Commitment to shortening supply chains and local sourcing by major UK supermarket
24 June 2013
According to The Poultry Site, the UK supermarket Tesco “has pledged to source produce more locally and to shorten the supply chain”. Tesco announced that it plans to offer “direct contracts to farmers to supply Aberdeen Angus beef and fresh pork”, in addition to its current “Sustainable Dairy Group” initiative. The contracts with farmers would be for a 2-year period.
According to Tesco CEO Philip Clarke, “these direct contracts are overseen by a committee of farmers with the express aim to develop a new spirit of partnership and to offer them the certainty of a fair deal financially.” He maintained that these arrangements were allowing Tesco to “pay beef farmers an above-market price for their meat and offer pork farmers a cost that is directly linked to the price of animal feed”. The Tesco CEO declared that “where it is reasonable to do so,” the company will source fresh foodstuffs in the UK. It also plans to launch a dialogue with UK farmers on how to “increase UK capacity for the production of meat and poultry”. Specifically, the CEO committed the company to procuring all its fresh chicken from UK farms by July 2013, and to progressively converting all its chicken products to UK-procured meat supplies.
These moves form part of a “root and branch” review of Tesco’s supply chain operations, and have been given added importance by the 2013 “horsemeat scandal”.
The initiatives need to be seen against the background of surveys in the UK revealing that 82% of shoppers are “likely or more likely… to buy more traceable food that has been produced on British farms”. They also need to be seen against the background of renewed calls from the EU farmers’ organisation Copa-Cogeca for a policy framework that reinforces the position of farmers within food supply chains by “strengthening producer organisations and cooperatives to enable farmers to get a better return from the market”.
Editorial comment
Tesco’s initiative to undertake a “root and branch” review of its supply chain operations appears to form part of a market repositioning strategy in response to the rise of discount retailers such as Aldi and Lidl during the economic downturn. However, while ACP countries, apart from Namibia and Botswana, have little interest in EU meat markets, the Tesco initiative reflects a development that could potentially have an impact on ACP exporters.
This impact relates to the growth of consumer concerns about where their food is produced, in terms of both traceability and sustainability. The trend was also evidenced in the supermarket Asda’s earlier decision to procure bananas increasingly from the Canary Islands, in view of the perceived lower-carbon footprint of bananas sourced from within the EU. It is also reflected in initiatives such as the Irish Food Board’s ‘Origin Green’ labelling scheme, which aims to brand as more sustainably produced locally produced products that comply with a series of sustainable business practices (see Agritrade article ‘ Irish Food Board introduces new quality labelling scheme’, 16 December 2012). If this trend continues, it could potentially close off certain market outlets in the EU to ACP exports.
However, the Tesco initiative to deal directly with farmers in sourcing fresh produce for their stores could also potentially offer a commercial model for the launch of similar initiatives in ACP countries. Across the ACP, particularly in Africa, rising incomes and strong economic growth are seeing an expansion of the share of supermarket chains in total retail sales. This often involves investment from regional or global supermarket chains, bringing established procurement practices and sourcing networks with it. It can potentially lead to local producers of a range of products being excluded from this expanding retail sector.
This suggests a need for ACP governments to explore how they can encourage multiple retailers seeking to open new stores in their countries to review their sourcing practices, in order to open up new market opportunities for local producers. With different experiences on the use of policy tools across the ACP, a sharing of policy experiences in this regard would appear to be appropriate. (For more background on what kind of dialogue this might require, see Agritrade article ‘ Better information on retailer plans sought to boost sector development’, 18 May 2013.)
