Environment, Food and Rural Affairs Committee
Oral evidence: Beef grading, HC 430
Wednesday 14 September 2016
Ordered by the House of Commons to be published on 14 September 2016.
Members present: Neil Parish (Chair), Chris Davies, Jim Fitzpatrick, Simon Hart Dr Paul Monaghan, Rebecca Pow, Ms Margaret Ritchie, David Simpson, Angela Smith, Rishi Sunak, and Valerie Vaz
Witnesses
I: John Dracup, Red Meat Livestock Procurement Director, 2 Sisters, Tom Kirwan, Chief Executive for ABP UK, ABP Food Groups, and Jim Dobson, Group Managing Director, Dunbia.
II: Tim Smith, Group Quality Director, Tesco, and Andrew Opie, Director of Food and Sustainability, British Retail Consortium.
Witnesses: John Dracup, Tom Kirwan and Jim Dobson.
Q154 Chair: Gentlemen, welcome to the Committee. Thank you very much for coming to give evidence on beef grading and the supply chain of beef. Starting with Jim, if you would like to introduce yourselves, please, and then we will fire away.
Jim Dobson: I am the managing director of Dunbia. Dunbia is a business that involves myself and my brother, Jack, which was formed back in 1976. It started off as a small butcher’s shop in Dungannon in Northern Ireland. It is still a family business, but we now have nine sites in the UK and two in Southern Ireland. We are a multi-species processor of beef, lamb and pigs from around 23,000 producers over the UK and Ireland. We have approximately 7.5% of the prime kill in GB and 12.5% in Northern Ireland. Customers range from retailers in the domestic market to key export outlets for high value cuts to enable our carcase balance.
Tom Kirwan: Tom Kirwan, managing director of ABP in the UK. Our business is, much like James’s, a retail-focused business slaughtering both beef and lambs in the UK and Northern Ireland.
John Dracup: John Dracup, livestock procurement director for 2 Sisters Red Meat. We have sites in Cornwall, south Wales and Aberdeenshire in Scotland procuring beef and lamb throughout England, Wales and Scotland from approximately 15,000 farmers. Their average size is 57 cattle per annum per farmer and 400 lambs.
Q155 Chair: Thank you very much. We appreciate you all coming in this afternoon. I will ask the first question. The purpose of bringing you in is that you have changed the grading system, and we accepted the need for changing the system. We want to first of all ask you why it was changed and how it seems to have had a rather large effect on the value of cattle going through the new grading system. That is certainly something that the farmers in particular charge you with. You may well feel that is not the case, but can you explain it to us? It is a system used on the continent; it is used in France quite a bit. Would you like to explain why you have brought it in and why it seems that suddenly quite a lot of value has been knocked off of certain livestock going through the system? Who wants to start with that one?
Tom Kirwan: The visual imaging analysis—the VIA—basically takes a picture of the carcase; it is a very different way of grading than the manual system. It was not that there was anything wrong with the manual system but it is, by its nature, subjective rather than objective. The new way of grading using the camera system brings a great degree of consistency to the grading. It is bringing science to it and it allows us then to use those pictures as we go forward in our breeding programmes. In terms of the value that we stand accused of taking out of the value chain, we know that the AHDB wrote a report, and rightly so the Committee has taken on the figures. It issues its report in four tranches. The first tranche of the report was very emotive in that it said we took £1 million out of the supply chain in a month. I personally do not recognise that.
Q156 Chair: You might recognise it if you were a farmer receiving substantially less for your cattle, I would have thought.
Tom Kirwan: Chair, if I may, if I take the three critical weeks in our operation, the week before we put in the VIA grading £1,095 was the average cost of my animals. The week during installation it was £1,097, and the week after it was £1,100. If there was ever to be a time when the value would be missing in the supply chain, that would have been the period of time. I do not recognise that value as missing.
Q157 Chair: In what period was the survey done by the AHDB?
Tom Kirwan: I think it was a month comparing February. I can write to you to clarify that, but I think it was that period.
Q158 Chair: Therefore, that survey was done over a longer period.
Tom Kirwan: Yes, but I can only talk about the experience within my organisation. The AHDB figures that they may have reported are for the entire market. I can only speak for my own organisation. The new grid system reflects the business that I have demand for meat for. I do not recognise the £1 million per month missing out of it. I might say that this time last year the cost for cattle was £1,120 and this year it is £1,136, so I question this erosion of value.
Q159 Chair: Partly we have had a reduction in the value of the pound and quite a lot has followed on. Therefore, we have got to be a little bit careful about where we are now and where we were when the grading system came in. What I have had is anecdotal evidence and evidence from farmers who have directly lost between £100 and £150 per animal when the system changed. This is what we are trying to drill down on, because the cattle were of a similar quality; it is just that the grading system seemed to downgrade or down-price. It is not so much the grading system that I am in dispute with you over; it is the pricing of the different grades of cattle and how that came about in a reduction to the farmgate price to the farmer. Other witnesses ought to speak as well but, Tom, you answer that one.
Tom Kirwan: Chair, if we go to the AHDB report, the first version was the one in which the figure was reported when you met last on this subject. The final report has been published and it basically says that the new system does not work for either the benefit of the processor or the farmer. It does not work in favour of either/or; that is one of its conclusions at the end. There are other conclusions that we may come onto later, but, from my perspective, it is not punitive for the cattle that we need for our customers.
John Dracup: With regard to the 2 Sisters Food Group, we have not changed the system of grading our stock within our facilities. We have been using exactly the same method, which is the MLC Services Ltd’s carcase classification grading service in all our facilities. Nothing has changed with regard to the methodology of how we establish the grades within the factory. We did change our pricing structure, and that pricing structure was to reflect our customers’ specification and ensure that we as a company could sell more British beef from West Country, Welsh, Scottish and British farms to our customers and ensure that we are selling more rather than less of that product. That is why we changed the system.
Q160 Chair: Let us get this clear: are you using the new grading system?
John Dracup: We are not using the new grading system.
Q161 Chair: If it is such a good system why did you choose not to use it and Tom and ABP did? Why are one big slaughter house group deciding to use a new system and another not?
John Dracup: It is down to each individual company to make their own commercial decisions as to where they go and how they operate. We as an organisation value the role and independence of the Meat and Livestock Commission’s classification service that not only validates the grade of the animal but also validates the weight and the trimming specification of that animal independently. We are buying the product, the producer is selling it and they are the independent intermediary in the middle that we choose as an organisation to promote.
Q162 Chair: Therefore, you would believe that the traditional system that you are using suits you and suits the grading of that carcase that you are buying better than the new scanning system.
John Dracup: It suits our business and suits our relationship currently better with our producer base. However, I would not say that there will not be a time when we look at an alternative method going forwards.
Q163 Rishi Sunak: John, you mentioned that you had put in the new payment system. Am I right in saying that you said that was at the request of the retailers?
John Dracup: No. We instigated the pricing structure ourselves. That is my responsibility as the procurement director to manage the payment to producers. What I have to do is ensure that we are delivering the right specification and the right quality to those customers, and I have to have a pricing mechanism that delivers that.
Q164 Rishi Sunak: Fine, but you did it in response to changing customer needs. Is that fair?
John Dracup: Yes, that is correct.
Q165 Rishi Sunak: Could I very briefly on that point ask the other two gentlemen the same question? Assuming that you have also introduced new payment grids, would you give the same rationale for why you did that as Mr Dracup?
Tom Kirwan: In our business, if we look at what has happened in the last three to four years in the British beef trade, whilst the top line demand figure has not changed by very much, within the total beef consumption we have what I would call a premiumisation of steaks within our supply chain. That premiumisation has come about through dry aging, maturation periods or breed specific. What is most critical is that the new way of promoting steaks at retail level is at fixed weight. When you go to a fixed weight model it is important that the raw material that you bring in is more consistent.
Therefore, the change in consumer demand that has happened over a three to four-year period is that we have seen an 8% increase in steak sales with the top line being flat. That increase in steak sales has been driven by and large by a fixed weight packing, greater maturation and enhancement in a premiumisation of the product. That has certainly changed our behaviour and hence we would have changed our pricing mechanism to reflect that change in demand.
Chair: I am conscious that we have not heard from Jim. We will hear from Jim, and then David would like to make a point.
Jim Dobson: We have the VIA machine in Northern Ireland but the MLC graders here on the mainland. We did not put in the VIA on the mainland because we reckon there is going to be more technology, which will be even better than what the VIA machine is, in a very short period of time. A lot of technology is going to be advanced in that way through using the fat depth. The grading system that we have for saleable meat will be something that we will look at in the future very quickly. That is hence why we as a company did not invest in the mainland.
Q166 Chair: Am I clear that you are using the new system in Northern Ireland but not on the mainland in the UK? Is that right?
Jim Dobson: That is right.
Q167 Chair: What is the difference between a cow in Northern Ireland and a cow on the mainland for you to have two different systems?
Jim Dobson: The Northern Ireland factories all bought the machine at the same time, so the grading people we let off from the MLC at that particular time.
Q168 David Simpson: I refer Members to my Member’s interest in the agri‑food sector.
Chair: We will register that.
David Simpson: I will also register my friendship with Jim Dobson for the past 30 years; whether he would want that publically known or not is a different story.
Chair: That is probably very dangerous.
David Simpson: Can I hit on the point of the grading in Northern Ireland? In relation to the new system that has been put in in Northern Ireland, Jim or Tom, what consultation was carried out either with the Ulster Farmers’ Union or the farmers themselves? If it was done what was the feedback on that?
Jim Dobson: Lots of consultation went on. First of all, it had to make all the graders in Northern Ireland at that time redundant. There was quite a bit of consultation on that, and then the Ulster Farmers’ Union were brought in as well to structure the grading system differently. They have lost more grades in Northern Ireland because they say that an O+3 could have been an R3 because they have very similar things, although we would argue that the farmer always would get the benefit of the doubt, which I think the farmers recognise themselves. There has been loads of consultation on it.
Q169 David Simpson: On the new system that we have in Northern Ireland, with the old LMC a farmer could have argued for an hour and a half with a grader to try to get the grade up. Is that the same with the new system or is it dead in the water as soon as that grade is given?
Jim Dobson: What we have in our factory is that every farmer is welcome to come into the factory to see his cattle being graded. They go past the grading machine and come to the scale. He sees the grade on a screen and then we have a licensed grader there as well and he can contest it there at that time. At that stage we can change the grade if our grader agrees with that. If he does not get his grades until that night, he can appeal and come in and see the animal. If he is still not happy with our grader he can go to DAERA and have their grader come to clarify the grade.
Q170 David Simpson: So the new machines are not infallible. In other words, a farmer could get his grade changed if the qualified grader agreed that the machine was wrong.
Jim Dobson: Beauty is in the eye of the beholder; it is no science.
Q171 Chair: You have had consultation with the farmers, but in fairness to the farmers if you are saying that you are bringing in a new grading system then the farmers say, “Fair enough, you are going to bring in a new grading system.” However, when you bring in that new grading system and then you find that your cattle are devalued by £100 a head, that is when you take a lot more interest. I think this is what has happened in this instance, and there is no doubt that the lower grade cattle seem to have had a serious amount of money knocked off them. Was it the system that was at fault or was it you as processors that used that as an opportunity to knock the value back on particular cattle? That is the charge that I make to you; I suspect you want to deny it. Who wants to come in and deny it first?
Tom Kirwan: As I said earlier, Chair, when it comes to the average purchasing of cattle it has not changed. That was the mission we had in our business in ABP.
Q172 Chair: What happened to this £1 million, then, that disappeared off the value of cattle? Those figures were not made up so how did it happen? Somehow or the other, there has been a devaluation of those cattle.
Tom Kirwan: I have to go back, Chair, and take you to the conclusion of the report written by AHDB, which quite clearly says that it has not been for the benefit of either the producer or the farmer. Whilst we react to the first report, the report should have been written in a complete manner rather than piecemeal like it was released. The final findings of that report say it has not been for either party’s benefit. In terms of the valuation of the animal that we are talking about, there is a demand for cattle in the middle of the gird. There is no doubt about that. Whilst people will emotively say that there is a devaluation, that we pay less, or the business we run values those animals less, that is true; we have always valued them less, but their value is reflected right from the point of birth where calves vary in value from £45 to £350. There is a difference. The farmers themselves can judge a calf that has just been born that is of poor conformation, poor shape and that “that one is not going to do me that much good” as opposed to a better shaped animal that they put a value of £350 on. There is a different value on the animals right from birth.
Q173 Chair: I accept that and different animal conformation will be different, but do not forget that you have got the professional valuers and the auctioneers and others that have been grading cattle and they can no longer grade them under the new system. All the systems that they have been used to in the past have changed and when their grades go through the new system it seems to be totally different. Therefore, not only is it a price reduction but there is surely a need to be able to get the professionals out there to be able to grade under the new system, so that the farmer has some idea what his or her cattle are worth, as well as the finish on those cattle to make sure that they grade as they used to grade.
Do not forget that I farm myself. Let us be blunt about it: once you cut the head off of an animal I cannot say, “Let us have that animal back. That is not a good enough price. I did not like the price I got,” because the animal is already dead and you have graded it. This is the issue that we are trying to get to grips with. I do not know whether Jim wants to come is as well or not.
Jim Dobson: I would like to say, on the AHDB report, that, like Tom, I have contested this because it is at one point in time that this has been taken. It would be a good idea to do it again and check it again on different cattle.
Q174 Chair: Are you saying that the system needs to be checked?
Jim Dobson: No, this particular report. I would like to do it again on a different set of numbers.
Q175 Chair: Why is that? Do you think you can make the numbers look better the second time around?
Jim Dobson: No, but there are no two animals that are the same. They are like human beings. All animals are totally different. There are different jobs for cattle. There are different processes they have to go through. Another thing that I do not think that the report took account of is the fifth quarter that is not in there at all. There has been huge devaluation in the fifth quarter over the last 12 months, so that has to be taken into account as well.
Chair: A devaluation of a particular quarter.
Jim Dobson: The fifth quarter, as I call it—hides.
Q176 Chair: Why is it, then, that this change in grading system coincided with a reduction in the value of Holstein beef? Why was it that those particular cattle seemed to get the biggest hit under the new system?
Jim Dobson: They do not yield as well, and this is why we have held off on the VIA system. We think that there is going to be technology that will come and tell us that. Obviously, a sirloin from a Holstein beef is not as valuable as one from an Angus or a Hereford, so they are worth less money.
Q177 Chair: When Tesco come here in a minute in front of me, they are going to be absolutely certain that the Tesco steak that is a Holstein steak is substantially less than one that is not from a Holstein? Can you guarantee that?
Jim Dobson: I cannot answer for Tesco.
Chair: No, they will answer for themselves in a minute.
Tom Kirwan: Chair, I come back again to the premiumisation of steaks. Certain retail specifications do not allow the poorer graded animals into the premium ranges of steaks because of their lack of depth and consistency. With the growth in the steak market and the growth in the premium end of the steak market, there is no doubt that the plainer animals are not fitting that growing category of sales.
Q178 Chair: Why, then, before the system changed were those cattle worth more than they were afterwards? Because the cattle themselves did not change. Irrespective of the points you have made, those cattle before the new grading system were still worth less in your view for steaks and others, so why did the system changing seem to highlight the situation and devalue those cattle so quickly?
Tom Kirwan: It is not showing in my business.
Chair: That is your view.
Q179 Rishi Sunak: We have had representation from farming groups that the new grading system feels to them quite unfair in the sense that the rewards for getting the right grades are set at a certain level but the penalty for not being at those grades is set at a far greater level, so it is an asymmetric reward and punishment system for them. It would be great to get your response to that and whether you think there is anything behind that.
John Dracup: The grid structure itself is designed to reflect the yield and requirement and specification that we are looking to deliver to our customers, and that is how it is entirely designed. Many of us have spent many years trying to work with farmers to encourage them to supply what we are looking for in the marketplace. To do that, the grid adequately communicates what we do and do not want. Unfortunately, farmers respond far more clearly to penalties that they do to premiums. Whenever we go onto a new farm trying to encourage a supply the farmer is always more concerned about what we do not want rather than what we do want. That is part of the reason why we are where we are.
Q180 Rishi Sunak: Tom, do you have anything to add?
Tom Kirwan: If we could spend maybe a minute on how some of the relationships are, such as the relationships with our farmers in terms of when they come to look at cattle, they do not sell cattle to large meat companies—there is a relationship between our fieldsmen and our farmer suppliers that is developed around, dare I say it, the most sacred of places, the kitchen table. That relationship is one of trust that has been built up between the farmer and the fieldsmen that represent our businesses going on their farm. They work together to choose those animals and they will help the farmer draw the animals if some farmers feel they have not got the skillset. There are fieldsmen in place who will go into the farmer’s yard and help with drawing those cattle. They will help them to give them the confidence that their cattle will come to the grade and give them indications of what those cattle may grade.
Jim Dobson: I have nothing more to add to that.
Q181 Chair: You believe that your relationships with the farmers are strong enough and long-term enough to be able to deal with the change in what you want in your cattle. One of the problems is that you are talking about probably between 18 months to two and a half years to finish a beef animal. If you have reared one 18 months ago and it is not fit to kill for another six months, you are not going to change the breed or much about that animal before it is slaughtered. Do you believe that you are getting close enough to the farmers to be able to give them that advice as to what they should be rearing, what they will sell and what you will give a decent price for?
Jim Dobson: As Tom said, we have a relationship with our fieldsmen talking directly to our farmers. The majority of our animals come in from finish farms, so these farmers keep the animal for six months maximum. They are all very aware of what the customer needs.
Q182 Chair: You think that all the information is getting to the farmer. I suppose the argument the farmer will have is that if he produces an animal and then the grading system changes, then how is he or she going to be able to deal with that. You cannot keep changing the system, can you?
Jim Dobson: With respect, I do not think we do change the system that often.
Q183 Chair: There seems to be a big effect when you do, and you have got 2 Sisters who are saying that they do not believe it is right to change the system anyway. Perhaps I am putting words into your mouth.
John Dracup: Chair, for clarity we do not feel it is appropriate to change to this system at this moment in time. However, do we believe that there is potential for change that reflects more of what the modern market requires? Yes, we probably do. Is the time for change appropriate now? We do not feel so today. Coming back to your previous statements around relationships with farmers, I have spent the last 20 years evolving farmer relationships. Now, I am in some cases dealing with the third generation of the same family, taking stock and working with them on developing new markets. We have been through crisis after crisis. We have been through BSE, foot-and-mouth, and changes in the common agricultural policy, all of which have placed different demands on the supply chain.
We have all had to adapt and move on. That, as part of an effective relationship within a specific supply chain, is what we as an organisation are about. It is about having confidence and regular supply from those producers. That is how we operate. That is through communication, which can always be better. We are a large organisation dealing with a disparate bunch of individuals, but at the end of the day it is about clear communication and it is about regularly talking to those people through whichever means.
Q184 Chair: A final point on this before we move on to some more questions is that as the slaughterhouse industry and processing industry has consolidated over the years you have got more and more slaughterhouses that have a virtual monopoly on certain areas of buying cattle and sheep. Therefore, it is necessary to have this very good relationship and one that is to be trusted. It is not easy for the individual farmer to cry foul over when his or her cattle is taken and the grading is wrong and the price is wrong because there are very few other places that you can place those cattle. That is something that I am particularly worried about because there is not perhaps, in given areas, enough competition to make sure there is a fair price.
Tom Kirwan: Chair, if I may respond to that regarding the dynamic in the market that we operate in as processors, the official figures say that the UK is 75% self-sufficient. I would suggest that in certain cuts—and I come back to steaks—it could be as low as 65%. We are very lucky that the British consumer has a very strong demand for our British product. You talk about the dynamic, about the competition and the worry. The reality on the ground is that the demand for British cattle and British meat is very strong. It has manifested itself at the moment in the price paid to our British farmers being the highest in the world, other than maybe a few select ones in Japan that are paid a bit more. In large beef-producing countries of the world, the British farmer is getting one of the highest prices in the world. The dynamic in the market is pretty robust, and the farmers’ interests are well looked after because of the lack of self-sufficiency of British beef.
Q185 Chair: All of you are absolutely convinced that it is a good product. It is good to sell. It is British and it has a mark-up on it because it is British in a British market. Therefore, you can all assure me that you as the processor are taking your right amount out of the price of those cattle and the farmers are getting a fair deal when they come through your processing plants. Yes or no?
Tom Kirwan: Yes.
Q186 Chair: Do you all say “yes” to that, for the record?
Jim Dobson: Absolutely.
Q187 Chris Davies: It is interesting that the three of you just agreed on that. I am wondering whether you thought, if your clients were sitting there, they would agree with you as well. I am not sure that they would be saying that they get the best system out of you and the best relationship. While we are on relationships, if we may, Mr Dobson talked us through the system of the new grading. I am wondering if a farmer complains several times that they were not happy with the grade, how is the relationship with your company and that farmer thereafter?
Jim Dobson: I can say that in Dungannon we have never used the facility of bringing a grader in—never once in the whole time I have been there. Our own grader has sorted it out on the ground. If it comes to that, I would get involved myself. My brother and I visit a farm at least once a week. We are more at home in a farm setting than here.
Q188 Chris Davies: Is that the same for the other gentlemen? If we are being realistic, you run some very big businesses, and the farmers in particular would be a lot smaller. They would have to travel far further than their local abattoir, one that you own, so it suits them to come to you. Is it a case of putting up and shutting up as far as they are concerned? They do not want the relationship to be soured with you, so it is easier for them to stay quiet and take the loss.
Tom Kirwan: Trust with farmers is very important to us. It is a very symbiotic relationship. If there are no cattle there are no meat processors, end of story. Our business is very fragmented; there is no doubt. In our case 42% of our farmers supply less than 10 cattle per annum, so that is quite a small number of animals per annum. Those farmers are every bit as important. If they have got a complaint or do not feel that they have been best served on grading then they have absolute full right of appeal, and we take those appeals very seriously.
Q189 Chris Davies: Would the relationship stay the same thereafter?
Tom Kirwan: Yes, absolutely. We certainly would not punish a farmer if he made a complaint about a grade, absolutely not.
Chris Davies: I did not say that you would punish them.
Tom Kirwan: I would like to clarify that, just for clarity.
Jim Dobson: To clarify that, the farmers would not come back the next time.
Q190 Chris Davies: With the greatest of respect, Mr Dobson, they have not got a choice. You have a much better choice in selecting the farmers than the farmers have in selecting the abattoir.
Jim Dobson: I am not sure that is right. You can go anywhere.
Q191 Chris Davies: As you can imagine, there is cost. If they are going to travel 60, 100, or 160 miles to another abattoir, it is cost.
Jim Dobson: To repeat what Tom said earlier on, the relationship is between the fieldsman and the farmer, and that is the key relationship that we have. All of us have fieldsmen that are spread right across the country. We source cattle from all parts of the country into our factories, not just in the neighbourhood.
John Dracup: It is also worth pointing out that, certainly from a 2 Sisters perspective, we spend a lot of time listening to producers. Those producers that have issues are invited to come and see the stock within the facilities. There is an open door policy around that. Not only that but we have the MLC’s carcase classification service that can then step in over the top, and are prepared to come in and reassess cut carcases should a farmer be disgruntled. More importantly, we also spend a lot of time working with the farmers so that they understand what they are producing in the first place.
We carry out a lot of what are termed Live to Dead grading days in conjunction with the levy boards, where groups of farmers come in to our lairages, see a group of animals alive and then see them being processed. This has been hugely successful, particularly with those who tend to have the biggest difficulties with what we are doing. It is as much an education process as it is a process of conflict.
Q192 Chris Davies: I accept that. Can I also put on the record that I know some of your fieldsmen from your three companies, and they are very good? I must say they have a good relationship with the farmers and a good relationship with myself in my particular patch. As far as your companies are concerned, we have had some witnesses who have told us that there is co-ordination between the prices that you offer between your three companies. Would you say that is true and that is fair, or would you deny that?
Tom Kirwan: I would certainly deny it from ABP’s perspective. If I look at the dynamic in the market at the moment and the fact that the three of us are sat here, we are killing one another in the country—pardon the pun—in terms of our fieldsmen trying to outdo one another for stock at the moment, which is in short supply. I would absolutely deny that.
Q193 Chair: Does the same happen when there is plentiful supply?
John Dracup: I would strongly deny that allegation. The reality is that we have a job to do. Certainly from my position as a procurement director I am judged on the number of cattle that are coming through the factory gate. Ultimately, it is very basic economics; it is supply and demand. If I have too many I am paying too much, and conversely if the numbers are not coming through the factory gate I am not paying enough. I have to pull that lever as and when. That is my role. That is what I do, and it is something that I am very proud to be doing; we are spending over £1 million a day on British livestock to British producers supplying our British customers, and I am very proud to be in that position.
Q194 Chris Davies: Is that the same for Mr Dobson?
Jim Dobson: If you go into a town and someone puts his price of petrol up, it moves down the town. It is the same thing. That is why the perception is we are all on the same price, but it is whoever has the highest you have to match it or the farmers will move.
Q195 Chris Davies: One last question if I may, Chair. You quite rightly mention the word there, Mr Dobson, “perception”. How do the three of you, as some of the biggest companies in the country, get over that perception and the fact that farmers think that there is, forgive me for saying, a cartel? How do you get over that?
Jim Dobson: Look at either of the reports; the LMC report in Northern Ireland says the price of cattle this week went from 340 to 345. There is a variation in there.
Tom Kirwan: I would say, Chair, if I may, that when you look at the market that exists, despite the suspicion that you have outlined the reality is that the farmer community need to grasp that the competition between us is such to satisfy the British consumer demand for British product. That is what drives the market and pushes the market to a place where the British farmer enjoys some of the highest prices in the world.
Q196 Rebecca Pow: Can I pick up on the previous question? Some comments have been made to us previously by the National Beef Association that penalties have at times been brought in, for example, for heavier cattle or for this four-movements rule with very little notice and very little warning. How would you respond to that? Is that true or was that just a perception that that was happening and it was not true? I wonder if Mr Dobson would answer that first.
Jim Dobson: I refute that. Everybody got plenty of notice. We have told them about four moves for years and that heavy cattle did not suit us. We have not gone through the change in packaging that there is at the minute. We used to have the gas packaging and we have now got the skin packaging. If you buy your meat in the supermarket now, it is probably in a skin pack. It takes a very tight specification in order to fit that, and there was more flexibility with the older system. That was one of the things. Heavy cattle do not fit the pack anymore.
Q197 Rebecca Pow: We were led to believe that you changed your announcement to them within three weeks’ notice. Is that correct?
Jim Dobson: For our company?
Rebecca Pow: Yes.
Jim Dobson: That is right.
Q198 Rebecca Pow: That is very short notice for a farmer on a very long lead time to finish a beef animal.
Jim Dobson: As I said earlier, these finishers only keep them for three or four months, and we have been telling them for years. For example, today we are telling all our farmers that our customers do not want young bulls but people still keep producing young bulls. Someday it is going to happen once again, where young bulls are going to be in the same situation as overweight cattle.
Q199 Chair: How are you communicating to the farmers? It seems to me the farmers do not understand what you are wanting and yet you say you are communicating. Defra has trouble communicating sometimes with farmers. Do you think you are communicating with them adequately and properly?
Jim Dobson: I do not know what to do, Chair. I was with a farmer of ours the other day producing young bulls. I said to him, “I do not want young bulls”, but he still gives me young bulls because it is the most efficient production for him and the most profitable, so he keeps bringing them.
Q200 Rebecca Pow: What would the gentleman in the middle say about this, in terms of changing things very quickly with very little notice, using your grid and then suddenly changing what you are asking the farmer for—for example, asking for a heavy animal and then saying that you want a small one?
Tom Kirwan: We have signed up to the voluntary code, so we give 12 weeks’ notice of any changes to the grid. For the VIA we have given 12 weeks’ notice. In terms of movements, we last changed our movement policy 10 years ago. We have not changed anything recently. With regards to the heavy weights, I have to concur with Jim. The market has been told for three, four or five years that cattle over 420kg are not where the consumer demand is. We have to remember the consumer drives our market and drives the type of animal that we look for.
As Jim has described with bulls but certainly on weights, they are a particular problem. With the fixed weight steaks that I have described, these heavy cattle are an issue, but farmers continue to do this. We have lots of discussion groups with our farmers. It is not that we are not telling them. It may be the case that some of them are not listening.
Q201 Rebecca Pow: They are blaming the grid for that but you are blaming the fact that they are not listening and should have changed years ago.
Tom Kirwan: The reality is the consumer demand changes quickly. That is a fact.
Rebecca Pow: Not that quickly though.
Tom Kirwan: In the case of steaks it has changed quite quickly. The move into fixed weight steaks has been pretty quick. A lot has happened over two years. Yes, that is the lifecycle of an animal, but we have signed up to giving 12 weeks’ notice. That may not be enough for the lifetime of an animal but we are happy that that is the code of practice.
Q202 Rebecca Pow: To get onto the code, which you have mentioned, there is this voluntary code that which is supposed to be bringing about transparency in the industry and notifying the farmers of all these things. You have signed up to the code, have you not, Mr Dracup, and the 2 Sisters?
John Dracup: I was the architect of the code.
Q203 Rebecca Pow: Do you think that should be compulsory? It is voluntary at the moment. Do you think it is playing a useful role and that everyone could sign up to it?
John Dracup: Being the architect of the code, I am very proud that we have got to a point where it was rolled out and made available to the industry. Yes, I was slightly disappointed that there was not wider uptake. I personally would welcome it becoming mandatory because it is all about transparency in our industry, which is something that I have been working on for the last 20 years within our own organisation.
Q204 Rebecca Pow: Mr Dobson, I believe that Dunbia have not signed up to it. I wonder if you could share with us why.
Jim Dobson: There are many others. I think there are only 20 abattoirs that signed up out of 180. The majority is on the side of not signing. My reason for not signing was I believed that the code of practice should be for the whole chain and not just for us. For example, the rendering situation played a great lip service to it, but they retrospectively charge us at times. Therefore, it was very difficult for us to sign up to it. We would like it to be for the whole chain, not only ourselves, with the supermarkets and farmers.
Q205 Rebecca Pow: Would it not send a good message, though, if you did sign up to it? Perhaps then all the others would join you.
Jim Dobson: It is a better message to contest what is not correct.
Q206 Chair: Your argument is that there should be a voluntary code through the whole process, from rendering right the way through to your processing to the retailers. Is that what you are saying?
Jim Dobson: That is what I am saying, and I think it would be very successful, having something like that there to police it.
Q207 Ms Ritchie: Mr Dobson, you have been talking about the voluntary code and how you prefer that. Do you not think that, because there is that refusal to sign up to the voluntary code, pressure will come from government to implement a mandatory code, and therefore you will be forced to do it?
Jim Dobson: I would welcome that if the whole chain is involved.
Q208 Chair: You would welcome a code that is across the whole industry. That would be what you would prefer.
Jim Dobson: Absolutely.
Q209 Valerie Vaz: Turning now to determining the grade, and you touched on the different methods earlier, it seems to me that with MLG you have a discussion with the farmer, and with the video imaging analysis you put it into an algorithm or an equation and the result comes out. Mr Dobson, you mentioned you run the two systems. I will hear from both of you, but can you say what the advantages and the disadvantages of each of those are?
Jim Dobson: First of all, the farmer feels he is better off when he can speak to an individual to contest it. At the same time when the machine is there, it is the same for everyone, so it is equal that way.
Valerie Vaz: With the machine it is standardised but with the other system they get a chance to appeal from whatever grade they are given.
Jim Dobson: Every time a farmer contests it, it always goes up; it never comes down. The advantage always goes to the farmer.
Q210 Valerie Vaz: Can you plump for one or the other system or not? Which do you think is better?
Jim Dobson: It depends on the MLC grader. There is not consistency within those; that is the problem.
Tom Kirwan: We are in the process of rolling out VIA throughout our factories in the UK. We have not completed the process. The VIA, as far as we are concerned, as I said from the outset, is not as subjective as a human person grading. It is not that the person is right. If you and I were to grade cattle, you might give it one grade and I might give it another. We may both be right, but the VIA brings a degree of science and consistency to it. From a farmer comfort perspective, it has the same rigorous policing by the Rural Payments Agency. Whilst the MLC have the human graders independent, the VIA machine is policed by the Rural Payments Agency. The VIA machine, where we are concerned, is replicating what the grader was doing we think with a degree of greater consistency.
What it does for our business as we look at our breeding programmes is the information that it feeds back in terms of using the science and the technology that we can feed in to our breeding programmes and help change the breeding stock coming through and help our farmers. This is where we see the huge benefit coming from VIA. Yes, we can replicate existing grading systems, but we can have a photograph of all the animals going through our abattoirs, feed it back to our breeding stock and get the animals on the ground that are giving the best rewards for both the farmer and the processor.
Q211 Valerie Vaz: Do the farmers feel that system is giving them the chance to have the discussion with the grader and appeal from that? Do you think there should be an appeal from that?
Tom Kirwan: The fantastic thing with the VIA is there is a pictorial record there. The carcase may be gone or gone for maturation, but there is a photographic record there that we can go back to, albeit it is a photograph. You cannot touch and feel as you would do with a carcase, but nonetheless, to the trained eye, people can look at it and it does give the farmer comfort. He can come and see, and he can come to the abattoir and watch his animals being graded. He can watch on the screen or he can go to the grading station.
Q212 Valerie Vaz: The thing is he cannot do anything about it, can he?
Tom Kirwan: Not there and then, but he can certainly say, “I am not happy with this one”. Every factory, even with a VIA machine, must have a qualified grader.
Chair: There is a division now, so if you will excuse us we will go and vote and we will be back in about 15 minutes. Democracy goes on and we have got to go and vote in the chamber. Thank you very much.
Sitting suspended for a Division in the House.
On resuming—
Chair: We were in the middle of the question. Tom, had you finished your answer? Valerie, had you finished your questions?
Q213 Valerie Vaz: Not quite. I have not come to you, Mr Dracup. Could you give your reasons for what you think the advantages and the disadvantages of the two systems are, particularly on the Video Imaging Analysis? It seems to be a much more proper system where you rely on what is in front of you, rather than a subjective view, and whether there should a right of appeal for the farmers.
John Dracup: As we are not using the VIA I cannot specifically give great detail about the system, how it operates and the complexities of it. What I can say is that the importance to us as a company is the independence that the Meat and Livestock Commission classification services gives to us as a business and to the producers that are supplying us. We are buying it and the producers are selling it. They are an independent supplier in the middle that are carrying out that function and also have their own quality control processes to ensure that the assessment, the weights in the factory and the addressing specifications adhere to the standards that are then further overseen by the Rural Payments Agency, which is what we heard about earlier.
Q214 Valerie Vaz: You are completely happy that system is robust.
John Dracup: Yes.
Q215 Chair: Could I come back to you, Mr Kirwan? You said about the RPA. Who at the RPA is going to be there examining the scanner, and if I am a farmer that is not happy with the grading that I have been given, how do I go to the RPA and get them to do something about it? It all rolled off your tongue rather well, but I am not that convinced about how the average is going to do it.
Tom Kirwan: The system is policed by the RPA.
Q216 Chair: How do they police it?
Tom Kirwan: Through unannounced auditors coming in, checking the carcases in the fridge and checking what grade the VIA system put on those carcases. The farmer, when he comes onsite and wants to dispute a grade, can go onsite to our trained grader. He can go and he can see the carcases or take the picture of the carcase. If the carcase has gone there is a photographic record there. The appeal process is even more robust.
Q217 Chair: How quickly is the farmer able to get the picture of the carcase when the animal is graded—immediately?
Tom Kirwan: He can get it immediately. We encourage the farmer to do so. It would help our communication—we spoke about it earlier—if every farmer came in with his livestock; it would be a fantastic thing. We try to encourage this. We pay the farmer on the day to try to get them to come in and attend with their livestock. It would improve our community and they can see for themselves the carcases as they were graded.
Q218 Chair: You would be happy for a number of farmers to come in. You would have the grading system up on a screen, would you, because they could not actually go into the slaughterhouse?
Tom Kirwan: Yes.
Chair: They could actually see that.
Tom Kirwan: Absolutely.
Chair: You would be happy for that to happen.
Tom Kirwan: That is what is happening.
Chair: It is actually happening now.
Tom Kirwan: It is happening now.
Chair: Farmers are able to go and see it.
Tom Kirwan: Farmers are able to stand there and watch. We have opened a new abattoir in Ellesmere. It is in a separate area, and absolutely that is exactly how it works.
Q219 Chair: How often do the RPA come and visit to see what is happening?
Tom Kirwan: I would say around two to three times a month unannounced. They do not come on the same days. It is policed every bit as strongly. In fact with the VIA system we get more visits. With the introduction of the VIA system, I would say that we have had more visits from the RPA than under the older system.
Chair: I shall make sure we write to the RPA to encourage them to carry on doing precisely that.
Tom Kirwan: We would encourage that.
Chair: You do.
Tom Kirwan: Absolutely. The stronger the policing of it, the greater the farmer can believe in it. That is in our interest also, Chair.
Q220 Valerie Vaz: Is this what you are classifying as the in-house inspectors, or is that something else?
Tom Kirwan: No, the RPA do not work onsite. They work offsite and come in unannounced onsite to check the grades that were given to the cattle. It is a separate system.
Q221 Valerie Vaz: Are you saying that there are in-house inspectors as well?
Tom Kirwan: Where you have VIA in operation, you must also have a licensed grader onsite in case the camera goes down so that you can continue to slaughter.
Q222 Valerie Vaz: This equation that you run the figures through, do farmers understand what that is?
Tom Kirwan: Not the equation. It is a mathematical calculation that has been stress tested not by me but independently by the RPA. Each machine in each factory must be licensed by the RPA. James spoke about the introduction of the VIA in Northern Ireland, and that is when a lot of the very early legwork was done in Northern Ireland to validate the algorithm that the VIA system works to. It was very strenuously done.
Q223 Valerie Vaz: Do you think it would help to make it more transparent for farmers so that they understand, because there is concern about this particular system, if someone explains how they get to the final figure?
Tom Kirwan: Yes.
Q224 Chair: Regarding the photographs and the imaging on the system, how long is that kept once a farmer’s animal is slaughtered? Do you have to react pretty quickly?
Tom Kirwan: The evidence is there. I am not sure how long they stay on the system, but it is there for at least a month.
Q225 Dr Monaghan: The retail price of beef has remained broadly the same whilst the price paid to farmers appears to be reducing. Where is that surplus money going? I will perhaps start with you, John.
John Dracup: I am not quite sure where you are coming from with this question, because at the moment year-on-year we are paying more for beef than we were 12 months ago. Therefore, we are currently in an inflationary situation, both on beef and lamb. From a procurement perspective, we are buying in a marketplace. As I said earlier, my benchmark is whether I have the volumes of stock coming through the factory on the day. We have to buy and wish to buy competitively because we wish to supply British products to our consumers at best value. That is part of the day job as such.
Q226 Chair: For clarification, I think the figures that Paul was using are the ones that were previously collated. What we have actually had now is we have seen a huge drop in the value of the pound and we have seen a hike in prices, and that has largely got you off the hook. If you look previously at the figures you will find that that there was a discrepancy between what was being paid to farmers and what the retail price was. That was dropping for farmers and yet the retail price was remaining the same.
John Dracup: This is not my area of specialisation, but the reality is that consistently with a lot of these reports and a lot of this data, there is considerable seasonal and market variation within that. These have fluctuated for very many years. I do not think we are seeing anything that has changed significantly within that.
Q227 Dr Monaghan: You are arguing that there is no surplus money and it is clearly not going anywhere else.
John Dracup: There is certainly not surplus money. The market at this moment in time is extremely competitive and particularly challenging in the processing sector.
Q228 Dr Monaghan: The evidence that we have taken from the NFU, which has highlighted this issue, has suggested that it applies to a large number of farmers. Is that incorrect or inaccurate?
John Dracup: The market has moved since this inquiry was instigated, and a large chunk of what we were referring to at that time was deflation not in the payment terms but in the actual base price that we were paying. That base price has risen considerably in the last few months since you have been on recess.
Q229 Dr Monaghan: Before that period and before that deflation, six months ago what was the issue then?
John Dracup: The issue was a particularly competitive marketplace where we were looking to buy product to supply our customers with quality British product that we have to buy within a market.
Q230 Dr Monaghan: The point was that the retail price of beef has stayed the same whilst the price being paid to farmers has reduced. There is a gap, so where is the money going?
John Dracup: For that surplus, I cannot specifically say where the money was or was not going. Was it being made or was it being lost? I do not know. This is outside my area of expertise.
Q231 Dr Monaghan: You are saying you are not in a position to dispute it.
John Dracup: I would challenge it.
Dr Monaghan: You just said that you cannot dispute it. You just said that you are not a specialist.
John Dracup: You are right.
Dr Monaghan: You do not know.
John Dracup: That is correct.
Q232 Dr Monaghan: Tom, what is your view on that question?
Tom Kirwan: When you look at the retail pricing of beef, it is fixed. It is a function of the fact that whilst it has a relationship with cattle it is also a variable that fixes amongst a huge basket of goods at retail level. At a particular point in time, you could say that what you said is true. However, if you look now, since the Committee last met the price of cattle has jumped dramatically but the retail price has not changed. It is the reverse equation in terms of where we are now. The retail market is a function of competition at retail level alongside the cattle market. They do not move exactly in tandem; there is a lead lag in the relationship.
Q233 Dr Monaghan: There is no long-term trend there then in pricing of beef, the retail prices, and the relationship between the retail price and what is paid to the farmer. It fluctuates and there is no longer-term trend.
Tom Kirwan: Certainly, up or down, no. It seems to be on a trend. There is a consistency at retail level on pricing at the moment.
Q234 Dr Monaghan: Are farmers getting a fair price?
Tom Kirwan: Yes, and more than last year, as John has already highlighted.
Q235 Dr Monaghan: How would you explain the NFU’s concern around this whole relationship?
Tom Kirwan: It was taken at a point in time. I do not know how this calculation of the return to the farmer as a percentage of the retail selling price is actually calculated. I cannot comment on the strength and robustness of the statistical analysis. What I do know is there is a lead lag between cattle pricing and our retail pricing.
Q236 Dr Monaghan: The suggestion has been put to us by others, in previous evidence to the Committee, that the fluctuations in price and the reduction of the prices being paid to the farmers, as opposed to the retail price of beef, have taken place in broadly the same period of time as the introduction of the electronic grading scheme. The suggestion or implication is that the introduction of the grading scheme has been used to mask effectively a reduction in the prices being paid to farmers.
Tom Kirwan: I come back to my earlier submission: we have not seen that in ABP. The market and statistical analysis was done in the first report of the AHDB, but in the findings of the last report it quite clearly says it did not favour either farmer or processor. Yes, that was what the first report said; however, that was the conclusion on the fourth report that was put out. Certainly that was the conclusion at the end. Why it was not all put together is beyond me. That was the highlight from version 1 of the report; version 4 and the final report and the conclusion said that it did not benefit either processor or farmer.
Q237 Dr Monaghan: So you are clear that the farmers are getting a good deal, a fair deal and that there is no surplus?
Tom Kirwan: I come back to it: “yes” is the answer and it is reflected certainly in Scotland. The Scottish farmer is definitely getting the highest price in the world, and if that is fair, then the system is fair.
Q238 Dr Monaghan: Jim, any comments?
Jim Dobson: The only thing I would like to say is that at any one point in time the retail price is only what the retailer buys. There is loads of the carcase that he does not buy—for example flanks, trim and shins, which the consumer does not buy. I would like to see the same thing done, where we take the whole thing into consideration, as with the fifth quarter example, with the hides. I do not understand why the AHDB put out that comparison. The farmer gets what the retailer charges. Some of the farmers come to our place and they are doing farmers’ visits, and they are told the price of fillets. There are only five or 10 pounds of fillet in a beast, in a whole animal. We need to take the whole thing into consideration at one point in time, and then deliver spread.
Dr Monaghan: Thank you. I think you have made your views clear.
Q239 Chair: Just for the sake of clarification, I think the AHDB report was from 15 February 2015 to 15 February 2016. During that period there was a drop in the price paid to farmers and a fairly static retail price. That is the proof of the system. One of you—I think it was John—made the point that it is all about supply and demand. You have seen a 15% devaluation of the pound; imports are dearer to buy in and exporting you are getting a better price for. It will drive up the domestic market. That does not prove that you are paying a fair price. All it proves is that at this moment in time there is more pressure on the market and you are paying better for it.
Our previous charge was that between February 2015 and February 2016, it was a time when farmers were under huge pressure on price and there was enough beef around. The value of the pound was significantly higher, and that was when the system was not working. That is what we are worried about. You can come here today and say, “Yes, we are giving a fair price”, because you have to give a good price, because the cattle are not out there and you cannot get enough of them. The moment you can get plenty of them, that is when you drive the price down. I am not convinced you have answered that question. The report we are talking about—and I think you know very well what report we are talking about—is between those two periods.
We need to be sure, whether it is a voluntary code, a compulsory code or whatever type of code it is. These codes only do their work when there is plenty of beef around, and there is pressure on the price to the farmer. Once you get a hike in demand and the supply is shorter, then quite rightly the supply and demand kicks in. This is what we are concerned about. Do you want to answer, or not?
Tom Kirwan: There is no doubt that we cannot buck the market, Chairman. That is for certain.
Q240 Chair: But during that market period you took too much money out of the chain. You took the money. You were charging the retailer the same, and you were giving the farmer less. Do you deny that?
Tom Kirwan: No; what I am saying is that when we look at—
Q241 Chair: You do not deny that?
Tom Kirwan: No, no—sorry, no. What I am saying is the market force will operate, and supply and demand will affect price—fact. There is nothing I can do about that. It does. However, the market dynamic that exists as we are now, Chair, is one where there is a demand for beef, British beef.
Q242 Chair: That is not the question. We accept supply and demand. We accept the price has gone up. What I am saying to you is that if we get a situation where the pound stabilises and starts to rise, there is plenty of beef on the market and imports are cheap, will you go back to your same practices as you were doing before? That was keeping the price low to the farmer. It is easy to keep the price low to the farmer when you have plenty of beef out there. You cannot keep it low to the farmer now, because the situation has changed completely. What we need to find out is that you will be fair to the farmer when the situation turns around, because it will.
Tom Kirwan: For the last five years, the price paid by the British beef processors to the British farmers has been one of the highest in the world. If that is the market and the benchmark, I would suggest to you, Chair, that the beef industry, in terms of returns to our British farmer suppliers who are critical to us, have served them well over the last five years.
Chair: Thank you. That is not what the report said, but, as I said, we will leave it there. It is something we are really concerned about, because if the situation changes, we do not want you going back to previous practice.
Q243 Angela Smith: On the back of what you have just said, you have said something very interesting, Tom: that farmers are critical to you. The farmgate prices report made a very key point about the importance of the integrated supply chain and of producers, processors and purchasers working together as much as possible, developing a relationship based on trust. We know that Morrisons, for example—if you do not mind me quoting Morrisons—often talk about “from field to fork” and the importance of a strong local supply chain. My question to you is: how could clarity around changing conditions, such as grading, carcase specification and penalties, be improved within that supply chain? How can you develop that stronger, more robust relationship built on trust, by improving clarity around those issues?
Tom Kirwan: On the relationship and how we interact, I come back to the fact that our contact point with our farmer suppliers is through our fieldsmen, and there is no doubt that those fieldsmen are well versed in what the market trends are, in terms of our grading system, in terms of the market dynamics by which our business operates. Those fieldsmen are very well versed in all facets of our business.
Throughout the year we also have workshops with our farmers, where we bring our farmers into our factories and we may meet them separately—several hundred farmers. We have 9,700 farmer suppliers, and 4,000 of them will have come through our agricultural show stands this summer. They are forums where we can interact with our farmer suppliers. In our own business we run a “farm to fork” introduction for our new colleagues, for our retail customers, and we bring farmers on those “farm to forks”. The farmer obviously knows the farm bit, and we can bring them through to fork. Initiatives that we can work on, like that, certainly will have to bring greater understanding of the supply chain.
Q244 Angela Smith: So you are telling me that there is no need for greater clarity around the issues that I mentioned—grading, carcase specification. You are telling me there is no more that needs to be done to improve the situation.
Tom Kirwan: No. I am saying there is no doubt we can all improve how we interact, but I am laying out to you what we currently do. Is there a way of improving it? We may look to a way of improving that, certainly.
Q245 Angela Smith: Clearly the farmers themselves, or their representative body, the NFU, does not feel that that relationship is built on trust, and that there is a lack of clarity. There is a bit of a discrepancy here, which has fed through the entire session.
Chair: And not only NFU but the Beef Association as well, very much.
Angela Smith: Can I ask John and Jim to come in, as well?
Jim Dobson: What we do as a company? We have nine dedicated people now for R&D, to help our farmers to be more profitably by using grass more efficiently, and working with the retailers. We have set up an integrated pilot scheme now. We are taking the calves from the milk supply group and running a process right through, so that the farmer can come and see how you can be more profitable. We have run over 100 events this year, as John mentioned earlier, where we bring in AHDB expertise to show Live to Dead grading. We have these nine people to help our fieldsmen to communicate with the farmers right across the country.
Q246 Angela Smith: That sounds more like an onus on the farmer to respond to what you are dictating from them, rather than a mutual relationship built on trust and an understanding of how to respond to changing market conditions—not just on the part of the purchasers and the processors, but in the end, the producers as well. They are in danger, with your approach, of being right at the end of the chain, responding to conditions, and decisions made around trading conditions that they have no part and no say in.
Jim Dobson: We have found that some farmers are very profitable, and some are not profitable through inefficient systems. We are trying to educate the bottom tier to get better, and the medium tier to get to the best, to get more graded at that level to make them more efficient. I think the NFU recognises that there are lots of different degrees of efficiency throughout the whole farming process.
Angela Smith: This is not necessarily always about efficiency. Decisions are made very quickly and conditions change very quickly. The point is about how you ensure that farmers are part of the discussions that are needed to respond to changing market conditions?
Q247 Chair: The point that Angela is making is: is it a discussion with the farmer, or is it you just saying, “This is what we want. This is what you will deliver. Tough if you have anything else.” Is that what you are saying to them?
Jim Dobson: No. We tell them what the market—
Chair: It sounds a bit like that.
Angela Smith: It sounded like it.
Jim Dobson: I am sorry if I am communicating badly, but we show them best practice, and that is what the market requires. We do not tell them what to do.
John Dracup: Chairman, I think the first thing is that we can only speak for our own respective supply chains. Within our own organisation, before any producer starts to supply them, we give them an information pack that tells them who we are, what the specifications are, and what we are looking for. We tell them what our customers are looking for, but also to get a considerable amount of detail so that we can maximise the marketing opportunity from those farms. Small, traditional family farms are a great opportunity for us as a processor to operate under the West Country PGI, Welsh PGIs, Scottish PGIs, for branding purposes, to build what we do about selling the British product.
As part of that, we need considerable information just to trade with these farmers. We now need their bank account details because we pay by Bacs. Therefore, there is a considerable amount of trust and effort that goes into ensuring that the documentation is right, proper and accurate at the start of an agreement, so that the producer fully understands what we are looking for to become a part of our supply chain. It is then about working with them and evolving that relationship, which secures the business for that first, second and third generation.
That is about communicating. It is about indicating what we require, and as an organisation we do this, whether it be farmer meetings, grading days—which I have already referred to—carcase competitions, or in attendance at the agricultural shows in conjunction with our retail customers. There is broad breadth of how we communicate, alongside the use of more modern media, in particular email, for which we are feeding back information for each consignment of stock to those producers automatically at the end of the day that it is processed. There is a lot of communication going on there, but then it is about the next step.
Where is the industry going, and what are we looking to do for the future? For us, it is about looking at some form of contractual relationship. As a wider organisation, 2 Sisters has over 300 poultry producers, producing chickens on contract, through integrated systems, from the egg right the way through to the retail pack. We are trying to understand the best practice from that model to give confidence to our supply chain. Traditionally contracts have not worked within the livestock sector, for one reason or another. Invariably it is one party or the other has walked away for whatever reason.
The reality is that there is nothing to stop us from keeping trying, keeping progressing, and keeping developing that relationship. There are certainly no more producers out there, so therefore we need to be working with those so that they have a secure future, which in turn gives us a secure future, because without the primary production we have empty pantries.
Q248 Chair: What it will mean is trust, will it not? There will have to be trust on all sides, because there is a little bit of a breakdown in trust at the moment, and that has to be re‑established. Tom, do you want to make a point?
Tom Kirwan: Just, Chair, if I could, on our own case: in terms of informing our farmers, with the VIA we have now agreed to make, in conjunction with the AHDB, a video that will be made available to our farmers, or to all farmers. It will explain exactly what you have asked—what it is and what it does. In terms of the vertical integration, there is no doubt there is change afoot.
We have a business, Blade Farming, where, as John has described, the changing times mean we have 25,000 cattle where we bring new young people in to rear calves. It is a vertical supply chain. What is happening on the supply side is changing, and changing, I would suggest, at pace, Chairman.
Q249 David Simpson: On the theme of trust, again, and listening to you three gentlemen, if I were a layman listening to what you are telling me, I would say you guys were definitely doing your job when it comes to the farmers. Yet there is conflicting evidence given to us that that is not the case and that there is a breakdown in trust. Can you explain that, or is it farmers whinging for the sake of it? I am not taking either side. Are you guys not having the relationship the way that you should have it with the farmers? I have listened to what you have said—the shows, the grading, the carcase competitions, all of that—yet we have organisations coming in here and saying the dead opposite. The Committee is in a dilemma about who to believe here, because we are hearing both stories. How can you prove that what you are saying is right and that there is a level of trust there? Has that stumped you?
Jim Dobson: No, can I answer that, David? I refute that there is no trust. We buy 7,000 cattle and 40,000 lambs per week, and we get that repetitively coming in. Obviously people do trust us. No‑one ever discusses whether a cheque comes up or not. I would like to know what the evidence is for this lack of trust.
Tom Kirwan: In our own case, our expenditure with our farmer suppliers—who, as I say, are critical; without them we do not have a business—is in excess of £10 million per week. We have been in the UK now for over 30 years, and we are now on the third generation of suppliers. Yes, there are some farmers who come and go, but we have a core farmer supply base. Yes, we have discussions on price, and we have a robust relationship, but they do trust us. They trust us with their livestock, the value of which has increased dramatically over a number of years. In terms of your earlier point, engaging with the farmer organisations, maybe we have to work harder on that.
John Dracup: The reality is that yes, we are large processors. Personally I have used it on several occasions during the course of this afternoon. We have specifically recruited to improve that trust between the producer, the processor and on to retailers. That has been an ongoing project. At the time when I started, the dynamics of the market and the industry were entirely different, and the level of contention between ourselves and producers was at a different level. There were protests outside factories, and all sorts of suggestions being made about what we were or were not doing.
Doing what we have done, working with producers, has enabled us as a company to be the first company to export British beef post both BSE and foot‑and-mouth. That was because of the quality of the systems that we evolved, right the way back through the supply chain, and we did that in conjunction with producers. That relationship has continued to evolve. Is it perfect? No, it is not, by a long way; but it is a darn sight better than what it was. What we are embarked on, as a company, is further extending those relationships, and I have already suggested some of the activities that we are doing to fulfil that. We are not perfect. We are large commercial organisations with relatively small teams, dealing with a very large number of producers. Establishing and maintaining that trust in what is a very dynamic market is extremely challenging.
Q250 David Simpson: We will leave the trust issue for a moment. The last question on this point from me is that you will know that the dairy sector has gone through a very difficult period. There is talk of maybe introducing contracts in Northern Ireland from the guys who produce in Northern Ireland. From a beef point of view, are you in favour of moving towards long‑term contracts with farmers, to help the volatility, so that they can look six or 12 months down the road in terms of how they take or pay for land?
John Dracup: Certainly from our perspective, yes, we are.
Tom Kirwan: Yes, I think it is a growing trend within our supply base.
Jim Dobson: I think it is a case of “hurry slowly”. Basically our beef farmer is a trader. The younger generation has to pick this up and go with it, and that is why we have started out with our calf scheme.
Q251 Ms Ritchie: Gentlemen, when discussing long‑term contracts at a previous evidence session, Chris Mallon of the National Beef Association argued that more trust was needed before longer contracts would be possible. Do you accept that there is trust standing in the way, or do you agree with what he is saying?
Jim Dobson: I cannot understand where the trust issue is. As I say, we buy loads of cattle every week, and they take our cheques. They must trust something, every week, from every farmer. On long‑term contracts, I think, going back to the basic “calf through to beef” system, we have tried many contracts in the past, and it has been a one‑way street for us. The only contract we will offer now is a minimum price contract.
Tom Kirwan: From a contract perspective, we in our organisation already have long‑term contracts in place. The longest one is in conjunction with a major British retailer. In the West Country we have British veal, and also within our own farming businesses there are contracts on 25,000 cattle. We are already doing substantial contracts. We have lots of contracts annually on organic beef. Those contracts are substantive at the moment, and the trust exists. The farmer suppliers that we buy from trust us with those contracts, and we have never reneged on them.
Chair: Gentlemen, thank you very much for your evidence. I can assure you that we have not fabricated these questions. We have had it from the Beef Association, from the National Farmers’ Union and from others that the prices being paid to farmers had dropped dramatically, especially under the new grading system. What we have drilled down on this afternoon is that you are looking to work with farmers and to build trust. You have also reassured us, and it is in your evidence, that you will not be taking action against farmers who dispute the grading system and what they are being paid for their cattle. It is very important that is down in black and white and absolutely clear.
We will now talk to the retailers, and as I said, we will also carry on looking at the situation. What has helped you in your evidence this afternoon is that the market has picked up substantially from when we started this report. I accept that, and I accept market conditions, but what we are interested in is making sure that, if those conditions become poor again, the farmer has trust in you that they get a fair price for their cattle. Thank you very much for your evidence this afternoon.
Examination of Witnesses
Witnesses: Tim Smith and Andrew Opie.
Q252 Chair: Welcome, gentlemen. The Committee Chair meeting the other day was about the problem that all the witnesses are male and some of them should be female, but we will not hold that against you, because you are here to give us your evidence. Starting with Tim Smith, please would you like to introduce yourselves and we will fire away? Sorry to keep you waiting.
Tim Smith: That is fine. We have probably both learnt a bit this afternoon, thanks to your good questioning. My name is Tim Smith; I am the Group Quality Director for Tesco.
Andrew Opie: I am Andrew Opie. I am the Director of Food and Sustainability at the British Retail Consortium.
Q253 Chair: Welcome, gentlemen. Can you give examples of the beef specifications that beef retailers ask from processors, and why do you ask for these particular specifications? I do not know who wants to start with that one.
Tim Smith: I can start with the Tesco view. Our customers drive the specification, pretty much, and, as you heard from the processors, there have been some slight shifts in that specification over the last few years. However, pretty much what they are looking for now are more fixed weight, for specific maturity. It is the age‑old thing of a product that looks good, tastes good, and that you are proud to feed to your family. All the specifications that we have are aimed towards those objectives. Not to one side, important to us, is the relationship with the British beef farmer out there and the welfare concerns that we would have. It is a long list, but most of it starts with customers.
Q254 Chair: Are you satisfied that the processors are delivering the specifications that you are asking for?
Tim Smith: We give them lots of notice, so regardless of codes and how all of that works—
Q255 Chair: How much notice would you give them?
Tim Smith: We made one change in February that we signalled we would make, and we have given the processors nine months in which to find a way to meet those specs.
Q256 Chair: What was that change in February?
Tim Smith: We have three tiers of beef production and beef sales to our customers. Because of the way that the brands within Tesco work, we wanted one of those brands to no longer include young bull meat. That went into the specification of the other part of that tiering. We also wanted to change the age limit, to increase the amount of time that an animal could be alive for before it was slaughtered, to give a broader specification, so that farmers had longer. It went from 30 to 36 for steers and heifers.
When we decided to do that, we talked to the processors—two of whom were here—and said, “This is what we have in mind, because we are trying to get to this objective for our customers. We think you will need plenty of time to do that.” So we gave them nine months.
Q257 Chair: You have led me very neatly into my next question, because in your contract with dairy farmers, you say clearly—and quite rightly—that you should keep the dairy bull calves. One of the best uses of the dairy bull calf is for bull beef, because they can be reared efficiently and Holsteins are not the easiest to fatten. The point I am trying to make to you is that, if you are in a dairy contract and you are asking for a certain type of calf to be reared, then it would be nice if we could market that through your beef system in the supermarket as well. What can you do to help farmers there?
Tim Smith: There are 700 members of our Tesco dairy supply chain group, and each of them is signed up to the principles that you have just adopted. What would be really good would be if we had a similar sized group of beef farmers and producers, who are working to the same agenda. Most of the time, because of the market signals that we have sent with these specification changes, that is precisely what is happening. It is not quite as joined‑up as we would like. We would like to be in a position, in as short a period as possible, to say that the sustainable supply group for beef has the same weight and power as we have had since 2007 with the dairy one.
If those two groups met—and they would—and they talked about the issues that face them as farmers, with no processor in the room at that point, it would be really helpful. There is a degree of collaboration needed, a lot more transparency and a lot more clarity about what it is that our customers are asking for. One of those things would be, in the background, the animal welfare concern for male dairy calves.
Q258 Chair: Nine months is quite a long time, and I accept that, but if you are rearing bull beef, you are probably talking about 18 to 20 months. Therefore, if you are going to change a policy, farmers do need a bit longer to adapt. Do you not think you should perhaps have given the industry just a little bit more time?
Tim Smith: The consultation that we did was with our processors, and they with their farmers.
Q259 Chair: So how long did that process take?
Tim Smith: I would think the whole month of February, because we announced it in March and we had given an indication to our processors in February that we were thinking of that. If they had said, “Hold on. That will not work for these good agricultural reasons,” then we would not have done it. We phased in the introduction so that if they were unable to meet it, then there were no—
Q260 Chair: Was it the processors who said that they could meet that requirement, or was it the farmers? It is quite interesting. When you are consulting, I suppose naturally you do consult through your processing industry. However, it does seem to me, from the evidence we got this afternoon, that the processors are pretty prescriptive, and they are quite happy to move everything quite quickly. I do not think the farmers were perhaps on the same page on this one.
Tim Smith: There is an old naval adage, is there not, that nothing is communicated until it is communicated back? That is why we have an agriculture team within Tesco. What we want to do is to make sure that while we are talking to a very small number of processors, and they are assuring us about the way that they might or might not be able to organise themselves with their farmers, we have agricultural teams as well. They operate with and in collaboration with the processors, but they are independent, so they can give us good, strong advice on whether what we are suggesting is feasible. The only way you can have a sustainable sector in red meat or anything else is—
Q261 Chair: The advice coming back from the farmers that you were consulting is that the nine months was long enough; is that right?
Tim Smith: It was surprising to them, because it was a lot longer than the 12 weeks that is in the code, and it happened to coincide with the code coming in. You can draw your own conclusions. We thought nine months was better than 12 weeks.
Chair: What we are learning from this whole process is that there does need to be greater communication, and I think there does need to be greater time, if at all possible. That is what we are particularly looking to get out of this inquiry. I am conscious Andrew has not come in yet.
Andrew Opie: Thank you, Chair. Something very similar to what Tim has talked about is replicated in the major retailers in terms of trained agricultural teams and agricultural development groups, in which all the retailers invest their own funds. These are not always farmers who would necessarily be in their supply chain, because they need a pool of farmers who can meet their specifications.
The one thing I would add is that, whilst retailers are by far the largest and most important customers for the processors that you have been talking to, they are not the only customers for those processors. We just need to bear that in mind, while retailers do have important specifications; the other one that I would add is around provenance of goods, whether country of origin or even specific breeds. However, we need to bear in mind there are other customers whom the processors would probably reflect they have to satisfy as well as the retailers.
We recognise your point about information; getting out onto farms and giving them information about what the consumer is expecting when they come into the supermarket is really important, so that they can then translate that back, using experts on the farm, to the way that they produce their cattle.
Tim Smith: I think our specification, if I might add, is a very small part of what happens to a beef animal. As Andrew said, the uses of the fifth quarter, as the industry calls it, or just the uses that food service operators might have for the same animal, means that we are never talking in a vacuum. This is not a specification for a single commodity; it is a commodity that has lots of different users, up and down the food supply chain. We have to be careful that we do not tip that balance, and that is why the communication is really important. Getting the farmer to play back what we are telling them is vital.
Q262 Rebecca Pow: On the point that you mentioned earlier—and it was only a matter of interest—you said that it was on animal welfare grounds that consumers specified that they did not want bull beef anymore?
Tim Smith: No, I did not say that. Sorry.
Rebecca Pow: Maybe I misheard.
Tim Smith: It is the idea, I think, in any kind of system, that animals are effectively sacrificed because of their gender. The idea that dairy calves might not make it to their first week of life—
Chair: Dairy bull calves.
Q263 Rebecca Pow: Yes, so on those grounds, did you decide you did not require so many of them?
Tim Smith: No. It would be morally strange if we thought that killing those animals was the right thing to do, given the animal welfare considerations. Bringing them to successful condition to be utilised in the food chain, which is what they are intended for, is our objective.
Rebecca Pow: Yes, but you changed your mind.
Chair: That is right. On one hand, you are saying that you want those animals to be used, are you not? If the Holstein Friesian is not going to be reared as a bull, it will be reared as a steer. Will there be much Holstein steer meat in your supermarkets? It is no good, on the one hand, saying, “Dairy bull calves must be kept,” then you want them castrated—fine—for various reasons. Will you then make sure that that beef is then in your shops, because if it is not, on one dairy contract you are asking for one thing, and then you are not—
Q264 Rebecca Pow: You cannot have milk from somebody and then not think about what they will do with the offspring of those cows, in order for you to have the milk. It is really important that you work with the farmers, is it not?
Tim Smith: I completely agree with you. On the Chair’s point, we are agnostic on the species, unless it is Aberdeen Angus, which is the only claim we make. As far as we are concerned, any idea that we would be against or for a specific species is not right.
Q265 Rebecca Pow: But I think that you are not so keen on Holstein bull calves anymore.
Tim Smith: That is not right.
Q266 Rebecca Pow: I thought you had downscaled your procurement of young bulls, and it is all going to be cheap offcuts, so those farmers who produce them are not getting so much money, and it is all being graded through this grading system that we are questioning. I will ask you another question as well: have your teams of people who work for Tesco all been out on farms? Do they all understand exactly how the farm system works? This is a really important part of working with our great British industry, which we must not undermine.
Tim Smith: Everybody who is in the red meat supply chain or the poultry supply chain would all spend a lot of time with farmers. There are specific agricultural experts—and this will be true for every retailer—whose primary goal is to better understand the market in which they are asking their processors to operate. It is vital. You cannot understand and work with an agricultural commodity unless you are talking to farmers. It is something we learned a decade or so ago.
Q267 Chair: Just before we leave this one, where I think you are not entirely being completely correct with us is that if you put a specification out for the type of beef and type of steaks that you want, that is where, if you are not at all careful, you will exclude the Holstein beef. I am not convinced yet that that is not the situation. I think you are restricting the amount of Holstein beef coming in—be it from steers, be it from bulls—into Tesco. I think you speak with forked tongue, if I may quote a very old Western. You want the bull calves in one instance, and then you cannot have them in the next.
Rebecca Pow: Can I chip in here, Chair? I would like to ask a question. I know we keep talking about contracts, but what tends to happen is that those bull calves are dumped at the markets. No‑one has mentioned at all the role of markets in any of this, and yet they still play a part in your buying, somewhere along the line, do they not? Yet they are potentially being used as dumping grounds.
Chair: The point is that naturally in your dairy contract you are saying that the farmers must keep those bull calves, and I accept that. They must keep the dairy bull calf, and I do not criticise you for that for a moment. What I want to be reassured on is this: if you do not want the bull beef I accept that, but do you want the Holstein beef at all? Are you not ruling out much of the Holstein beef by the specification you are asking your processors to deliver? That is what the situation is.
Tim Smith: I cannot answer specifically to say the volume of Holstein that would be in our beef offer, but if farmers are reaching the standard and specification required of them by the processes, it will be, and there will be absolutely nothing to stop us doing that—absolutely nothing.
Q268 Chair: We will leave it there, then. As for the grading system, there have been significant changes to beef payment grids by processors. Is this at the behest of retailers? Did the processors bring in the new grading system because of you, or did they bring it in because they preferred this system?
Andrew Opie: It was entirely their choice as commercial companies to do that. One thing we probably have not mentioned is that all the processors generally have worked with retailers for a number of years, if not decades—with the major retailers. They have a very good ongoing relationship with them in terms of what their demand is likely to be. However, the decision to move was entirely the processors’, operating as commercial companies, with more companies than just the retail sector, thinking about their own businesses. That was their decision.
Q269 Chair: I suppose it is a slightly unfair question, but we had one large processor here who was not using the new scan system. Do you find any difference in the meat that comes into the retail sector between the two systems?
Andrew Opie: I could not comment on that, Chair.
Tim Smith: No. We are thinking about the specification standard from a customer point of view. The tolerances on steak have tightened over recent years, and the ability of processors to select the animals for those cuts, knowing what they do about what is happening to the remainder of the animal and to the fifth quarter, is entirely in their hands, as is the grid. I have learned more about the grid this afternoon than I have ever heard before.
Q270 Chair: You are not the guilty party for insisting on the new grid system, then?
Tim Smith: I do not think we have not had any part in it. The interesting bit for us is that, ideally, the relationship that we have with our farmers would mean that we would be hearing from them about impact of specification and standard changes, but, like you, we have heard more about the grid.
Q271 Rebecca Pow: Very quickly, were you getting what you wanted before this new‑fangled grid system was brought in? Were you quite happy?
Tim Smith: Yes.
Q272 Chair: So the new system is not driven by retail demand; is that what you are saying?
Tim Smith: It is impossible for me to comment. Before they changed it, before they introduced the code, the relationship we had with our processors meant that if we were moving our specifications even slightly, they would be able to tell us whether that would have an impact, and we did not have a problem securing the volumes that we needed.
Q273 Chair: But you were saying that Tesco itself has tightened its specification, so surely there is an argument that if you are tightening your specification, the new system may well be able to give different grades that get what you are asking for?
Tim Smith: When I first started looking at this issue, I thought we had tightened. I think it is probably fairer to describe it now that we have made it clearer. We broadened the specification in our core, because farmer representatives and others—we talked to the NFU and AHDB—were saying, “Would it not be better if you broadened that to take 30 months and turn it into 36?” So we did. There is a melting pot of new ideas that went into the specification change. From a customer point of view, the tightness in the specification is the right thing to do, because they want standard weight and they want a specific maturity. That, feeding back through the supply chain, looked to us not to have the sort of consequences that I think others have reported.
Q274 David Simpson: Gentlemen, it seems again to me, when I listen to what you have said as well, as we listened closely to the processors, that this whole issue about feeding down information is a problem. It seems to be certainly conflicting evidence right across the board. We are told that you are thinking about nine months; from February you will announce something with a period of nine months to allow that change to happen. Yet again, going back to what I said earlier, the evidence that we have received from different organisations is that the timeframe is not sufficient. It is not good enough for them to make the changes.
How confident are you, from a retailer’s point of view, that that information is filtering down to the farmers and to the primary producers? It is important, if you guys want to get the quality of meat that you want. We know that Tesco and others pride themselves on how closely they work with the farming community and agri-food as a whole. Surely it is in your interest to make sure that farmers get the information—forgetting about the grading system at the minute—to produce the specification and the quality that you want.
Andrew Opie: Absolutely right. It is consumer‑driven, so all of the major retailers know they rely heavily on British beef in their stores, because that is what customers want. They want to build long‑term, sustainable partnerships with the farming community. Not only are they out on the ground talking to groups of farmers, but I know that all the major retailers have regular conversations with the NFU, for example, who are free to raise any issues they like, at a very senior level, within those retail businesses.
I know that they do, from the feedback that I get. We know that we can probably do more, and that is why all the retailers are investing in agricultural development, but it is slightly frustrating in a way, in that a lot of these changes are not particularly new, and yet we do hear some of these conflicting stories about whether the information is getting through. We are trying to use all the channels that we can—the farming representative groups, on the ground with the farmers themselves, working with the processors—in long‑term relationships with processors and groups of farmers who supply those processors. Yet there are still clearly pockets of farming, at least—if not the whole of the beef production system—that still do not seem to get these messages.
Q275 David Simpson: Is it a case that we are living with a generational change within farming? We have farmers who are set in their ways, they have produced beef for so long in a certain way, and it will be a generational thing to change that, for younger farmers to come on and be more scientific—if we want to use that word—about how beef is produced. Is that the case? Why is it that farmers are complaining, yet processors are telling a different story, and you guys are saying you give the information to the processors?
Tim Smith: If that were true—and I do not doubt that you are right in some respects—then it is still our responsibility to make sure that those people right down at the sharp end, who are doing all the hard work, are not disappointed in the results they get. There is no point in having a desire to have a nicely joined-up, end‑to‑end beef chain, if the guy or woman at one end is really unhappy, because a) they do not understand what we are asking them to do, or b) the reward for it is not appropriate for the amount of effort they put in.
That cannot be right, so even if you were correct and this was something to do with the transition, I do not think the transition matters as much as the communication process does. Frankly, we found this with dairy: the processors were not necessarily as good at conducting information to dairy farmers as we wanted to be, so we took over, and we think that system will be replicated, and has been in some other places, because it is a communication process. This is, in the end, about people.
Q276 David Simpson: Just to finish quickly, in relation to the point you have just made that because there was a problem with the dairy sector getting information you took over, is it not the case that maybe you should be more involved in this side, so the message is delivered? Should you not take—not “control”—more of a say in what is happening?
Tim Smith: Instinctively we followed that up with evidence, because we have done it with our Aberdeen Angus producers. The dialogue there is much stronger. There are 500 that are contracted to us, although I do not think the contract matters so much as the relationship, and it would be our ambition to build the beef group up for Tesco in precisely the same way as we have done on potatoes and we did previously on dairy. It seems to work. This is the lowest‑consolidated part of the food sector. It is the toughest to get to the majority, but that does not mean you should not try. It is our responsibility.
Andrew Opie: The only thing I would add to that, Chair, very quickly, is that there are some great examples in some of the smaller—
Chair: Marks and Spencer—
Andrew Opie: Not only that, Chair, but also in some of the more premium breeds, for example. We have seen some great work done around some of the very specific brands, across all of the retailers. The other thing I just wanted to say, Chair, is that it is not all about the grading. I know that is what we are talking about at the moment, but the investment is in things like efficiencies on farms, cutting carbon, making a big difference through animal feed regimes. It is investing in those sorts of things to give farmers a sustainable future. Whilst we are talking about this here, we need them for the future.
Q277 Chair: Be careful when you start talking about carbon, because if you start taking away the bull beef, it takes longer for the animal to be finished and therefore you will produce more carbon. Everything has to be joined up in this world. Can I just come back to Tim Smith for a minute? Would it not be logical, if you have a dairy contract for your milk, to have the beef contracts for your beef, and then you can join up what you are doing with the calves from the dairy with what you are having as beef? Would that not work?
Tim Smith: It is a bigger objective than that. It is about the total beef supply chain and the relationships. We buy about 70,000 tonnes of beef per year, and that implies that quite a lot of the animals that are going for that 70,000 are being used for other purposes as well. We have that mix to work through, which does not happen on milk, obviously. We buy the litre.
Q278 Chair: What you are arguing is that you want different parts of the animal; you may not want the whole animal?
Tim Smith: Not necessarily that we might not want it, but that it adds a whole set of complexity that does not exist on, say, potatoes or the litre. We are effectively thinking through with farmers what it would mean if we took more responsibility for more of that animal. We are then effectively asking the processors to act as contractors, rather than the way they do now. Now, getting beef farmers into a room to talk about that is slightly more difficult than I might have imagined it would be, so it has been slower progress than we would have liked.
Chair: They are independent by their very nature, I accept that, but I do also think I would encourage you to start looking down that route, to see if we can. It is not as easy as poultry or pigs, or any of these, because they are all set—set time to finish, set feed regime. Beef is slightly different because of grazing and others. However, if it can be done on the milk we should be able to do it on the beef. Can you perhaps take that away and look at it as a request from here?
Chris Davies: My next set of questions have been—
Chair: They have been rather stolen, have they not?
Q279 Chris Davies: They have. I would, if I may, Chair, just pick a few points out. Mr Smith, during your evidence you said that we need a sustainable sector in the farming community. Is that a sustainable sector on Tesco’s terms?
Tim Smith: No, it is more of a whole-population term. For whichever retailer, for whichever food service operator, the market failures that seem to be reported with a high level of frequency to you are not an irritant to us. They are a clear signal that things need to improve across the total supply chain. Andrew has talked about carbon; let me talk about feed regimes. We would like to help farmers with feed regimes—not to be prescriptive, but to offer our help. Where is it that farmers need the most help? Sustainable, for us, is economic and it is social; it is every aspect of that. It sounds a bit like we are trying to be all things to all men, but the interests of our customers are to make sure that we have a farming sector that is thriving. If we do not have a farming sector that is thriving, we will not meet our customer needs.
Q280 Chris Davies: There are many farmers, and many farming organisations, who say, certainly over the last few months and years, that it has not been thriving, and supermarkets are the problem. Would you accept that, or not?
Tim Smith: I would not accept it. We could point to the building of relationships with our sustainable farming groups, and the way that we have farmers responding within our supplier networks, telling each other what is happening. We are hopefully building a movement. This is not a supplier/customer relationship; it is an understanding where the agricultural guys and the procurement people are all heading to the same objective as the farmers.
There will be people who might not fancy that for themselves. There will be people who choose not to belong to our dairy groups, for their own good reasons. All we can do is be transparent about what we need. We can send the clearest possible signals about what we think the consumer will do in the future, and we can assure them that if we work together we will have a more sustainable future for everybody in the supply chain, including the processors.
Q281 Chris Davies: I will not repeat the question, “Is that on Tesco’s terms?” because I have already mentioned it, and that appears to be what our farmers are saying: that it is on the supermarkets’ terms. You mentioned the understanding, and I am delighted to hear you say it, that you have a responsibility to those at the sharp end, but is that responsibility measured in pounds, shillings and pence? Do you repay them for that responsibility? Again, what we are hearing is that there has been a great differential, and we have just heard from the previous witnesses that they pay a fair price to their farmers. They are not a cartel, they pay the market rate, but the market rate that they are paying is reflected in what you are paying to the abattoirs. Are those at the sharp end getting the right value, or is it disappearing somewhere in between?
Tim Smith: If I think about the pricing hierarchy that we have, the processors told you—and I think it is right—that we have been pushing hard with our own commercial terms to make sure that customers do not see fluctuations in pricing. We set a kind of broad pricing hierarchy, and we know that, given the relationship that we have with our processors, we do have a reasonable understanding of what it is that affects the price that we are asked to pay them. It is not quite on a book basis, but it is a reasonably clear understanding.
We hear the same as you: in that are export markets, commodity prices generally, the impact of currency fluctuations. It is the usual thing, and, like you, we have to sift out from that what is reasonable and what is not, but the partnership that we have with our processors has to be strong enough for that to be an enduring relationship. I do not think you have taken evidence from Hilton, but Hilton would probably say publicly that the relationship they build with the retailer is one retailer, one country, on the basis that that is the best way of working in a real partnership way. That is the future: lots of partnerships where everybody can be transparent and see what everyone else is doing.
On pricing, you have probably seen Andrew and I are both look a bit vacant on the grid. It is opaque to us. We can understand the drivers behind it, but we cannot see what the processors are doing with a beef animal, other than the bits that we are buying.
Q282 Chair: It is opaque to you, and it seems to be opaque to the farmers; it is an interesting statement, that. Perhaps it is clear to the processors.
Tim Smith: I do not know what Andrew’s view from the rest of the retailers would be, but as a simple person, transparency is everything. If there is an open system, and the grading is the same, I am surprised that in 2016 we are sitting here talking about why we need an independent third party to verify a grade. How many years ago is it since we stopped doing that for milk and grain? A long time. It might be more difficult, but as soon as you introduce this concept of contestability, it seems to me that there is risk of lack of trust, and we need to be building trust in.
Q283 Chris Davies: Just a very simple question if I may. We have seen the price of beef in the supermarket stay at the same price. Through good and bad, we have seen the price there stay at the same price. We know that the farmers were not getting that price, those at the sharp end whom you say you look after. They were not getting the good price; they were getting a very poor price. Was it you taking the extra profit or was it the processors taking the extra profit through this period?
Andrew Opie: That is the starting point: our relationship is with the processors, not the farmers, so we are buying our beef off the—
Q284 Chris Davies: Sorry, in the last 20 minutes we have been hearing about things at the sharp end.
Andrew Opie: Yes; we work with the farmers, but the contract is with the processors.
Q285 Chair: Yes, so they have no direct contracts with the farmers.
Andrew Opie: Yes, and those processors that we have spoken about, or who have been here today, will have other customers. They will have other markets that they are supplying, and there will be other factors that will influence the price they are paying for those animals.
Q286 Chris Davies: I completely understand that, but we have had the holier‑than‑thou attitude for the last 20 minutes, whereas really that is the answer. You have the relationship with the abattoir, not the caring, sharing, looking after those at the sharp end.
Andrew Opie: It is not a holier‑than‑thou attitude. It is a pragmatic sustainable attitude that we have. We have enough, for our purposes, from our members into the processors that they can pay their fair share on to the farmers, but recognising that they have other customers who will also be paying them and that they will also be using that to pay the farmers.
The second point, about working with farmers, is wholly practical and pragmatic for retailers, because they need a strong British farming community. What they are doing is investing in the whole of the beef farming industry in the UK, not always just those farmers that might be supplying into their own supply chains. They are stepping into somewhere where lots of other companies who might buy beef from those processors, or even other people who might invest in British farming, are not doing the same. It is for their good, because we need a strong beef farming community in the UK. It is not holier‑than‑thou; it is a practical, economic, sustainable argument.
Q287 Chris Davies: I agree with most of what you have said, but you have not answered the question I have asked. Were you taking the profit, or were the abattoirs taking the profit?
Andrew Opie: No. We were paying a fair price back to the abattoirs, the processors. However, as we heard from the processors—and I would echo that point—it is not easy to correlate the price at the supermarket shelf directly with the price that the farmers will be receiving.
Q288 Chris Davies: I think there would be disagreement as far as the farming community is concerned, in any case, because as they see it—and as we see it—the price in the supermarket has not changed, the price to the farmer had gone down considerably, and somebody in the middle, either you or the processors, was making more of a share. Who benefited? That is what I am trying to get to: you or them?
Andrew Opie: If you look at supermarket margins, and profits over the last couple of years—
Chris Davies: A yes-or-no answer; it is pretty simple, surely.
Andrew Opie: I am not close enough to have a contractual relationship where I am looking at commercially sensitive information.
Q289 Chris Davies: Tesco, then; Tesco can answer that, surely.
Tim Smith: Yes, it is, as you say, commercially sensitive, but I know we did not make any more money from a kilo of beef this year than last year. I think quite probably less, because we were investing in our new brands. The impact of that is meant to be neutral to the processor.
Chris Davies: We are not going to get an answer, Chairman. This money has just disappeared somewhere, and I am not quite sure where, but nobody wants to admit to taking it.
Q290 Chair: Surely, Mr Smith, if you did not make any more money, and in fact you say less, from the beef, but the farmer was being paid less, then the processor must have made the money.
Tim Smith: I would just observe that in the past, when this kind of contestability has been raised, a good economic model done by somebody independent would probably show where those resources have gone. I would encourage you to think of that.
Chair: It would be a really good idea to drill down on that.
Tim Smith: Transparency and openness. I keep saying it. If nobody who comes to you is prepared to be transparent and open, then I would be thinking that is the place to look. We are not able to reveal commercially sensitive information, and the complexity in this specific area is the utilisation of that carcase. You can imagine the processor conversation—
Q291 Chair: Perhaps that is a role for the Groceries Code Adjudicator, is it?
Tim Smith: It is up to Government to decide to role of the adjudicator.
Q292 Chair: It would have to be extended, would it not?
Tim Smith: It is up to them.
Q293 Chris Davies: It is clear, Chair, that the answer is, “It wasn’t us, guv,” and we will just have to move on, because we are not getting the answer here. Can I just ask one more point, if I may? Going back to the young bull beef, I cannot quite remember what you said, sorry; I did not write it down. Was it public pressure or animal welfare pressure that you had gone off there? Can you just elaborate on that?
Tim Smith: As we are thinking about our specifications, we are buying young bull beef, and we are doing that partly as a consequence of the fact that it is available in the marketplace, it is part of our specification, and there is absolutely nothing wrong with it, particularly if it has been castrated. That is fine. In the background, as we are thinking about the profile of the dairy sector, the concern you would have as an individual involved in the dairy sector is the utilisation or not of male dairy calves. That is it.
Q294 Chris Davies: Again, one small point. Did you look at how that would affect the farmers, by making that decision?
Tim Smith: Yes, yes. The reason that we take our time over these consultation periods is because partly what we are doing is signalling a specification change, and partly we are taking stock of the responses as that feeds itself through. Does the 12‑week code allow farmers to make significant changes? I suspect not. Nine months was what we thought might be an appropriate amount of time, but if we were making those sorts of changes again, and somebody said, “Hands up, you really need to give us a bit longer”, then we would probably work on some form of phased introduction, which is what we have done this time. It does not help us to have farmers up in arms, either through their trade bodies or elsewhere, about a specification change that have signalled reasonably clearly, and we had to have that played back to us in terms of the impact it might or might not have.
Q295 Chris Davies: I am sorry. I am yet again getting confused. Perhaps it is because it’s a Wednesday afternoon and I am getting confused easily. We have already heard that you are not dealing with the farmers directly; you are buying from the abattoirs. Therefore you are having this dialogue, but you are really not paying any attention to them, because you are going to the abattoir to buy your meat.
Tim Smith: The relationship that we have with our farmers, whether for beef or potatoes or whatever it is, is our attempt to better understand and take the perspective of the farmers who are actually engaged in the business of farming, rather than the processors. It is an additional cost; it is something that we think is a key part of our understanding of what goes on in each of the sectors. Beef is probably one of the most complex, because we are not engaged in the whole supply chain.
Ultimately the question, I think, for us in the future is to what extent we disengage the processors from that, and just have a direct conversation with farmers, and just have them process the beef for us. Right now because of the utilisation of the carcase and everything else that goes with it, we have a relationship with the abattoir. We also have a relationship with as many beef farmers as want to talk to us, and as we can talk to.
Andrew Opie: Yes, that was the point that I was making.
Q296 Chair: Could I just carry on from what Chris said? I think where the farmers feel frustrated is that naturally, if you change the profile of the beef that you want, you then send that message to the processor and then the processor says, “That is what we want to have from the farmer”, because that is what you want. The farmer does not really feel that he or she is part of the process at all, because he or she is being dictated to, basically.
Tim Smith: I would hope—and it is only a hope—that any farmer that has seen the new specification from Tesco has had sufficient time to prepare themselves and to understand what it is that we are trying to do. We would like to have every farmer standing by every customer, seeing what they see.
Q297 Chair: I do think we have made the point that if you are not trying to take bull beef any longer, you need to give them longer than nine months. It has to be nearer 18 months, really. I think perhaps you would accept that situation.
Tim Smith: What we accept is that the timescales need to be adjusted for different circumstances, and if that is your advice then I am happy to take it.
Q298 Chair: I am particularly interested in the new farms range. It has been criticised for misleading consumers. Can you assure me about Bosworth Farm: 1) does it exist, and 2) would I be absolutely sure, if I bought from your Bosworth range of meat, that it would be British?
Tim Smith: It is Boswell Farms.
Chair: Sorry.
Tim Smith: No problem.
Chair: But still, can we find it?
Tim Smith: There are seven farm brands in the new Exclusively to Tesco range. They are brands first and foremost, so “farms” is not meant—
Q299 Chair: So they are like Cheddar cheese, are they?
Tim Smith: Some of them do exist, and the names are all developed with our suppliers, so—
Q300 Chair: Some do exist, but some do not?
Tim Smith: Three of the seven do, and four do not. Well, they probably do in some part of the—
Q301 Chair: When I come into Tesco, for one of the four that does not exist, surely I should be able to be taken to this farm?
Tim Smith: Let me try again. As a brand, what we did was to work with customers to figure out what was the particular quality and particular price point. We are working that through, and it certainly happened with steak. What the brands do—and these are brands—is offer that guarantee of quality, and the consistency of that then feeds through into the specification change we have been talking about.
Our customers are savvy. They do not expect this to be a literal representation of a single farm. They understand, when we talk to them, that there is a huge farming enterprise out there for any one of these areas of food production. They are not called “Boswell Farm”, they are called “Farms”, on the basis that it is meant to evoke an emotional, an irrational benefit, which is then met with the food.
Q302 Chair: Therefore, you can put your hand on heart and say that any customer who goes in and gets something from your Boswell Farms does not actually believe there is a thing that there is a Boswell Farm. Is it not designed to be misleading, at the very least? I am sure that your lawyers have looked at it, but it is very close to being misleading.
Tim Smith: I would say that obviously we do go through that due diligence process before we launch any brand, one that is exclusive to Tesco or not.
Chair: I am sure you do.
Tim Smith: Putting my hand on my heart, when we did all of that work, and there was lots of it—I am sure you would understand that—then customers were not going to be misled. They recognised that in a competitive set, this is a relatively normal behaviour, and what they are really interested in is the price and the quality, and the interface of those.
Q303 Chair: Why do you not put Tesco premium beef, Tesco this beef, Tesco that? The idea that you are putting a farm on the label is designed to encourage that customer to buy that beef because some of the customers—not all of them, but some—think it has come from a particular farm. Otherwise, you would not use that form of selling. There must be a reason why you are doing it, and if I am a farmer, I expect that if you are selling cattle from my farm, if you want to advertise my farm, fine. I do not see why you should advertise a non‑existent farm.
Tim Smith: Our customers do not feel as strongly, or at all.
Q304 Chair: How do you know? You do not go rushing in. Your marketing people, I would swear on my life, have said to Tesco that you can market more beef if you take that into the supermarket with a fictional farm on it, because some of the customers will not have drilled down on the Boswell Farms in plural, and that it is just a generic name. There will be quite a number of those customers. I cannot afford to do a survey, but it would be interesting to do a survey on how many customers who go into your shop think that Boswell Farms exist. Have you done such a survey?
Tim Smith: The work that we did in advance of, and since, then means that we know that customers are not being misled. There are three tiers of—
Q305 Chair: Have you asked them if they are being misled or not?
Tim Smith: Yes, of course; before and after.
Q306 Chair: But then if you ask the question the right way, you get the right answer.
Tim Smith: Others have tried that and did not give sufficient information to make that clear. The answer to your question is that, as a consequence of now having three very clear tiers for beef—so for steak, for example, the Boswell Farms, the Tesco core range, and our Finest, we are selling more beef than we were before we introduced them. That is because of consistency in quality, and there is a certainty in customers’ minds that when they go in and buy a Boswell Farms steak, it will be to a particular dimension, it will be a certain age and it will be the right price.
Q307 Chair: And will it be British?
Tim Smith: 70% of our beef is British, and the 30% is Irish.
Q308 Chair: Would the beef from Boswell Farms be British?
Tim Smith: Not always; sometimes it will be Irish.
Chair: Right, then that is misleading.
Tim Smith: It is not misleading.
Q309 Chair: Boswell Farm does not sound like it is in France. It does not sound like it is in Germany. I have spent a lot of time in those countries. It does not sound like it is anywhere else but in Britain. Therefore, when consumers go in they may buy on quality, but they would expect that farm at least to be in the United Kingdom. You must accept that.
Tim Smith: No.
Q310 Chair: You do not. Why do you not?
Tim Smith: Our customers make little distinction between British and Irish beef, and all our fresh beef is British and Irish. 70% of it is British, 30% is Irish, and the label on the front of the pack makes it very clear. We have increased the font size to make sure that nobody could possibly be misled. We will not sell them side by side. The packs are always country of origin labelled, and nobody could possibly be misled.
Q311 Chair: So the Boswell Farms meat is either British or Irish?
Tim Smith: Yes.
Q312 Chair: There is no other beef there at all?
Tim Smith: Never.
Chair: Interesting.
Q313 Ms Ritchie: As a supplementary to that, Chair, why could Tesco not have had the same desired effect using real farms?
Tim Smith: Three of them are, and we were looking for names that had the same connotation for quality and value, but were not likely to confuse. They would add value to what we were trying to say to customers about the product. There was a whole naming regime, but it would still have been the same question that the Chair asks: that single farm would not have been where that beef is coming from.
Q314 Ms Ritchie: Is that not misleading the customer?
Tim Smith: No, because they—
Q315 Ms Ritchie: But how? That is the bit I cannot comprehend, and your explanation, if I may say so, is not all that convincing.
Tim Smith: To you.
Ms Ritchie: I am a consumer.
Tim Smith: As am I. From the way that we approached the launch of the farm brands was to reflect that customers, first of all, were engaged in the whole process. We were not doing this blindly, because obviously it was new and has become contentious. No customer thinks that these are literal representations of a single farm—
Q316 Ms Ritchie: And what did the customers say, since you say that you engaged with the customer?
Tim Smith: Their feedback would be that this is a normal industry process, which describes to them, because it is an exclusive brand for Tesco, a representation of the price and quality that they understand. They think about the whole piece, and including, Chair—
Chair: No, they do not. You think about that as Tesco; you market it as that. However, the average consumer who rushes in to buy a joint of beef does not spend all that time working out whether it is the quality of Tesco. Some of those people putting that piece of beef into their trolley will be absolutely certain that Boswell Farm exists somewhere. I am sorry; I will not accept anything else.
Q317 Ms Ritchie: You also said that the consumer would, so are you acting on conjecture, or have you actual information from consultations carried out?
Tim Smith: Yes.
Q318 Chair: And you can present that to us?
Tim Smith: We can tell you how we came to the conclusion that customers would not be misled, but the second part—
Q319 Chair: I would like that in writing. I would also like some legal advice from your very smart lawyers as well, because I think it is very close to misrepresentation. I am sure it is not, because you would not be able to go down that route.
Tim Smith: Sure, but if I might just finish the point, if this were as contentious as you describe, we would have complaints from people who, when they did have time to consider the pack at home, and maybe not at the shelf edge, felt they had been misled. I cannot point to any evidence that suggests we have that.
Q320 Chair: Certainly within the farming community there is a lot of complaint.
Tim Smith: In a survey, Chair, they were asked a question that missed off the whole of the front pack other than the name. The country of origin was missing, the price was missing, and all the product information was missing. When our customers see the pack they see the whole thing, and that is what they are absorbing at the shelf edge and at home.
Q321 Chris Davies: Tesco has been through a very interesting few years. Do you think, even though these brands may have helped your profitability, it will help your image, at the end of the day once people understand these sort of questions and the answers you have given us? We are not exactly impressed, and I wonder how the general food buyer out there would react.
Tim Smith: Their response—I am now conjecturing—would be that they would see the farm brands, all seven of them across all of our meat and produce, as a way of getting excellent quality and excellent value from Tesco that was not there before. There was a missing piece in the shoppers’ needs, and the naming regime we have chosen is probably a lot less important to that customer than the price and the quality. They would not, Chair, come back time after time, repeat purchasing, unless they were finding the quality and value to their liking.
Q322 Chris Davies: Out of interest, just on those other six brands, are they British products, or are they, again, a split with another country?
Tim Smith: It would vary. Willow Farm chicken, for example, is all British; not surprisingly, out of season berries, grapes and so on are not. Increasingly, however, that Britishness is part of the offer.
Q323 Chris Davies: And the others? You have only named a couple of brands.
Tim Smith: There are seven in total. For Redmere it varies by season and by product type. If we needed to import to meet a gap in the market—and I was with one of our raspberry suppliers last week, because there is a gap in March—the product they will produce for us will have very clearly on the pack that it is from Portugal, because there will be a month when we will not have raspberries from that source.
Q324 Chair: But it will still be given the same generic name.
Tim Smith: It will.
Q325 Chair: That will be in very large writing, and the fact that it has come from Portugal will be in significantly smaller writing.
Tim Smith: I am not going to argue about the size of the font, but it will be big enough for anybody to know.
Q326 Chris Davies: Do you think that is fair, though, that Mrs Jones will be coming in to buy the brand, and she thinks that more often than not they are expected to be a British brand? It will be a British brand, in fairness, but when it is not, should it not be named something else, because it is not a British product?
Tim Smith: Again, the work that we have done so far suggests that customers understand. They are savvy enough to know that we cannot source everything from Britain all the way round the—
Q327 Chris Davies: I agree fully. I agree full with that, but it should have a different name, surely?
Tim Smith: On the ones where it is more likely to be coming from overseas than not—Suntrail Farms is for a lot of our fruit like peaches and apricots and so on—we chose a name that deliberately has no British connotation, because from that point of view what we are effectively saying to customers is that we have to follow the sun to bring you the product that you find in this pack.
Q328 Chair: Therefore it does argue that you see that farm as a real promotion of that product. I think what the farming industry feels is that you are using what appears to be an actual farming name, but is not, to promote a British product—which is great—but it is enhancing your profitability and not necessarily going back to the farmer. That is what they do not particularly like about it. If these farms exist, we are very happy, but when they do not, I think we are less than happy.
Tim Smith: We are obviously engaged with the NFU and others on any—
Q329 Chair: I know even the NFU have differing views on it, as well.
Tim Smith: Hopefully we will be able to coalesce around one view before too long. However, in terms of the clarity of messaging around Britishness, we have put it up when it is British, and when it disappears, it is noticeable, so it goes. Take this berry example: when that source is no longer British, all of the Union flags will disappear, and the words “Packed in Portugal” will appear. We do not want to mislead anybody. It is not in our interest to do that.
Q330 Chris Davies: Just a very quick one for Mr Opie: the reputation of the British Retail Consortium to me at the moment sounds a little better than that of Tesco. Is this something you condone? Is this something you would agree to? Do you think it is a good idea that a so‑called British brand is being used in selling any product from anywhere?
Andrew Opie: I think Tim has explained everything. Customers like it. What is going on is completely legal. How companies operate their own marketing in competition is an aspect that we would never get involved in. That is not the role of the BRC.
Chair: The final question is linked, really.
Q331 Ms Ritchie: Yes, Chair. It is about the removal of the Scottish saltire from Scottish berries, and given that consumers seem to be increasingly interested in where their food comes from and the provenance, why has Tesco removed the Scottish saltire from its Scottish berries?
Tim Smith: We had two Scottish producers of berries, and when we were changing the packaging format, the decision was taken to simplify the pack so that it has the British component of it on, and then to use another part of the front of the pack to say which bit of Britain that product came from. When those raspberries or strawberries are from north of the border, they will say explicitly where they are from, and sometimes which specific grower. We are led by customers on this. If that is not sufficient, in terms of the provenance, that is something we do and always review. In the interests of simplicity across the range, we took the saltire off. If customer feedback was, “You have said it is from Perthshire; can you not say a bit more?” then we would.
Q332 Ms Ritchie: What feedback, if any, have you had from your consumers?
Tim Smith: There was a social media campaign and a bit of a flurry.
Q333 Ms Ritchie: And what did that feedback say?
Tim Smith: The feedback said, “Why have you taken it off? Put it back.”
Ms Ritchie: Yes, and what did you do?
Chair: But you have not put it back.
Tim Smith: The packaging world moves at its own particular pace, but let the feedback we have had calm down, and then let us do some orderly marketing checks.
Q334 Ms Ritchie: You will not ignore the feedback.
Tim Smith: No. Every single contact that is made through us is logged and represents something: is it a trend? Is it something we have to respond to quickly? Can we go back to the suppliers and reflect on this and say, “How did we come to this decision previously? Because we might need to go backwards and change it.”
Q335 Ms Ritchie: Where are you in terms of that chain of work?
Tim Smith: Having had that little flurry, now the teams that work on berries will be thinking about the next season and saying: “Do we or do we not now need to put this back on? What difference does it make to customers? Once the flurry is over, do we know enough to say it is a definite or a maybe, or we do not need to?”
Q336 Ms Ritchie: What is your estimation of what is likely to happen?
Tim Smith: It is a bit too early in the process. I tried to get better advice as to whether we are there or not, and I think we should probably come back to the Committee when we have made a determination, if that is okay.
Q337 Chair: Yes; we will take you up on that one. It is an interesting point you made about social media. How much do you react with your marketing process via social media? It is an interesting one.
Tim Smith: Social media is very interesting. It is a conversation with customers. You are looking into a conversation between our guys, who are trying to find the best sort of response and answer questions in as clear a way as they possibly can, but they then start to pick up trends. You will remember, as on caged eggs, campaigns can get going very quickly for us to change the way that we regard animal welfare. I will sound a bit old‑fashioned, but I think it has speeded up the process of gathering information.
Q338 Chair: But you as Tesco would take quite a lot of notice of social media campaigns, would you?
Tim Smith: Any interaction with customers, yes—whether it is the shop manager who says, “We seem to have moved this product and customers do not like that”, all the way through to a letter—
Q339 Chair: If I run a social campaign on Boswell Farms, you will do something about it, will you?
Tim Smith: It will depend on what the social campaign is, Chair.
Q340 Chair: It will depend if I get enough uptake or not?
Tim Smith: Yes. It would, would it not?
Chair: Interesting. Thank you very much; thank you for your evidence. As I said, what we have learned this afternoon is that if we can all work together better, it will work. If you can communicate to the processors the beef that you require in the retail sector, and then we can communicate that better to the farmers so that we work all together, then there will probably not be the need for this sort of inquiry again. I appreciate the evidence given, and what it has done is to cast a bit of light on parts of the industry—not necessarily the retailers—where we do not always see as much daylight as we would like. In that respect it has helped. The processors coming in this afternoon were probably hugely helped by the market situation as it is now, but it is good as far as the farmers are concerned; at least the price is better at the moment. However, we have to remember that prices fluctuate and we will go back through this cycle again. I appreciate you coming in and giving us your answers, and we have asked for some written evidence, so perhaps you could provide it for us. Thank you to Andrew and Tim; thank you very much.