Delegates at this year’s NFU conference have heard examples of ways in which supply chain inefficiencies are failing Britain’s farmers. Speakers informed the gathered union delegates of documented abuses of the Grocery Supply Chain Code of Practice which have led to farmers being forced to support the supermarkets’ price wars and of shortcomings in the dairy supply chain, which means UK farmers receive amongst the lowest prices in Europe for their milk, despite the products’ current profitability at retail.   

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Mr Raymond said the delay in passing on increased milk value, along with increasing farm input costs, which have gotten so severe as to attract the attention of the European Parliament, has resulted in a pay gap between milk value and price paid. He said farmers have not seen an equitable proportion of the value of their milk sold despite upward trends in the milk market over the past two years.

Now fears of a drop in profitability of milk products has led some producers to begin cutting the amount they are willing to pay for milk, before their suppliers have begun to feel the benefits. Processed dairy giant Muller announced last month that it would be cutting the farm gate price paid to its suppliers, citing ‘unfavourable market conditions’, however, Dairy Board Chair MR Raymond stated, “One thing we do know is that farmers want their money back from 2010 and 2011.”

He concluded that NFU figures show that that the 5pence per litre difference between Frontera GDP and the UK ppl over 18 months equated to 13bnl of milk worth £1bn, meaning farmers in the UK have lost out on an enormous amount of money which could have been reinvested into the sector or used to find burgeoning export markets.

Despite these worrying figures, the UK government has said it plans not to impose contracts on the dairy supply chain once EU milk quotas end in 2015. Dairy producers in France are organising into cooperatives to improve their bargaining position, although the country’s government has said it will ensure contracts are in place to protect its producers from ruthless processors.

The NFU has expressed concern over Defra’s laissez faire approach to the end of contracts. The union has asked for assurances that, should the voluntary approach so favoured by the current government keep farmers at a disadvantage, the government will step in to level the field of play. Earlier in the week, senior Conservative MP David Davis criticised the government over its record on ‘crony capitalism’. He said of the government’s history of dealings with large corporations, “Many will see this as proof the Government pays too much attention to big business”.

Speaking at the Oxford Farming Conference last month, Australian organic dairy farmer and respected agriculturalist Terry Hehir recommended farmers join together to increase their influence and protect their interests from large corporations, which Mr Hehir said would inevitably seek to exploit individual farmers.  Mr Hehir reminded those present that the corporations farmers are dealing with answer only to their shareholders and said, “Farmer cooperatives are the only logical structure to address the power imbalance as agriculture journeys further down the path of domination [by multinational corporations].”   

At Wednesday’s conference, Mr Raymond declared, "I’ve made this point before, but to any retailers listening – if you are planning aggressive price promotions in 2012, like those in 2010 and 2011, then they simply must come out of your own bottom line. The farm gate milk price is only now approaching sustainable levels and the processors’ margins have clearly been cut to the bone already.”

Retailers exploiting farmers in price wars

Also on Wednesday, the NFU horticulture team announced that its investigation into the fresh produce supply chain has unearthed clear evidence of breaches to the Groceries Supply Code of Practice, sparking fresh demand for the government to implement an ombudsperson without delay.  

The horticulture team said its complete report will be published in the spring, but warned that poor pricing practices are already eroding growers’ profits, whilst the inexorable rise of raw materials means margins are being squeezed from every direction.

Sarah Dawson, chair of the NFU horticulture and potatoes board, said, "Horticulture has long been described as a high risk, low reward, industry. But there is evidence that growers are taking more and more risks - for less and less reward. The NFU believes there are certain practices preventing a thriving, productive, profitable UK horticulture industry and they have gone unchallenged for too long."

Horticulture has been considered as a vital sector in combating climate change and securing food security. Speaking at January’s Oxford Real Farming Conference, respected food policy author and former upland farmer Tim Lang said that, if policy makers are serious about food security and mitigating climate change, radical changes need to be made to maintain production, reduce impact on the environment and promote more equitable distribution. He advocated, “A good thing for UK food security would be to turn your pig farm into a horticulture farm. We need less farming, more horticulture. More plants, less animals. Exciting things are already happening; in towns people are growing, people are engaging with horticulture projects in urban areas.”

The NFU group said it plans to reveal “the best and worst extremes of retail, packer and processor behaviour” with the publication of its investigation. In the absence of a supermarket adjudicator, the union said its enquiries would seek to “Promote good practice and make recommendations for building greater trust and transparency into the way that business is done in the sector.”

The team has so far discovered several examples of inequitable and exploitative practices, which go against the code to which large retailers profess to adhere. These include:

• Over-riders; buyers demanding increased contributions from growers, threatening them with loss of business for non-compliance.
• Retailers demanding margins above 50 per cent, even when the produce is on promotion.
• Promotions which are unplanned and not related to productivity
• Failure to commit to purchase of crops once they have been grown.
• Re-tendering supply contracts with worrying frequency

The group said that, in order to combat the issues it has identified, "There is an urgent need for fresh produce supply chains to become less transactional and more collaborative." It also said contracts should be extended to provide security and develop relationships and loans from the most profitable retailers and processors to boost on-farm investment, particularly amongst younger farmers, would go some way towards addressing the situation.

With the rise in popularity of farmers markets and farm shops, funding for which is often available, veg box schemes and internet commerce, some farmers are looking to alternative means of distribution, in an attempt to shorten and increase the efficiency of their supply chains. A recent Soil Association report has shown this process can benefit whole communities as well as improving returns for the farmer. However, it can increase risk, and some of the recommendations outlined by the NFU investigators are aimed at spreading risk more evenly throughout the current supply chain.  

Following calls to speed up the implementation of an adjudicator to police the supermarkets and ensure the GSCOP is being upheld, farming minister Jim Paice said somewhat elusively, “You will not be asking me when we're going to have the grocery adjudicator this time next year.”

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