TUESDAY 29 APRIL 2003

MR DAVID CROFT, MR TERRY HUDGHTON, MS ALISON AUSTIN AND MR TONY SULLIVAN

  280. The complexities of this are so considerable that it seems to me that having the image of a developing country farmer being able to supply our markets is naïve, and where the impetus will come from is sophisticates such as yourselves going there and controlling it and taking it through. I note with interest you are in charge of flowers, which has been -one of the great success stories, but the business of getting roses into a particular supermarket in week 37, or 50, or whatever it is, must be so enormous that the impetus must come from this country rather than Kenya, or Tanzania?
  (Mr Sullivan) The impetus, insofar as here is an opportunity to build a business, will come from us, certainly, and there will be criteria that are set that both we need to work to and our suppliers need to work to, and that our customers would expect. But within that there is an awful lot of, I think, flexibility around the supply chain and how we structure it, and, as you say, Floral is a good example, where, especially from Kenya, an awful lot of infrastructure has been influenced by us and others to make that happen. It is complicated. I do not think it is naïve that we cannot effect change, I would not say we control it but my experience, when I visit some of these farms, is that we are able to go to these farms with our suppliers, see good practice and bad practice at a very basic level, our suppliers then will be involved in part of the selection process with farmers who want to work with us, and also, I think we will come on to it a bit later on as well, we are able then to look at what are some of the obstacles. And when I was out there last year we got involved to such a level of detail as planning irrigation, so that actually it will improve the yield of the crop, and also meeting with the EU delegation that is based in Barbados to say there is all this development money available from Europe to which the Windward Isles qualify, but it was not getting through. And then when you talk to the Governments of the Islands they complain about the bureaucrats in Brussels, and when you talk to Brussels they complain about the inept ability of these people to put a business case, and we found ourselves in the middle, trying actually to break through. And we have had some success, and we are still pushing ahead with that, with our supplier, who is a co-operative, and I feel much more confident about it than I did two years ago. But you could not invest that sort of resource in every example, on this large one then we have done, and flowers would be another one, but principally our flower suppliers will have taken on most of that work.
  (Mr Croft) I think perhaps we have a slightly different perspective, perhaps being a relatively small UK retailer, and also being a co-operative at heart, and in many ways, perhaps you have gathered from the approach on fair trade, the way we look at some of these supply chain issues is about developing the supply chain such that their capacity is increased, it benefits us but also it benefits them and creates a more sustainable opportunity for market access, from their perspective. And to that end, in addition to fair trade, we have done quite a lot of work with small groups of manufacturers and producers, whereby we have worked with them to talk about the issues of supply chain management that will help them meet our needs, but also give them some more effective tools for managing their business. And we have developed a specific work book, that is a self-development tool for suppliers, that introduces all the issues of ethical supply chain management, it introduces aspects of, for example, if they concentrate on some fairly simplistic management disciplines, how overtime is managed, how health and safety is managed, they can actually, very effectively, add to their bottom line of their business, so there is a business case behind doing this as well as perhaps satisfying what they perceive to be a western consumer need. And, in doing that, those suppliers with whom we have worked have realigned some significant productivity and product quality improvements, as well as benefiting the workplace standards for their members of staff, and we see that approach as something that we will be expanding. In doing that, we have worked with development organisations in specific countries to help deliver that programme, and then to help work with our suppliers in those countries on an ongoing basis such that they have continued levels of support, and the aim of that is to create a sort of sustainable network, that means that suppliers not only are better able to meet our expectations and our needs but also are in a better position to meet the needs of other customers they may have, wheresoever that might be. And, at the same time, through the Co-operative movement, we have been developing mechanisms that help to create marketing co-ops and producer co-ops, and actually there is a proposal in front of DFID officials at this point in time that perhaps will seek to develop that further, in other parts of the world as well as where we have worked already, in India, Kenya and, as I said before, in Colombia. And we find that that sort of approach gives our producer contacts far greater control of how they are developing their product and their product range, it makes them more aware perhaps of external expectations for those products and gives them the tools not only to improve their processing and approach to how they manage that but actually to expand that for the future.

  281. Can I ask two distinct questions but both based around the issue of quality. Firstly, Alison referred earlier to the difficulties there might be when she is dealing with a product which is going straight to the consumer, in terms of health standards and the like; to what extent do you feel that Sanitary and Phyto-Sanitary Standards and other food safety issues limit your ability to source directly from developing countries?
  (Ms Austin) Sanitary and Phyto-Sanitary restrictions, or conditions, is not something that we use every day, so I had to do a bit of reading of some of your earlier material in evidence to get to the bottom of it, and then ended up looking at the WTO site. It is not a phrase that we use normally, other than that it is the same acronym as my department.

  282. We do not use it going round the shops either, to be fair.
  (Ms Austin) I think that, in principle, though, to have standards and regulations, or guidance, that protects your customers for food safety, animal welfare type issues, is excellent, as long as they do not act as protectionist measures; so, from that point of view, fine. I go back to my very first words, which were that we operate to legislative standards for food safety and hygiene, etc., and product safety, but also we have our own company policies that have evolved over time, given that my business, Sainsbury's, has a quality market position, the first building-block of quality is food safety, or product safety, so there is no way that we are going to compromise anything on that; and that may be why only one of my team had heard of Sanitary and Phyto-Sanitary Standards, because basically we have our own standards. They were based in terms of enforcing those through our supply chain, through a product management system that we had in place many years ago; that has been superseded by what is known as the British Retail Consortium's third party audit, whereby the supply site will have themselves audited to what is now an internationally-recognised and accepted standard, if you wish to export goods into the UK, and, in fact, is being used by many other countries as well for imports. And the key thing about that is that it is looking at the legal minimum, and then, on top of that, you would be looking with your supplier in the relationship to put in place extra issues that you want dealt with, depending on the product category, depending on the risk to the consumer and depending on maybe an initiative you have or expectations of your customer base. And the UK customer base definitely has very high expectations in terms of food safety; that may be linked to some of the issues that we have faced in this country. It is known globally as being a test market, if it has happened in the UK it might happen somewhere else, so that we are known to be very concerned about food safety and traceability.

  283. That must be right, and your own standards to protect your customers obviously are of crucial importance. I think the nub of it is though, to what extent might someone try to impose such high standards, not only are the products safe but the standards required are so supersafe, that in some cases developing countries and small producers in developing countries just cannot meet those standards? The product is perfectly safe and would pass your test for that, but it might not pass a legislative standard that is based on developed, across the world, pesticides?
  (Ms Austin) I accept that standards would be set based on science, but inevitably science then is interpreted with values, and we do have in this country a population that will accept a scientific explanation and then still opt to choose to buy a product that has gone beyond that. So I accept the reference to pesticides, and we are aware that, with some of the forthcoming moves through the EU in terms of restriction of pesticides that can be used within the UK, or within Europe, and also reducing MRLs, inevitably that is going to cause problems to some developing countries in the future. But I think that goes back to the work that the major UK retailers, including the Co-op, and many European retailers, are already well ensconced in, which is looking at how developing countries will need to grow primary agricultural products, particularly horticultural products, such that they take up not just the EUREP-GAP but really are into integrated farm management, really into integrated crop management, really into looking not just to use legal pesticides but minimise pesticide use and look at alternatives too. But that is an issue and something that I think would be worth asking for evidence from somebody who is a tad more expert than myself on that area.

  284. Can I turn to the second part of the question, if I may, because I think this is perhaps a little bit more contentious, and that is in relation to the industry standards of customer and consumer expectation, and I mean in the sense that you believe I will only buy a packet of mange-tout if everything is the same length, I will only buy a product if it looks right and if the colour is consistent right across the piece. I think it is nonsense. When my mum and I were shopping on Bury market, things did not look exactly the same colour as they had done the week previously, and nobody minded. You will say it is what the consumer expects. Have you not trained us to believe that unless it looks the same this week as last week we will not accept it, and do you impose such high standards that actually some of your producers just cannot meet them?
  (Ms Austin) No, I refute that entirely, absolutely refute it. There are a number of different themes that work here. One, there are very few pesticides used for cosmetic purposes alone, and those are the first areas that you would be investigating in terms of trying to reduce, avoid completely, or use management alternatives rather than application alternatives. There is though the issue that the UK is known to be foremost in Europe for being the most fussy about appearance, and you cannot deny that; if you talk to growers all round the world, it is known.

  285. Who; you, or the consumer?
  (Ms Austin) The consumer, and I will explain why. You have only to work on one of our produce departments on a Friday evening, as I have done and my colleagues will have done as well, to know very well that customers will pick what they want, because we sell predominantly loose products, we do sell pre-packed products. And it is interesting to note that our reductions, or loss, or waste, on pre-packed products actually is less, because there is less handling and there is less having to go either to landfill or, as we are beginning, to composting, but it is still waste, and that is a humungous waste of resources, when you think of the effort put into growing it, etc., not environmentally sustainable. But when you see what is left at the end of a day's operation in a store, it is very interesting to see that it is the bits that are slightly deformed, that are slightly mottled in colour, that will be left behind. But there are issues where we loosen specifications deliberately for certain products at certain times of the year, and English Cox's is a classic one, where we loosen the specification for UK growers of Cox's, I am sorry, it is not strictly developing countries but the principle is the same, to make maximum use of our crop here for that particular product, but if it is too russeted, or too much outside the customer's expectations of that product, it gets left behind. Now I am all for looking to try to challenge the customer about not being quite so fussy about what he/she picks up, and I know, and Tony has been involved in this, that we have put up a point of sale where we have been selling cauliflowers that have had a rather higher incident of little flies in them, they are not harmful, or they have had a particular damage and they are nibbled at the edges. And it is not dangerous, it is not harmful, we have told customers why, we have even tried to promote the fact that it is a consequence of the fact that we have been using fewer pesticides and more alternative management techniques; they are not always picked up, and that is a sadness.
  (Mr Sullivan) Can I add just one final point on that, on the commercial side, as well. I understand the point you are making and I think as we move forward it is actually an opportunity to see how we can differentiate ourselves again, in product terms, what can we do to bring the product closer to nature, if you like. But one of the opportunities that we have to communicate to our customers is through packaging, and within our sub-brands we have, at the one end, what we call "low price", and Sainsbury's low price, and then, at the other end, we have Sainsbury's "Taste the Difference". And within the specifications, in most areas, including produce, that we would have, the specifications for low price will have a much wider spec. and include much more mismatches to finish and size, etc., and, at the other end, "Taste the Difference", appearance, yes, and also the varieties we choose for taste. And, again, you are putting the choice in front of the customer and saying, "Well, it's up to you," and because we do not have behaviours that are all the same we have to have quite a complex range structure set up. And you will see more low price coming through, or standard product that is starting to do that; as Alison says, the apples is a good example, and working with the growers and understanding, if we just widen it a little bit, we can do more. We are not there to be a restricting process to growers or farmers, and often we are chasing better availability because we cannot get the product that we might want; but it is true the UK is more demanding and they may have been brought up that way, post-war, but that is where we are at the moment. And, I think, from the point of view of customer choice then we will continue to work on the basis of having the different ranges and trying to explain why they are not commodities, and why, in fact, they are some great-tasting products, if you buy into it either through price and taste or through value, for healthy eating, anyway.
  (Mr Croft) I will be very brief, just on those two points. Just to answer the first question, do such regulations or issues stop us trading with people; in general terms, not, it might require us, however, to have more development work with the particular suppliers, to help them achieve those standards. But there has been a specific instance, that I mentioned in my written submission, whereby we wanted to trade with some small producers of organic honey in Kenya, and the honey was fine, the quality was fine, there were no pesticide residues, or anything of that nature, but the bureaucracy of the process was such that Kenya did not have clearance to import to the EU, and the opportunity was missed, and we have had now to jump through a number of bureaucratic hoops to try to resolve that. So that is just one example. On the point about consumer perception of products, it is something to which we have given a lot of thought, and we have done a lot of work in terms of the cosmetic appearance, not specifically to do with produce from developing countries but in general terms. And, as an example, we did some work on organic lemons, of all things, where we asked consumers, if the lemon was slightly mottled, with very natural green colours on an organic lemon, would people buy it, and the short answer was "no"; they still expected a very clean, bright, organic lemon, which was a shame, and particularly when it was going to be sliced up and dropped in a gin and tonic. So there is a perception there. There is, however, another set of issues, which is the marketing standards for produce, which do set clear criteria, for example, the amount of russeting on Cox's, the amount of red colouration on "red delicious" apples, the size of produce, and that is one particular issue where, again, we have raised this publicly and are having a dialogue with Her Majesty's Inspectorate of Horticulture about the size of specific products. And, infamously, or famously, actually we marketed some organic peaches that were one millimetre below the required EU minimum level, and unfortunately it slipped past the deadline date, which happened to be 30 June; on 30 June it was perfectly legal to sell them at 59 millimetres, and on 1 July it was illegal to sell them. That is the sort of issue, quite frankly, where those marketing standards, whether you are talking about organic produce or any produce, are simply ridiculous, to our minds.
  (Ms Austin) But I think, if I can add just one point there, from the customer's point of view, some of those really do seriously need to be challenged, because customers buy fruit and vegetables for different purposes, and if you want big pears you might also want small pears for children, because you are jolly well not going to waste a socking great big pear on a child that cannot finish it. So to give customers the choice, as we were saying earlier, of different sizes is really very important.

  286. I want just to come back to the health and safety standards question, but actually look at it from a slightly different angle, and not just from the consumer, actually, because I have farmers in my constituency who say, "Well why have we got to meet these standards if people sending stuff from developing countries don't have to do that?" But really I want to look at your responsibilities, as retailers; do you see you having a role in supporting and building the capacity of producers in developing countries to meet those standards, a direct role in actually providing assistance to them, rather than just going on a jolly trip and saying, "Well, you've got to do better"?
  (Mr Croft) From our perspective, I would say, very much so. The work that we have done, particularly with produce growers in developing countries, working with them and helping to develop ideas about how, for example, different pesticides or alternative means of farming that do not rely on chemical pesticides can benefit them, has been an extremely important part of the work we have done. And when you consider that, within the way that the EU currently is looking at pesticides, a number of chemicals that currently are permitted, effectively, as far as all practical terms, will be banned, because the limit that will be allowable for imports will be the limit of analytical detection, which means that the chances of anybody being able to use that pesticide and not leave any residue is very limited. Now, unfortunately, that does not take into account necessarily the climatic or environmental conditions in West Africa, where some of these crops might be grown, and that is an issue that we have been trying to work on. And the tack that we have taken is to work with our producers and farmers out there and look for alternative, non-chemical means of farming, that means that bypasses basically any barriers that that regulation might pose, and that has been well received by them and it is part of how we are rolling forward that relationship in the future.
  (Mr Sullivan) To add to that, yes, I think we see we have a role in helping to develop food supply chains from developing countries, but not a unique one, we have one with our suppliers and with the industries at large, and I think, as our business, we have to make choices as to where we want to focus our resource. I think it is true also to say that it is not just in developing countries, it is also in the emerging markets, and organics would be a good example of that, and we will have examples come to mind where we put in contracts to give the farmers the confidence that there will be a market, milk and strawberries were two that we worked with, and others will do the same, to understand the economics and how actually we get that product onto the shelf. I think the other area where we have a role is in the knowledge and the assistance we can give about trying to explain the markets, the customer dynamics; contrary to popular belief, we are not there always to be antagonistic and awkward, it is the customer driving us, often, and, I accept, we can influence some of their behaviour but not a lot of it, and pass back as to why certain things need to be done the way they need to be, to help them move forward. And the banana one that we talked about a bit is a great example of that, that that probably is beyond our role, but, because of the responsibilities we have with the volume that we take, we took that in place, and recently it has resulted in us meeting with the Head of the Caribbean Unit in the Foreign Office to say "It's not just our role here, it's yours too, and what are you going to do and how are you going to help us, because the time is ticking by?" So I think it is quite a wide-reaching one, and we could not do everything, we have to recognise our commercial priorities, our shareholders, our customers, and choose carefully.

  Chairman: Time is pressing on. We have got a couple of reasonably technical questions we were going to ask you, that I think we might write to you about, WTO and CAP reform and the "Everything But Arms" Initiative, and I think we would be interested just to know, on the "Everything But Arms" Initiative, to what extent, if anything, it rings any bells at all, and did it have any effect at all? But perhaps, in the last few minutes we have got left, we could have just a word about coffee.

  287. I am going to ask you a question about the coffee crisis, as it is widely known, that over the past three years the price of coffee has fallen by about 50%, and it is having serious, huge implications for countries such as Burundi, Ethiopia and many other countries, and, as you know, the farmers and the economies of those countries depend mainly on the export of coffee. A farmer, from a £1 cup of coffee sold in a coffee-shop, will receive only round about one pence, and from a jar of coffee sold in a supermarket receives about six pence; so this is the situation. And I would like to ask you the question, what role, if any, can and should supermarkets play in seeking to address the coffee crisis and ensuring that suppliers have sustainable livelihoods, and what are your supermarkets doing in this regard?
  (Mr Croft) I think the first issue that one thinks about, in terms of coffee, and indeed other commodity products, like cocoa, is the difficulties that are well talked about, in terms of tracing the source of supply. And, from our point of view, we see one of our key roles as working within our supply chain and mapping that supply chain such that we have an element of traceability back to the sources of that coffee, which may seek to shorten the supply chain, which in itself might deliver a greater benefit to the growers. But also it means that we can apply our specific code of practice on supply chain management and ethical supply chain management to the coffee industry. And in the work that we have done in Kenya, we work very closely, in fact, in our workshop session, there were members of the Kenyan Coffee Board present, as well as members of the local co-operative of coffee growers, with whom we worked in order to establish their supply chain and how we could involve them in more detail, in terms of our end product. The same was true in the work that we have done in Colombia, whereby we have worked very closely with our prime supplier in Colombia, and through them worked back actually to get in contact with the farmers and bring them to the same type of workshop session, whereby they are understanding what our expectations and needs might be and how they can build their own capacity through working more collectively to try to meet that and give them greater access to the market-place that we provide, and in so doing that then they have greater access to the broader market. The other side of that is very much about fair trade, and, on that note, I will hand on to Terry to talk about that.
  (Mr Hudghton) I think we recognise and have huge sympathy with the issues over coffee, and we have done a lot of work with organisations like Oxfam to help build the public profile of the coffee crisis. Fair trade, we believe, certainly is part of the solution to the coffee crisis, and, if anything, the role fair trade can play has been underplayed up to now. If you take ground coffee then four years ago 5% of our sales of ground coffee were fair trade, two years ago we developed that up to 10%, and now we are selling 23-24% of all our ground coffee as fair trade. It is easier on ground coffee than it is in the instant coffee sector because of the strength of the brands in the instant coffee sector. Fair trade sales in the instant coffee sector have moved from about 1 per cent up to about 4%. We believe there is room for further movement upwards, but really we feel that there is a role for brands to play in there; and we have been trying to encourage, rather unsuccessfully, brands to adopt fair trade, at least as part of their portfolio of offering, but, to date, unsuccessfully.
  (Ms Austin) We are very concerned also about the issue; we have had a number of meetings, really since spring of last year, with all the key players, in terms of the NGOs, campaigning groups, the coffee trade organisations and players, etc., and we have made a number of commitments, in terms of what are our responsibilities to deliver. And I think the first thing is to understand the supply chain that we have, because about 18 months ago we reckoned we knew where only about a third of the coffee we sold actually came from, under our own label, and now we believe we are over 90% understanding where our coffee comes from. So the first thing is to understand, as a retailer, where your coffee comes from and to try to identify where the value is added, what are the connections between raw material pricing and your on-shelf pricing, and there are some big holes in knowledge. The second commitment we have is to move to use quality coffee beans in our own brand, and when we were discussing this I had no concept really that there was good quality and medium quality and poor quality, in simplistic terms, in terms of coffee beans, but there is, and blending can be very sophisticated and cover up a multitude of sins. So, by making a commitment, as a business, to mean to use quality coffee beans in our own brand, it means that increasingly we will be avoiding any thought or intention of using beans that are substandard, that are put into the business. And there is a very clear and accepted link by the campaigning groups and by the industry that the more you move towards using quality coffee beans the better the price that eventually reaches back to the grower; also, it reinforces the position of a quality grower, who is likely to be more sustainable, more forward-thinking, than somebody who is perhaps on marginal land, etc. So all sorts of very good reasons and accepted by the industry of moving towards quality coffee beans. And, for that very reason, we have met in a committee, working with the International Coffee Organisation, who set the standards for quality, although we need to be aware that it is very much a European-biased organisation, and without the USA involved in this there is going to be a slower rate of progress than one might hope. So we aim to use quality coffee beans as per the ICO standards, certainly by the end of this year, which will be a major move forward, and I think it is a very responsible action in terms of the retailer's ability to play its part in this crisis. Also, educating consumers about coffee, about the country of origin and the means of production, and, to that end, we are very keen to stock a wide diversity of coffees, ranging from single-estate coffees through to promoting the country of origin in more detail. And we have just launched "coffees of the world", with three new coffees that have come out, really focusing in on the country of origin, the high-quality coffees and really looking at the method of production. So it is yet another step forward to moving people from the bottom end of the market, which is supporting that overproduction, in a sense, and moving people further up to buying quality. And fair trade, yes, has its role, but it is part of the role; and, as Alistair was commenting earlier, it is growing, we would like it to grow faster, but we have to do something about the mainstream coffee market as well. And, like David, of the Co-op, we have been asked also to sit on the DTI Commodities Group, which has met now for the first time and has put together a whole brainstorm of ideas, which will be discussed at the next meeting, in May; and Dr Elaine Drage, who I gather has also given evidence here, is a mainstream part of that. So, again, it is about two retailers present here today really trying to make an active contribution within what we are able to do, given what we are, as food retailers.

  Chairman: Thank you very much for all the evidence you have given us, and I think you have given us some very helpful insights, not least into the complexity of all this, and I think actually that is rather important, that any report reflects something of the complexity. I think also it brings up, as Tony Sullivan was saying about the Windward Islands, that trade policy tends not always to be a win-win situation, that somebody will lose out. And I think we are very conscious, and actually we are having a session with Caribbean High Commissioners and others, I think, or anyway the Windwards, and some of those islands, 25% of the Commonwealth comes from the Caribbean, and they tend to miss out because they tend to be middle-income countries, so they tend to miss out on a number of things, and so on. Can I make just one comment, I think we have heard quite a lot about what you were doing collectively for the first time today, and we are reasonably informed, I think, as a group. The Trade Justice Movement, obviously, who cover the whole range, it is not just food but they cover the whole range of trade justice, have got a lobby of parliamentarians on 27 and 28 June—it is a weekend, it is a Friday and Saturday—and it just occurs to me that actually it might be quite a good opportunity to invite Members of Parliament to visit your respective supermarkets in their constituencies, so you can explain to them actually what you are doing. As you know, I am a reasonably regular attender at Sainsbury's in Banbury, I cannot remember having seen the different packs of Caribbean bananas and others, but it may be that usually I am doing a quick guerrilla raid, so I do not get done over by too many constituents, but obviously I have not got enough time for all this, otherwise we would have sort of ad hoc surgeries on the working tax credits at the checkout. But I think it would be a good opportunity for you actually to invite in Members of Parliament, when Trade Justice Movement issues will be high on the agenda. Because the Trade Justice Movement, I know, is wanting to lobby, that weekend, every single Member of Parliament, and just to flag up what you are doing, and I think some of the complexities, I think both with what the Co-op is doing in fair trade and what you are doing in fair trade, and some of this work you are doing in the Caribbean actually is very complex, and I think it would be useful for colleagues to know about that. So thank you very much.