The scale depends on who you choose to take your advice from, but it’s a pretty well established fact that the world needs to see a dramatic increase in food production to feed its growing population over the next 10, 15, 25 years…
According to the Office of National Statistics, the UK population alone is projected to increase by 4.4 million over the next decade, rising from 64.6 million in 2014 to 69 million by mid-2024. Over a full 25-year period of the projection made in 2014, the UK population is forecast to increase to 74.3 million by mid-2039, having topped 70 million by mid-2027.
While it stands to reason that we will need a lot more food to feed 10 million more mouths, a one-way price-obsessed purchasing strategy from British retailers at the moment doesn’t appear to have taken that reasoning on board. To put it into greater context, the global situation bears looking at.
Recent long-term population forecasts from the United Nations suggest the world will be home to 9.7 billion people by 2050, compared to 7.3 billion now. The headline expectations are that African countries will account for more than half of that growth, China’s population will peak at 1.4 billion in 2028 while India’s reaches its high point four decades later at 1.75 billion.
The spending power of a burgeoning middle class in the more populous parts of the planet will give producers alternative destinations to sell their produce. And buyers of produce in those countries will be at a point in their development where securing consistent supply is arguably more important than the price they pay. As retail development has shown in the West, it is once that supply is secure and the growth curve of a chain slows that the attention switches to lowering costs to bolster profits.
The UK is fortunate in that it has always been pretty high up in the global food chain. You make some of your own luck, of course, and we have worked very hard to set standards, develop a strong global position as a market worth supplying and therefore managed to build a reliable and committed supply chain for fresh produce that rivals anywhere in the world for quality, variety and dependability.
But are the UK’s major buyers on the verge of throwing all of that away with short-term internal competitive squabbles that encourage a complete disregard for what actually makes their supply chain tick – the suppliers? Rather than competing internally to have the best product on shelf, buyers here are already competing with their counterparts in India, China and Africa. Whatever any chain in the UK claims about direct sourcing, the shelves will not fill themselves and by treating suppliers with contempt, we face losing swathes of product to markets where the people who sell produce are prepared to embrace suppliers rather than squeeze them.
There is nothing entirely new in this disturbing trend; it has been developing for many years. It not been addressed though, and the impact is getting progressively more dangerous. Two articles on this site this month (here and here) also received a good deal of national coverage and they should be ringing extremely loud alarm bells in the corridors of retail power.
As one of those articles reported, UK self-sufficiency in vegetable production has fallen 3.3% to 58% since 2010, while in fruit, the same measurement has dropped by 1% to 11%. When reporting this, the NFU partly blamed the situation on increased imports, but I think that’s a red herring. The fact is that falling returns and lower margins are making it increasingly difficult to first make ends meet, and then reinvest in a British horticulture business. If domestic production falls further, imports will inevitably increase to fill the void. And if imported produce is consistently cheaper to source than home-grown, then retail buyers are faced with solving a tough commercial and ethical conundrum.
Every retail chain purports to support British growers, but growers across the vegetable and salad sectors are being asked to sell product at close to or below the cost of production to stabilise their customer’s shaky balance sheets and that is doing no-one any favours. The fruit production sector is slightly better off, but not much, and the value is being slowly driven out of their businesses by unsustainable price-based competition across a retail marketplace that is unwilling (and now unable) to drop its margin expectations to any meaningful degree.
The vast majority of domestic producers export so little of their crop that they will inevitably be held to ransom with take-it-or-leave-it demands by their customers. November has heard veiled threats from the very top of the retail tree that suppliers will be expected to pay more to prop up their retail customers, while at least one chain is said to have introduced a ‘living wage levy’ so suppliers can foot the bill and it can fulfill its pledge to pay its own staff what the UK government has deemed to be an acceptable salary.
Those are just two examples of many – one day someone will write the book, I’m sure. It’s arguable whether these are unfair practices or not, but suppliers that have sunk large sums of money into their business are often obliged to accept terms they would much rather walk away from. There is an argument to say more suppliers could and probably should have diversified in the last 20 years, rather than being enticed by the volume-driven opportunity presented by the supermarkets. They could have been more supportive of the wholesale trade and maybe slowed the demise of the independent greengrocer. They could also have adopted positions that refused to be drawn into exclusive arrangements with certain retail chains and made catering or foodservice a target market.
A few did, most didn’t. So the supply chain must take some of the blame for its own current parlous state.
However, in what parallel universe do any of these overtly aggressive policies from the customers make business sense? Negotiate and be tough by all means, but the open nature of these demands on suppliers is incredible, particularly when we’re told that the Grocery Code Adjudicator is there to iron out anything that may be deemed unfair in the supermarket chains’ treatment of suppliers.
It’s a depressing sub-culture and one that isn’t just imperiling growers, but every part of the supply chain. That’s a topic that Simon Martin, of QV Foods addressed in our sister publication Perishable Pundit earlier this month. NFU Horticulture board chairman Guy Poskitt also said the following: “The supply chain now faces a choice. Growers have the choice to grow less produce to manage their exposure to risk; retailers have the choice to do things differently, and we’d like them to choose to pledge their longer term commitment to British horticulture.”
He’s right, but it’s Hobson’s Choice for the domestic supply chain. If you have one market, which is stuck in a cycle of price cuts that make it unviable to expand, or even stay at the level you already inhabit, then the only option becomes to reduce your risk by downsizing. Suppliers overseas, of course, do have options, as more markets open up elsewhere and throw the UK’s attitude into yet starker focus.
Many overseas exporters have already taken the option of limiting their exposure to the UK retail market, or had that decision made for them.
Chile’s fruit industry, one of the UK’s more prominent fruit supply sources, which we prominently feature on this site this month, has been backtracking for some time now. It spent a small fortune building its industry’s business profile in the UK a decade and more ago, but has pulled back on its promotional efforts here partly because this market has ‘matured’ but also I’d wager, because the investment required to support retail ‘partners’ returns less value for the industry financially than it used to and buys no loyalty from the ever-changing buyer network. Chilean exporters still value the UK market, but that promotional spend has gone elsewhere and so has a lot of the product.
The fast turnaround of buyers adds to the problem, though I’m not blaming buyers for that at all.
If you are installed into any category at a struggling (or even successful) retailer, and given targets that are a based purely on being able to delight shareholders and the media with your chain’s next set of results rather than the reality of the world’s supply chain, then that’s your job. When you are encouraged to act as if the slack you are told to believe still exists in the supply chain is with your suppliers, but to ignore your own inefficiencies, then that’s what you do.
And as a buyer, there’s a pretty good chance you’ll soon be moving on to another category within produce, or out of the sector altogether, so why bother to build a solid understanding of the category and your supplier base, why worry about long-term planning or, heaven forbid, legacy? How can that foster anything other than a short-term attitude? It’s a dog-eat-dog world, and if you’re ambitious, then you’ll do what you have to do to deliver exactly what’s expected of you. If that means screwing a supplier or two into the floor, then so be it.
It’s the culture that is in-bred into buyers from the top down that is the real crux of the problem. It is a damaging culture that is measured through compensation claims and KPIs that are incredibly short term in their outlook.
Here’s an illustration of what I’m saying.
Buyer #1 buys apples that meet all required standards and asks producers to sell for £2 below the cost of production. He does this for five years and is then transferred to purchase non-food items. As a result of the low prices paid, no reinvestment has been made in that supply chain, orchards are grubbed and by year eight, the apple price is far higher because production has declined.
Buyer #2, however, works with her suppliers as partners. She ascertains costs of production and works to create efficiencies and pays £3 a box more than hypothetical buyer #1. She does this for five years. As a result, investment flows into developing new apple varieties and new plantings are generous. Consumers love the new varieties and plentiful supply means lower prices. The supermarket profits – but only after about eight years of ‘investment’.
The problem in the UK is that buyer #1 gets the promotion and the big bonuses because he is having a short-term impact on the bottom line. Buyer #2 will have been moved on or fired long before the results of their strategy could be realised, and is very unlikely to get bonuses or promoted. This despite the fact that judged over a 15-year time frame, she will have contributed far more to profitability than buyer #1.
I’m not arguing necessarily that supermarket buyers should be trained to sacrifice profits, but there is enough precedent to draw on now to suggest that the blinkered pursuit of immediate results has not worked and still is not working. Shareholders might want dividends, but they also want long-term sustained profitability, not just a short-term bump.
For 15-20 years, this market has been waiting for the supermarket culture to change. There’s long been the feeling that it has to end somewhere, doesn’t it? Well, it’s not ended yet and the stark warnings are continuing to pass by unheeded. As Poskitt says, retailers have the choice to do things differently, but they have always had that option and chosen instead to become more and more homogenous. The ‘discounters’ have shown that a well-marketed point of difference can catapult your market share up the league table, but not one of the big players seems to want to flinch and become the nicer guy.
The big four are so absorbed by their own infighting and obsessed by the impact of ‘discounters’ that they have completely lost sight of the bigger picture.
The first retailer to break ranks and look to follow the more enlightened route taken by my hypothetical buyer #2 will not fail; if it truly intends to follow a path that encourages supplier growth and profit, it will receive widespread support from its colleagues all along the supply chain.
The UK’s growers know only too well that the support they receive from the retail posse amounts to little more than lip service when the chips are really down. It’s a necessary marketing tool, pure and simple. The rest of the world has recognised its status as little more than a pawn in the British retail game too. Many suppliers would happily supply the UK market based on historical connections and the ethics we have traditionally espoused, but they are looking elsewhere in order to give themselves the chance to turn any kind of profit on their crop.
It’s not impossible to make money working with the UK retailers, but it’s getting harder and harder with every passing price-cut.
The business world is cruel and who’s to say how many retail chains we’ll have to serve the 74-million strong UK population in 25 years. Will we, in fact, be buying our food through an entirely different multiple model? What’s true today though is that these supermarket chains remain crucial; they are integral to the lifeblood of our nation and their battles should not be a race to the bottom to play out this almost anarchic ‘survival of the fittest’ scenario.
There are so many other uncontrollable outside forces that pose significant threats to our supply chain, and if the UK is going to attain the volume of high-quality food it has become accustomed to, our produce buyers must focus not on their internal troubles, but on their ability to compete in a fast-developing world.
When the navel gazing does eventually stop, they should also consider diverting some of their attention to regaining the support of suppliers who have become disenchanted with their methods. Otherwise, their hard-earned position as feeders of the health and prosperity of the nation that built them could be lost forever.