The problem appears simple if you extract a lot of the passion from the arguments. When you have dominant buyers (supermarkets)competing for a limited customer group (people) the small supplier will always loose (farmers). Compare the loss of the small shop keeper over the last 40 years.

The farming industry needs to consolidate to both drive efficiencies and to create leverage on prices. This will not happen quickly whilst there is interference from Government via the EU grants system, which perpetuates the small farm culture. There will always be the specialist farmer as there is the specialist small shop keeper, but the majority of the farming industry needs to consolidate to balance the economics of food production.

In this way we can have both cheap food for those that are price sensitive and quality premium food for those that demand quality. It should be government responsibility to set the minimum qualities for our food, which would help both protect British agriculture and the health of the nation.

I know the above sounds simplistic…..but sometimes life is ?

Phil

I’ve never worked in the farming, but I have spent a lot of time in food factories, particularly the bakery industry. Whilst margins are small, volumes are high and a tiny increase in efficiency/decrease in waste has a big impact on profit. Every bakery I’ve encountered sends tens of tonnes of potentially good product to scrap every week, coincidentally, mostly to the farming industry.

To those of us with a broad industrial background, it is easy to see the low-hanging fruit of savings due to waste reduction, yet the pace of change is glacial and the industry insular. There is a reluctance to adopt proven technology and ideas from other sectors, which could make a big difference to the business.

I wonder if farming suffers from the same problem?

Clive

Ref your piece on farming, some thoughts…………..

This is always an interesting, and somewhat perennial debate -but the world has changed and I can’t see us reverting to buying food on a small local scale from a locally produced source=more expensive than supermarkets. Hell will freeze over before Tesco agree to a price increases from a supplier-but it does happen, usually when a key supplier is on its knees! Another argument put forward is for Tesco and their like to reduce profits by increasing prices so as to be able to pay more to their farmer suppliers. This would have two effects-reduced demand, and less profit. The consequence of reduced profit will be that pension funds that rely on investing in food blue chips, amongst others, won’t, and will look elsewhere to buy their shares. Helping the farmers rather mirrors the ‘buy British’ campaigns that surface from time to time. Prince Charles is a great exponent-always a difficult sell from a chap who has 7 boiled eggs tested for breakfast, wears £4000 suits and £1000 shoes and employs a dresser!

I think there is always something intrinsic in our nature that likes to be part of ‘small’, by this I mean part of an enterprise that is say, a around 100 people and is privately owned. We also like to work from home because we are back in our little castle, and we are our own boss, it also gets us away from crowds of people. We don’t like to be herded.
So the idea of a buying from a smallish farm makes us feel good. The idea of local produce sounds good-till we see the price, and experience the inconvenience of a separate trip. We then just carry on buying from the big 4 supermarkets where we buy 87% of our food. And as Terry Leahy always says’ if the customers didn’t like it they would be going elsewhere’, and of course we don’t. However ‘small’ does work. (See later).

It is inconceivable that a farmer with, say 10 cows can make any money-unless he sells directly, cutting out the processor/packer/importer (I’ve worked for 4 of them).He sells his milk door to door or we buy milk every day by trudging to the local farm. The same is true for fruit and veg growers. The only way to make money is to become big- several thousand cows, fields and fields of veg (se the vast wheat fields of Essex and Suffolk or the square miles of potatoes in Lincolnshire-where I lived.)In terms of innovation some farmers have started up farm shops selling local game etc. Farmers of course are not naturally disposed to listening to advice from the outside world. In terms of variety then the world is a big place and the supermarkets do successfully source exotic produce from abroad. The development of ‘Fairtrade’ hasn’t just been driven by CSR but the label has actually become a self perpetuating niche brand in itself. Supermarkets seek out small farmers worldwide and source and brand their produce under the ‘Fairtrade’ label-this makes us feel good when we buy it, but doesn’t do anything for UK farmers where the same product could be sourced here. If asparagus is cheaper outside the UK, they will source it abroad.

We are a fickle and rather ruthless people when it comes to buying things. If there is a bargain we will go for it-never mind the consequences. We are traders. We all like to ‘deal’. Look at the growth of price comparison web sites. This was perfectly illustrated in the early 80’s when the public utility companies -BT; British gas, the water companies etc were all sold off. Individuals were encouraged to become shareholders, and saw the chance to make a profit, bought their small packets of shares (including me) and then usually sold them off soon after to make a fast (smallish) buck. Latterly we moan because ‘foreign companies’ now own some of the UK’s utility businesses, well that’s the market. It’s also true that utility companies are ‘large’ and we don’t do ‘large’ that well.

There is always fat to be trimmed-particularly in management and head offices. I’ve worked in 17 different FMCG companies-public and private, with vastly different cultures, some 30 odd sites and offices up, down and across the UK. When people say they have cut dangerously deep then they haven’t had the right model to start with and haven’t understood the risks in cost cutting. However I haven’t seen any enterprise yet that wasn’t inefficient or overstaffed or wasteful or all 3 to some degree or other. The cost base has to be constantly reviewed and refined in order to have any scope for any pricing flexibility or making a profit as supermarkets seek continually to drive down prices.

Some areas in which the UK excels are ; advising, auditing, setting standards, advertising, consulting, chairing things, writing, insurance, specifying, committee work, the law, reviewing, song writing, writing and performing plays, retailing (high value niche shops),retailing (conversely-on a large scale ),musicals, popular music, television(serious and popular programmes),scientific research, voluntary work, small scale services, accounting, trading, small niche engineering manufacturing (e.g. formula one engines), biotech industries, museums, historical site management, architecture, design. These are high skill high margin activities.
When it comes to international sports competition we are good at shooting, yachting, riding, cycling, and running, formula one- -the same common thread?

Not so good at football!!!!
.
The vast majority of these examples are of activities that employ relatively few numbers of individuals-they are examples of ‘small’.

What we are not good at is running large manufacturing businesses or indeed large scale service businesses e.g. The Post office, British Airways, the NHS, railways, Cadburys. I guess we don’t like to serve! Sure we have large Insurance companies, for example, but this isn’t quite the same. Much of our manufacturing has disappeared not just because Chinese labour rates are so much lower but that we are just not disposed as individuals to do this sort of work any more on the required large scale .Since we have a trading mentality and skill, we look for the short term returns. Consequently we aren’t inclined to invest for the long term-which is vital in large scale manufacturing. Where are the entrepreneurs who want to mount a challenge to the world domination by the Chinese? For example, 90% of the worlds zip fasteners and buttons are made in China. Come to think of it -suppose they got really nasty and imposed an export embargo-everything would come apart or fall down!

In contrast German pay rates are high but it still maintains a large manufacturing base. So too do Austria, France, Switzerland and Italy.

So small is good and your farmer friend needs to find other niche areas in which he can grow his enterprise. Ideas that will get people to buy higher margin ‘local’ products. He won’t do it from just farming on a small scale. Farming UK doesn’t work on the small scale, unlike manufacturing UK, farming UK works very well on a big scale.

On a practical level he should tap into local enterprise agencies; business link, food agencies, and local food colleges, who could work on an innovation programme with him to develop a business strategy to branch out into other food products or farming related activities.

Perhaps our farmers should have been more like those in France and looked for subsidies from the EU using the EU’s Common Agricultural Policy. I am not saying that the farmers in France have been fair with the way they have used subsidies, but they have been rather better than we have at getting them from the EU. It is not as if this is a recent accomplishment either. They have been good at getting subsidies since the Common Market days.

Farms and land are static and the benefits of expanding the size of production units,a justifiable economic argument, has to be matched against the logistics and cost of transporting “product” whether that be cows being brought in twice daily to be milked or grain being shipped in mid harvest into storage depots. The nature of the business predicates against centralization and that is the conundrum. Dependent on the topography, there is a economic farm size. Biggest is not the most cost effective.

Conversely there have been significant increases in both agricultural output and productivity whilst, at the same time, the agricultural labour force has shrunk massively. This is supported by HM Gov statistics and, to demonstrate, a quick visit to any rural village will see the vast majority of former farm worker cottages now being occupied by commuters to urban areas or being adopted as second homes.

Finally despite productivity increases, the percentage of overall income spent on food tends to decrease year on year, and in order to maintain or increase their own margin, supermarkets drive down raw materials prices to maintain their added value from processed foods. The farmer therefore ends up paying to maintain the supermarket’s contribution from what was its core product.

Contrast all of the above with the farming set-up in the UK. There are still far too many small quaint farms. Yes there are a few large farming businesses but I wonder if there is not a need for a lot more consolidation so that farming operates more like an industry with far fewer but larger, more efficient and more powerful players. In short – mainstream farming needs to be more like other supply chains into the grocers. However, there should still be room for some smaller niche players in farming – those who develop farm shops, family farms etc.

Strategically we need to retain a strong and vibrant farming sector and not become too dependent on much travelled imports. It is not just about the farmers.

Finally, can anyone explain how a cox apple can usually come from NZ with no bruises but one from Kent usually has several bruises?

As someone with an Uncle who farmed all his life (and was by all accounts highly regarded) I followed his experiences closely. He was eventually forced to sell his herd after years of selling his milk below cost. His negotiation as a supplier to the retailers was never a negotiation it was a ‘do you want to supply or not?’ – the price was not negotiable. Even the deals to pay farmers a commercial rate in the later years were simply a sleight of hand – the headline price was agreed (for which the supermarkets took the plaudits – “oh, look how we look after our suppliers”)and the retrospective rebates and sundry charges arrived later.

Capitalism at its purest is always brutal to suppliers who cannot differentiate and without differentiation the lot of farmers, except for those who can exploit huge economies of scale is unlikely to change. Diferentiation together with new routes to market has to be the way forward.