Tesco baton gets smooth hand-over

Tesco baton gets smooth hand-over

Selling more food in Britain than any other company, Tesco is the largest customer of UK Farming. What happens in Tesco has a real bearing on farming and the supply trade, so when its hugely successful boss decides he has achieved his ambition of building the biggest multiple store in the country, and that the time has come to hand over the reins, it matters to farmers.
In recent years any change at the top of large corporations has involved a level of in-fighting and posturing that makes business page headlines for months. Think of the drama attached to Sir Stuart Rose at M&S, of the changes at the top at EasyJet, BP, and many others. Yet the biggest supermarket does it seamlessly, with hardly a ripple.
It's called management, and Tesco has shown the City and the rest of the economy how company management can and should be done. They have been on a wave of success for more than two decades, and in that time have continued to woo and wow their customers with the products and service demanded. The smooth change-over at the top means there's no hiccup in trading, no concerns that the direction of travel is going to be altered.
Yet the new man Clarke is no clone of Sir Terry, despite their similar background and careers. Like Sir Terry, Clarke is intensely Tesco. He joined the company in 1981, became a board member in 1998, was responsible for supply chain activities, then moved to IT and became the boss of their international operations in 2004. Like Leahy, he thinks inside boxes, uses tried and tested methods, and is averse to risk. Customers are the important people in both their lives - which may help explain their tough stance with suppliers.

Tesco and farmers
Farmers have been forced to knuckle to the terms and conditions of supplying supermarkets such as Tesco, and a book could be written on how their buying policies have changed farming.
Buying power has held prices low. The buyers have been able to dictate the market by holding intermediates such as dairy companies, fruit and veg processors and food companies to account. The farmer at the end of the chain has been given a survival price, which can only be converted into profit through rigourous farm management. The processor is always concerned that others will provide Sir Terry with a better deal, a cheaper price, and hence a better margin, and knowing that the buyer will move for a fraction of a penny.
Quality demands have increased. Together with legislation, supermarkets have demanded increased shelf life, fresher produce and slicker storage and transport, and their dominance in the market means that, in the 14 years of Leahy's reign at Tesco, there has been huge investment in packing and storage by farmer groups and supply companies.
The food business has changed. From broiler chickens to broccoli the demand for uniformity has developed the factory farm where output is as close to a Ford car production line as possible. New genetics in plants and animals have been introduced to help. Closer management of inputs such as sprays and fertilisers, of livestock treatments such as wormers, vaccines and other inputs lift their effectiveness and reduce waste.

Negotiation
For much of the post-war period farmers and their leaders negotiated with government, over the effective price of cereals, milk and meat. The demolition of this relationship and the substitute of retailers and processors has been a huge shift for farming, and one that has taken some decades to adjust to. The drive of Sir Terry, and others, to maximise their bargaining position, to get the best deal going, has forced change on producers like never before.

The future
Sir Terry retires at a time of further change in the relationship between the buying public, the retailer and the supplier. He sees the slow but steady growth of farmers markets, a need to become closer to the actual grower and producer from an increasing percentage of the population. Quality is being measured less in terms of physical uniformity, but in taste and provenance. Marketing is less red and blue and more green and brown. People are being led to a time when things were simpler, more rustic, but still overlayed with modern attributes of long shelf life, convenience, visual appeal.
'Local' is a powerful word in today's marketing parlance, and retail giants will be working on using and developing the concept. It will make a further significant change in the relationship between farmer and retailer, and, as always, will create new opportunities for farmers.
Practical Farm Ideas will be exploring how these can be created and developed, and we'll be looking for case studies and examples for farmers to follow.

If you liked this article you might be interested in:
Supermarket trading practices are 'Big Boys Game' - PFI Vol 18-4

Reith Lecture lacked bite

Summary: was there an original thought or opinion in the 45 mins lecture?

Reith lecturer created hardly a ripple

The BBC Reith Lectures have that revered slot in the annual programming which eclipses all else. Today we had the second in the series presented by Professor Martin Rees, President of the Royal Society and Astronomer Royal whose title was Surviving the Century.

Food and energy played a big part in his analysis, as well as population and pollution. His arguments have been spoken before, by the Government Chief Scientist Prof Beddington, and Lord Stern who, in a report published last year, said we should give up meat.   This year's Reith lecturer clearly likes science, and GM crops, citing their benefits. He doesn't like populations that are expanding quickly, or the American way of life which if repeated across the globe would create untold damage. What was surprising was the lack of a call to action. Research, international cooperation, controlling fanatics who threaten scientists and research, but no mention of targets which need to be set. 

No mention of biogas

His views on energy generation are very pro wind power and also tides, including a Severn barrage. He's quite pro nuclear. But not a mention of biogas, which in our view is the wasted resource of the modern era. 

The role of farming across the globe was hardly touched on, despite the fact that it is farmers who have the task of producing most of the food needed for survival. So GM was applauded from a scientific viewpoint, rather than a practical and economic one.  It would have been interesting to discover how he viewed the prospect of a farming industry being dominated by a few major companies, in much the same way as oil is today.  Companies that provide the seed and the semen, the feed and fertiliser and also provide the marketing and the distribution. Creating food commodities that are traded and processed in much the same way as petrol, where big hitters at the top of the pile can skim off a useful percentage of profit for themselves. 

These companies and those employed by them will be in a position of huge economic power, controlling the activities of millions of the world's poorer people, and being part responsible for the ecological balance of the planet. Farmers may well find themselves unable to operate outside this system, either because they need the essential inputs to make things grow, or because marketing privileges will be available to members of the club - ie customers of their seed and chemicals.

Professor Rees's future doesn't include such events, neither does it remark on the growth of giant distributors which effectively control the markets for food and other essential commodities. They too have a potential, and existing power which effects the actions and lives of thousands of farmers and growers. 

We listened to the Reith Lecture with all the reverence required for the occasion, increased by Sue Lawley's deferential introduction and presentation. She was broking no argument and no criticism from her audience, who were there to adore and admire, not to probe and enquire. 

Send me your comments:  editor@farmideas.co.uk

Link to the only farming publication independent of the farm supply trade because it is all editorial, with no advertisers or sponsors (published quarterly since 1992)  - Practical Farm Ideas

2010 election - judging the party rural manifestos

Review of rural manifestos

Being a notorious floating voter who can bob in any political direction, Thursday's decision time creates a void in the pit of my stomach. What to do? Who to support?

Before I grasp the stubby black pencil I want to to know where I'll actually be putting my cross. No point in taking my newsagent's advice "put a cross in every box - then you can't be wrong!"

After weathering the priministerial debates, absorbing the Today programme, Parliament channel, Sky News, CNN and others surely there has been enough material to make a reasonable decision? The problem is the more information, the more muddled it all becomes. The cross roads gets bigger, but the direction no clearer.

To resolve the problem I made a rational and objective study of each party's rural Manifesto - hoping for an answer.

The Conservative tome

The 18 pg Conservative manifesto 'A New Age of Agriculture - Our Agenda for British Farming', with a pastoral cover, is signed by shadow ministers Nick Herbert and Jim Paice. The promise is farming with fewer regulations, fair competition, effective action on animal disease, environmental protection.

Rationalising and improving farm inspections is appealing, and cattlemen will like the promise of positive immediate action on TB and badgers: "We will introduce a carefully managed and science-led policy of badger control in areas of high and persistent levels of TB in cattle."
The conservatives seem to have cottoned on to the value of bio-gas (which we featured inWinter 2006/7 Vol 15-4 ), and their manifesto says that 3,000 farm based digesters in Germany compare with 20 in the UK. "According to the National Grid, up to half the country’s domestic gas heating could be met by turning waste into biogas..."
With regard to funding, the conservatives say: "We will redirect existing funding to increase the proportion of spending under the rural development programme on measures to help the farming industry modernise and meet future challenges."

The Labour large print

The 10 page Labour manifesto, 'A future fair for rural Britain' has a green cover with felt tip puzzle that looks impossible to solve. Here we have a wider remit but far fewer words. Six of the large print pages carry no more than a paragraph or two. It starts off optimistically, telling us "Rural communities are, by and large, healthier, better educated, happier and less likely to experience crime than those in urban areas."

I soon find myself reading it with a Gordon Brown voice. It's his language - the anonymous authors sound so close to the PM to be uncanny.  Here are the facts as he sees them: "We have doubled the size of Labour’s Rural Development Programme..."
The manifesto is quick to tell us what the others would do:  "Working with Business Link and the  Regional Development Agencies  – which the Tories would abolish – we have ensured..." comes on page 2, yet searching the Conservative document I could find no reference to the abolition of RDAs. Later it says in relation to Europe: "The Tory policy of isolation will leave us helpless in defending our interests." Not so positive given how short the document is anyway.  The Labour promised policies on TB, market competition and a supermarket Ombudsman (see my blog of Feb 4 2010 ) match those in other manifestos.
The Labour manifesto says "assess the national importance of the County Farm network for providing opportunities for young people to get into food production, and issue guidance for local authorities in how this asset is managed in the national interest "    What does this imply? Limited term county council tenancies? - County Councils becoming even involved in farm management? - Parts of CC farms converted into allotments and greater public access?

The Lib-Dem pamphlet

On to the Lib-Dems 'Manifesto for farming and the uplands - change that works for you' gets signed by Nick Clegg and Tim Farron. At 7 pages it is less paper, but  more words than Labour. The promises read the same - supermarket regulation - "Reform farm payments, cut waste and ensure farmers get the support they need" sounds all-embracing, as does "Help for hill farmers".

Dig deeper and you don't find much extra substance. A large detailed paragraph is devoted to Lake District lamb producers still affected by Chernobyl whose lambs have to be checked before marketing. But no mention of TB, clearly showing what a problem badgers are to the Lib-Dems as well as farmers. And there's something which is plainly wrong in this sentence: "...our ability to maintain watercourses that have such a crucial role in flood prevention." Where's the evidence that cleaner ditches in farmland reduces flooding? The facts are the reverse - bunged up ditches hold rain water. Farmers in the uplands need to be encouraged to retain heavy rainfall through grassland aeration, not helped to clear ditches.

Manifesto summary

All manifestos feel the need to flatter, and all promise action on the main issues. Any talent show jury would pick the conservative manifesto as the winner, in terms of detail and presentation. The language is clear, unlike Labour's section on rural youth: "We know that young people in rural affairs often find it more difficult to get work..." Rural affairs? Did anybody proof read it?

Will I now leap into the polling booth, certain of the way I should be voting? Or are there more important things, such as the character, honesty and integrity of the candidates who seek my support? Roll on Friday!

Best wishes

Mike Donovan

PS  Amid all this, a new issue of Practical Farm Ideas is out.  No politics, no products, but 48 pages of "Made it Myself" ideas for livestock and arable men, and a helpful piece for all - 'Maxxing your Single Farm Payment'.  It is reading that will make any farmer's life easier, more positive and productive, whichever party gets into power. Farm IDEAS Vol 19-1

The Banks got too big to fail, and government is too bloated to diet

Each political party says public expenditure must be reduced, but nobody knows how or where to start. 

 Government is the biggest business in the UK. It employs more than half the workforce. Add in sub-contractors, businesses and organisations dependent on grants, subsidies and other public funds, and you have a huge part of the economy. None have any desire to be down-sized. The situation has gone way past the tipping point for serious government downsizing to happen. There are too many people 'on benefits'. Government is self-protective, and more interested in self preservation and enlargement than efficiency.
      Take agriculture -  government administration today is a significant proportion of the total expense needed to do the job of growing crops and raising livestock. We have a few front line staff driving tractors and combines being inspected, administered, measured, monitored by an army of people - not so different to the Health Service. Each of these inspectors is there for a good reason, and have been added piecemeal in response to legislation.
      The interesting question is - is this the fate other large organisations? Do supermarkets have an increasing army of back office staff - people checking that the people doing the work are doing it correctly? An army to supervise the suppliers, to deal with compliance in all its guises? 

Why a 1p / litre price reduction can cause real hardship to milk producers

A penny a litre doesn't seem like too much to make a fuss of, but in milk production today every penny counts. The cost of keeping cows rises, as tractor fuel gets more expensive, wages improve, rules and regulations get tougher.

For more than a decade farmers have been earning nothing from milking their cows. They have been living off the farmhouse B B they run, the mobile phone mast  on their land, the 4x4 circuit or paintball activities they've developed, the shooting rights or caravan site and off-farm earnings driving a lorry, or their wife, son and daughter going out to work. Plus their Single Farm Payment entitlement.

Cows are a habit, and a tradition which is hard to change. It's a long term, a life-time job for many in the business. It's very easy to become so absorbed with the job, which as everyone knows starts at around 5.00am every morning of the year, that the income is secondary to getting the bulk tank filled, cooled and ready for collection. Giving up the cows is life-changing - it's as hard as marriage break down. Selling up is a public admission of defeat, not a rational business decision. So farmers will keep plodding on, with hope in their heart that things will improve.

And, for a while, they did. Two years ago the numbers of dairymen throwing in the towel was becoming a worry to the people whose job it is to have milk on the shelves - the supermarkets. So some buyers decided it would be valuable to have specific contracts with individual farmers. If the supply got tight these farmers would allow the shelves to be stocked.

ASDA has been supplied by a dairy business called Arla (Arla Foods Milk Partnership) who collect, process and bottle ASDA milk throughout the country. The company is in some ways unusual in having a single supplier. Sainsbury, for example, uses both Robert Wiseman and Dairy Crest, and it is their flirtation with Arla which may have caused the present upset. While welcoming Arla as a supplier, Sainsbury reduced the business they did with Dairy Crest, who then are on the warpath for more contracts, and it is just possible they have got a foot in the door at ASDA at a price the supermarket could not refuse.

It's all fair in love and war, but the poor chap at the end of the chain, the man who is married to his cows and gets up at 5.00 every morning, is, as always, the loser.

What can be done? Milk contracts are fabulously skewed towards the buyer, despite the new regulations   www.farmideas.co.uk/newsdetailed.php?id=62  The free market might provide consumers with low cost milk at present, but only as long as farmers are prepared to do the job for nothing.

Maybe farmers should all be planning to create super dairy farms, like the 8,000 cow farm factory planned in Lincs.  There's little evidence to suggest that herds of this size really have the economies of scale to produce milk at much lower a cost than the smaller herds we have at present. Dairy farming in the UK is pretty efficient, by any standards. The one advantage the mega-farm has is in transport costs, which are out of the farmers control, but there some useful ways of improving this.

Let's hope we'll continue to see cows grazing the fields in the summer months, and have milk from British meadows on the shelves, rather than milk from Poland, Latvia and other countries.

Farm income comes from Brussels SFP payment

The new UK farming income figures have been released which shows the industry ticking over nicely at £4.07bn, or a satisfactory £21,000 a farmer. Macro figures like this matter, as global planners of economic policy in London, Brussels, Davos or New York can only grasp the headlines without rooting too deeply into the details. Which seems, from their news release, to be how DEFRA would like it to be. 

The TIFF (Total Income From Farming) figure has been broadened over the years to include any income that finds its way into a farmhouse, including B+B, industrial lets, mobile phone masts, and more - 'anything which cannot be separated from the agricultural business'. 

Take a fractionally deeper look at the £4bn and you'll see it includes a Single Farm Payment (SFP) payment of £3.6bn which comes from Brussels. Strip this payment, which is not seen or considered as a subsidy, but a reward for managing the glorious British countryside, and the income from actually producing crops and livestock looks meagre indeed. With less than half a million coming from actual farming, it's clear that many farmers are operating at a loss and would have been better off not farming but simply taking the SFP. The reasons for not simply packing up, selling the cows and doing as little as is compatible with getting the Farm Payments are not so complex. There's the omni-present optimism that the next year is the one where corners are turned and profits made. There's a lack of trust in politicians, who are the people sustaining the valuable payment, and a suspicion that it may be drastically reduced. There's also the long term nature of the business, which means that starting back in either livestock or even crops is something that takes not months, but often years.  

The official farm income figures contrast with the up-beat message from Defra ministers and indeed the farming unions themselves who have all subscribed to the call for increased production in order to feed the burgeoning world population which, as we all know, is due to reach 9 billion in a decades time. But would increasing production, getting more intensive, add to existing losses?

Slicing into costs can be a sustainable way of righting the profit-loss see-saw. Remembering that machinery makes up a high proportion of fixed costs, any efforts to reduce these can be financially very useful. So reducing the replacement of machinery and running older kit, modifying existing fixed equipment, adapting used and maybe redundant machinery are useful ways to reduce capital spending. Cutting inputs such as fertiliser, feed and others will generally have greater consequences on output. 

Review the latest cost cutting ideas here:  http://bit.ly/bYLHQD

Is the new supermarket code of practice whitewash?

The Supermarket Code of Practice comes in force today

Peter Kendall's performance on this morning's Today on Radio 4  was politically correct - but did he get to the real issue?  Farmers have become used to the measured tone of their President, but I'm not sure he cuts much ice with the public. This morning he totally left me, and I think, many others when talked about a "rotten time before Christmas, the frost has made life very difficult for us, we've lost money, we need you to help us make up the shortfall...". It was only on the third replay I realised that he was quoting the excuses buyers were making to reduce the price they were paying producers. People are used to hear farmers moaning about frost and losing money - not supermarkets! 
Applauding the new Code, Kendall said "We've moved back to proper commercial practices...". We need to wait and see. He failed to mention that many farmers and growers deal with co-ops, packers, and wholesalers. They are the ones who negotiate.  Are these small businesses really in a position to take their complaints to arbitration? It's very doubtful. They can't jeopardise a major customer, but the supermarket is quite able to cut them out of their plans.  If their Tesco buyer says the March price for potatoes will be down 10%, there's a 99% liklihood they simply pass the pain on the the man in the field. It's in nobody's interests to do otherrwise.

Representing the supermarkets, Andrew Opie was in complete denial about the need for the Code or any changes to the present system which he saw as completely satisfactory. He welcomed the new Code. "The really important thing about today, a really significant day, is that it will actually dispel lots of these myths and allegations that we hear around the supply chain. This is a really key moment, as it was drawn up by the Competition Commission after their own investigation into the grocery chain..."
Why should he be so bullish? Is he saying 'we're happy because we know the Code is going to have very limited effects, but will provide a valuable and effective smokescreen for the major buyers to continue much as before. Does he see the Code putting a lid on the issue of buyers' practices for the next decade?
There's a huge gap between the way supermarkets work and how the rest of us behave. I've reported it in some detail in Practical Farm Ideas (Vol 18, issue 4).
The article is headed 'Supermarket trading practices are 'big boys game' '.  It shows that buyers can be like the dealer who wants to buy your tractor. You ask £7,000. He takes a cursory look and says he'll take it for £5,500, lets you argue the toss, and you reluctantly agree £6,250. But he's not going to pay you this amount, (he never pays cash on the nail). He'll find undisclosed faults, either before but preferably after delivery, he'll tell you the value has dropped so will be revising his offer, he'll ask for money on account. The game for this buyer is to get the tractor for nothing, not pay you a fair price, a market price or even a trade price. The tractor dealer works from instinct, supermarket buyers are trained. The Practical Farm Ideas article is worth reading. It's the only mainstream farming magazine independent of the supply trade (all editorial, it carries no advertising)  from www.farmideas.co.uk
Contact Mike through editor@farmideas.co.uk
Each issue is 48 colour pages, 40 "Made it Myself" cost cutting workshop projects and practical ideas, financial and legal info..  all for £3.45 (UK)  available overseas.