confidence," he says. "They're not telling us how to farm our farms, they're allowing us to farm our farms."
Insiders say dairy leads the way when it comes to the dedicated supply group model in terms of the way prices are linked to farmers' ability to meet set production standards but it is not perfect. The widening price gap between top-end milk contracts and less profitable cheese contracts has risen from 3.7ppl a year ago to 6.23ppl now [DairyCo].
Yet at the moment the focus is almost entirely on liquid milk and calls for pools to be set up in cheese have largely fallen on deaf ears, leading producers to question the profitability of putting milk into cheese at all. While Sainsbury's has established a cheese development group, unlike its milk group, it does not pay a premium to those farmers.
Sainsbury's also has dedicated supply groups for its Woodland egg brand and organic apples, as well as its Taste The Difference pork, lamb and regional lamb.
In pork, Waitrose, Morrisons and The Co-operative Group rank among the best, says Bpex director Mick Sloyan. He claims Waitrose's dedicated pork supply chain, where BQP farms its pigs and Dalehead Foods processes its pork, is even more sophisticated than the dairy supply chains in terms of offering farmers a good deal.
Unlike the dairy chains, which focus only on milk, Waitrose pays a price for the whole pig carcase to its pig farmers. This is an important element for farmers, because carcase balance utilising every part of the pig is crucial to profitability.
The model has already proved its worth, according to Sloyan. "When feed prices went through the roof in 2007, Waitrose paid its suppliers a bit more to cope with that, and when pig prices went high in reverse, they didn't pay as much as the market, so they got their money back on what they'd spent."
In contrast, while Morrisons does not have its own dedicated herds, it is committed to sourcing 100% British pork, which it processes via its own abattoirs something its peers are still a long way from doing, says Sloyan.
Whatever their makeup, supply groups are not always matches made in heaven. While they help protect producers and retailers from swinging prices in times of dearth and deluge, high spot prices on the open market can sometimes tempt farmers away from retailer contracts.
Instances of farmers breaking contracts to make a quick buck are rare, but they are not completely unheard of, a buyer from one of the major multiples says. "There are examples where the cost-plus model hasn't worked as well for people as perhaps they thought it would've done," says Stuart Thomson, associate director at English Farming and Food Partnerships (EFFP).
There must also be an appreciation of the impact such groups have on producers not "in the club", he warns. "The more the partnerships happen, the riskier it will be for those who remain outside those partnerships because they'll be much more exposed to the vagaries of the marketplace."
This is another reason for the groups' growing popularity but if a relationship is to work, it has to be two-way, stresses Asda. In March, it took the decision to reduce the number of farmers in its dairy supply group from 500 to 400.
"Some farmers have not turned up to a single Asda meeting in five years," explains Chris Brown, Asda's head of ethical and sustainable sourcing. "We've paid for international experts to improve their herds. We needed a cost-effective group that are committed to us and us to them."
The downside for farmers interested in joining dedicated supply groups is that this could signify the beginning of an efficiency drive among the longer established dedicated supply chains, believes Thomson. "These groups are going to be challenged and asked 'what are you going to add to the supply chain?' and equally the retailers are going to be accountable."
Making farmers work for the price premium they receive seems a reasonable enough demand. But others suggest there are more sinister motivations behind retailers' drive to set up dedicated supply groups. Some see retailers' efforts to better understand the supply chain as the prelude to an attempt to squeeze farmers on price. "You can look at them in terms of 'they'll understand the costs and drive them even lower',"says the NFU's Woodger.
On balance, however, most believe that a closer relationship between retailers and farmers is a positive thing as retailers will understand better the real cost of producing food. "You end up with security of supply at the specification that is required and less volatility in price, which is obviously a positive," adds Woodger.
Farmers also benefit from the data the retailers are willing to share. Tesco, for instance, shares consumer research, sales trends, planned promotions and successes. "There is great value in sharing information that helps suppliers and producers understand more about customer trends, so they can adapt and plan activity to grow their business," says a spokeswoman.
Sainsbury's adds that closer relationships allow it to ensure quality. "We have a much greater ability to drive quality and jointly identify efficiencies in the supply chain, ultimately making them more sustainable," says Annie Graham, head of brand sustainability, agriculture and health.
Waitrose agrees. "Our complex requirements are not met by price alone, as we require our suppliers to provide food of the highest quality that is farmed to the highest standards of animal welfare, environmental care and sustainability," says a spokesman.
If quality is Waitrose's byword, fairness is arguably The Co-operative Group's. The group, which is also possibly the closest to farmers, doesn't operate any dedicated supply groups. Perhaps it doesn't feel the need to, given the strong relationships it has fostered with farmers through The Co-operative Farms arm.
However, Co-op Farms has to tender for business with Co-op Food like any other potential supplier. This has pros and cons for both parts of the business, says Christine Tacon, MD of Co-op Farms.
"There will be times when crop is available on the spot market at very cheap prices, but if growers have grown on a contract to the farming business, those prices will be higher," she says. "In the same way, the business benefits at times of product shortage."
Whether it's via dedicated supply groups or simply a concerted effort to forge stronger relationships, retailers are cosying up to farmers as never before. With farmers continuing to leave the industry and retailers facing increased calls for more British produce, the number of dedicated supply groups looks set to increase.
The challenge now is to extend those groups from existing product areas, such as fresh milk, into other mainstream agri-food sectors. Given the unstoppable growth of the supermarkets, farmers would do well to keep their friends close and their old enemies even closer.
Views from the top
"Tesco has the best milk contract; Sainsbury's has the best relationships with its dairy farmers" - A dairy farmer
"Waitrose's supplier relationships are good. Its farmers are paid premiums - the farmers have to meet specifications, but there's a lot more clarity in its supply contracts and they're long- term. I'm green with envy of those with Waitrose contracts" - A beef farmer
"The one that talks the talk the best is Sainsbury's. It seems to be the one that makes the most noises" - A chicken farmer
"Sainsbury's is very good and I would also say that Asda is very good. They [both] give out the impression that they listen to you and they value your opinion" - A beef farmer
"There's one standing out a mile and that's Waitrose. There are others that are fairly good: M&S and Budgens are quite good and I believe The Co-operative is. The pork that goes on the Waitrose shelves, that's from dedicated producers and Waitrose doesn't go outside its dedicated producers" - A pig farmer
Milk Prices
One of the key incentives for farmers to join the dedicated dairy groups is the pence per litre (ppl) premium they receive above the market price. Here's how the retailers measure up.
Waitrose 27.29 ppl
M&S 27.17-27.25 ppl
Tesco* 26.22-26.73
Sainsbury's 25.56-26.28
Asda 24.60
Morrisons 23.86-23.95
The Co-operative Group 23.86-24.18
*Farmers signed up to Tesco's Promar system receive an additional 0.50ppl
Source: DairyCo Data: average fresh milk prices, that would be paid to the majority of farmers supplying the named supermarkets paid over 12 months if the March price schedule remained the same.
On shelf
These are the results of Eblex's February Beef and Lamb Watch survey, which shows how much British meat the retailers had on shelf in a sample number of stores that month. Amounts vary throughout the year.
Tesco
Beef: 82%
Lamb: 32%
Sainsbury's
Beef: 76%
Lamb: 32%
Asda
Beef: 65%
Lamb: 70%
Waitrose
Beef: 100%
Lamb: 0%
Morrisons
Beef: 100%
Lamb: 98%
M&S
Beef: 100%
Lamb: 4%
The Co-op
Beef: 98%
Lamb: 18%
But with the dedicated supply group model gaining ground, multiples and producers are getting cosier. So, asks Richard Ford, how do the supermarkets measure up on farm friendliness?
The Tories claim they support UK farming, and sustainability has been a central plank of food policy for a while. Yet much of British output is in decline. It's all too easy to find fault with the supermarkets we've all seen the exposés blaming poor poultry welfare on their demand for low prices but it's over-simplistic to suggest they are chiefly responsible.
Indeed, many are doing more than simply voice their support for the farming industry. Most now have dedicated farmer supply groups, notably in dairy. Elsewhere, however, such groups are conspicuous by their absence. So do they really hold the key to better relations between farmers and retailers across agri-food? Or are they more aggro than they're worth?
To say there is a need for a closer working relationship between farmers and retailers is an understatement, particularly in dairy. The domestic dairy herd has shrunk by a whopping 24% since 1999, bringing milk production to a 30-year low of 11.8 billion litres in 2009.
Waitrose and M&S were arguably the first to appreciate the scale of the problem and five years ago were seen as the only players striving to raise standards and bring security to the dairy industry. "Farmers who were supplying [Waitrose and M&S] seemed to be the ones who were making the investment in their farms," says Sussex dairy farmer William Goodwin, a member of the Sainsbury's Dairy Development Group (SDDG).
But the other supermarkets have since caught up. Now, as well as Waitrose's Select Farm initiative (established in 1999) and M&S's Milk Pledge (introduced in 2003), we have the SDDG (launched in 2006) and Tesco Sustainable Dairy Group (launched in 2007). And over the past couple of months both M&S and Sainsbury's have enhanced their schemes, M&S linking the price the farmer pays to the M&S shelf price and Sainsbury's improving its animal welfare standards.
Dedicated groups were already pretty popular, offering as they did a premium price in return for reaching high herd health standards and reductions in the farm's environmental footprint. But the improvements are likely to make them even more so.
The best groups are nothing less than "win-win" propositions, believes Lee Woodger, head of the NFU's food chain unit. "There's more stability on price and certainly more stability in terms of supply," he says. "It's not free, of course; farmers are expected to do more work, share data and meet higher specifications."
But, attests Goodwin, the investment is rewarded. As a member of the SDDG, he feels Sainsbury's is leading the way as far as standards go. He cites the facts that it pays its dairy farmers a premium of 2.1ppl above the market average and funds farmers' attendance at workshops on lameness and fertility as well as paying for veterinary visits and environmental audits.
More importantly to Goodwin and his peers, the group gives farmers a voice by encouraging full and frank discussion on issues affecting the industry. "It's that investing and understanding that has actually built up confidence," he says. "They're not telling us how to farm our farms, they're allowing us to farm our farms."
Insiders say dairy leads the way when it comes to the dedicated supply group model in terms of the way prices are linked to farmers' ability to meet set production standards but it is not perfect. The widening price gap between top-end milk contracts and less profitable cheese contracts has risen from 3.7ppl a year ago to 6.23ppl now [DairyCo].
Yet at the moment the focus is almost entirely on liquid milk and calls for pools to be set up in cheese have largely fallen on deaf ears, leading producers to question the profitability of putting milk into cheese at all. While Sainsbury's has established a cheese development group, unlike its milk group, it does not pay a premium to those farmers.
Sainsbury's also has dedicated supply groups for its Woodland egg brand and organic apples, as well as its Taste The Difference pork, lamb and regional lamb.
In pork, Waitrose, Morrisons and The Co-operative Group rank among the best, says Bpex director Mick Sloyan. He claims Waitrose's dedicated pork supply chain, where BQP farms its pigs and Dalehead Foods processes its pork, is even more sophisticated than the dairy supply chains in terms of offering farmers a good deal.
Unlike the dairy chains, which focus only on milk, Waitrose pays a price for the whole pig carcase to its pig farmers. This is an important element for farmers, because carcase balance utilising every part of the pig is crucial to profitability.
The model has already proved its worth, according to Sloyan. "When feed prices went through the roof in 2007, Waitrose paid its suppliers a bit more to cope with that, and when pig prices went high in reverse, they didn't pay as much as the market, so they got their money back on what they'd spent."
In contrast, while Morrisons does not have its own dedicated herds, it is committed to sourcing 100% British pork, which it processes via its own abattoirs something its peers are still a long way from doing, says Sloyan.
Whatever their makeup, supply groups are not always matches made in heaven. While they help protect producers and retailers from swinging prices in times of dearth and deluge, high spot prices on the open market can sometimes tempt farmers away from retailer contracts.
Instances of farmers breaking contracts to make a quick buck are rare, but they are not completely unheard of, a buyer from one of the major multiples says. "There are examples where the cost-plus model hasn't worked as well for people as perhaps they thought it would've done," says Stuart Thomson, associate director at English Farming and Food Partnerships (EFFP).
There must also be an appreciation of the impact such groups have on producers not "in the club", he warns. "The more the partnerships happen, the riskier it will be for those who remain outside those partnerships because they'll be much more exposed to the vagaries of the marketplace."
This is another reason for the groups' growing popularity but if a relationship is to work, it has to be two-way, stresses Asda. In March, it took the decision to reduce the number of farmers in its dairy supply group from 500 to 400.
"Some farmers have not turned up to a single Asda meeting in five years," explains Chris Brown, Asda's head of ethical and sustainable sourcing. "We've paid for international experts to improve their herds. We needed a cost-effective group that are committed to us and us to them."
The downside for farmers interested in joining dedicated supply groups is that this could signify the beginning of an efficiency drive among the longer established dedicated supply chains, believes Thomson. "These groups are going to be challenged and asked 'what are you going to add to the supply chain?' and equally the retailers are going to be accountable."
Making farmers work for the price premium they receive seems a reasonable enough demand. But others suggest there are more sinister motivations behind retailers' drive to set up dedicated supply groups. Some see retailers' efforts to better understand the supply chain as the prelude to an attempt to squeeze farmers on price. "You can look at them in terms of 'they'll understand the costs and drive them even lower',"says the NFU's Woodger.
On balance, however, most believe that a closer relationship between retailers and farmers is a positive thing as retailers will understand better the real cost of producing food. "You end up with security of supply at the specification that is required and less volatility in price, which is obviously a positive," adds Woodger.
Farmers also benefit from the data the retailers are willing to share. Tesco, for instance, shares consumer research, sales trends, planned promotions and successes. "There is great value in sharing information that helps suppliers and producers understand more about customer trends, so they can adapt and plan activity to grow their business," says a spokeswoman.
Sainsbury's adds that closer relationships allow it to ensure quality. "We have a much greater ability to drive quality and jointly identify efficiencies in the supply chain, ultimately making them more sustainable," says Annie Graham, head of brand sustainability, agriculture and health.
Waitrose agrees. "Our complex requirements are not met by price alone, as we require our suppliers to provide food of the highest quality that is farmed to the highest standards of animal welfare, environmental care and sustainability," says a spokesman.
If quality is Waitrose's byword, fairness is arguably The Co-operative Group's. The group, which is also possibly the closest to farmers, doesn't operate any dedicated supply groups. Perhaps it doesn't feel the need to, given the strong relationships it has fostered with farmers through The Co-operative Farms arm.
However, Co-op Farms has to tender for business with Co-op Food like any other potential supplier. This has pros and cons for both parts of the business, says Christine Tacon, MD of Co-op Farms.
"There will be times when crop is available on the spot market at very cheap prices, but if growers have grown on a contract to the farming business, those prices will be higher," she says. "In the same way, the business benefits at times of product shortage."
Whether it's via dedicated supply groups or simply a concerted effort to forge stronger relationships, retailers are cosying up to farmers as never before. With farmers continuing to leave the industry and retailers facing increased calls for more British produce, the number of dedicated supply groups looks set to increase.
The challenge now is to extend those groups from existing product areas, such as fresh milk, into other mainstream agri-food sectors. Given the unstoppable growth of the supermarkets, farmers would do well to keep their friends close and their old enemies even closer.
Views from the top
"Tesco has the best milk contract; Sainsbury's has the best relationships with its dairy farmers" - A dairy farmer
"Waitrose's supplier relationships are good. Its farmers are paid premiums - the farmers have to meet specifications, but there's a lot more clarity in its supply contracts and they're long- term. I'm green with envy of those with Waitrose contracts" - A beef farmer
"The one that talks the talk the best is Sainsbury's. It seems to be the one that makes the most noises" - A chicken farmer
"Sainsbury's is very good and I would also say that Asda is very good. They [both] give out the impression that they listen to you and they value your opinion" - A beef farmer
"There's one standing out a mile and that's Waitrose. There are others that are fairly good: M&S and Budgens are quite good and I believe The Co-operative is. The pork that goes on the Waitrose shelves, that's from dedicated producers and Waitrose doesn't go outside its dedicated producers" - A pig farmer
Milk Prices
One of the key incentives for farmers to join the dedicated dairy groups is the pence per litre (ppl) premium they receive above the market price. Here's how the retailers measure up.
Waitrose 27.29 ppl
M&S 27.17-27.25 ppl
Tesco* 26.22-26.73
Sainsbury's 25.56-26.28
Asda 24.60
Morrisons 23.86-23.95
The Co-operative Group 23.86-24.18
*Farmers signed up to Tesco's Promar system receive an additional 0.50ppl
Source: DairyCo Data: average fresh milk prices, that would be paid to the majority of farmers supplying the named supermarkets paid over 12 months if the March price schedule remained the same.
On shelf
These are the results of Eblex's February Beef and Lamb Watch survey, which shows how much British meat the retailers had on shelf in a sample number of stores that month. Amounts vary throughout the year.
Tesco
Beef: 82%
Lamb: 32%
Sainsbury's
Beef: 76%
Lamb: 32%
Asda
Beef: 65%
Lamb: 70%
Waitrose
Beef: 100%
Lamb: 0%
Morrisons
Beef: 100%
Lamb: 98%
M&S
Beef: 100%
Lamb: 4%
The Co-op
Beef: 98%
Lamb: 18%
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