Rural Affairs and Islands Committee

Meeting date: Wednesday, November 8, 2023

Official Report 794KB pdf

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Future Agriculture Policy

Our next item of business is an evidence session on future agriculture policy with representatives of major supermarkets in Scotland.

First, I put on record that we asked Tesco, Co-op and Aldi to join us for the session and clearly explained the reasons behind having it. Nonetheless, very disappointingly, those three supermarkets declined our invitation.

I am delighted to welcome to the meeting Chris Brown, who is the sustainable business director at Asda, and Sophie Throup, who is the technical and sustainability director of manufacturing at Morrisons. Thank you for joining us.

We have approximately an hour for questions. I will kick off. What is your view of how the food supply chain typically operates in the United Kingdom and the role of major retailers such as yourselves in it? I will kick off with Chris Brown.

I would think that the overall perspective would be that it is a very successful food supply chain. The UK food industry has faced several challenges in the past 20 years, from bovine spongiform encephalopathy to foot-and-mouth disease, and yet, in general, the food shelves in our shops have been well stocked and products have been available. Although there might not have been a complete range, I am sure that you, as policy makers, have not been challenged about the availability of food in most cases.

We have proven to be very robust and responsive to what is happening in the supply chain and to changes in customer purchasing habits and patterns. We also managed to get through a global pandemic.

Will you elaborate on how the food supply chain operates in practice, from the field to the plate?

That varies according to the supply chain. In some instances, such as in relation to livestock, we operate through our processor, which, in Scotland, is ABP, with its plant at Perth. It takes food from farmers who supply deadweight. In some instances, it comes in through auction markets.

If we take the example of potatoes, Asda operates its own potato packing plant, which is supplied by two major grower groups, the Scottish Potato Co-op and Tay Growers, which make up more than 90 per cent of the supply into that packhouse. Overseas, we deal with farmer co-operatives and the large brands. There is no one size that fits all in that regard.

It also depends on what the supply chain and the suppliers want. We try to adapt to meet their requirements.

I will move on to Sophie. Can I check how to pronounce your surname—is it “Thrope”?

It is pronounced “Throop”.

Thank you. Sophie Throup, Will you give Morrisons’ perspective on the supply chain, please?

Certainly. At Morrisons, we are a little bit different in that we have a big manufacturing business in Scotland as well as supermarkets. One of our manufacturing sites is in Turriff, Aberdeen, where we take in beef and lamb. About 70 per cent of that beef comes from within an hour’s drive, and I think that the numbers are similar for lamb.

The structure that we have at Morrisons means that we buy directly from about 900 Scottish farmers. Beef and lamb then goes directly to our own plants. We source potatoes from about 34 farms through six groups. Those go south of the border to be packed in our processing and packing facilities.

However, we do not manufacture and process everything ourselves. We have long-standing relationships with growers, such as Duncan Farms, which supplies us with all our Scottish eggs. Arla, in Lockerbie, supplies our milk and Lactalis supplies our cheese. We try to think about long-term relationships with companies on the ground, and we use our own processing facilities where possible.

I share the convener’s disappointment that some of the supermarkets have chosen to not turn up. That is not something that I can hold the witnesses responsible for, and I will not.

The figures that I have show that 60 per cent of the market for the food that is being sold in the UK—rather than just Scotland—is in the hands of five retailers. However, in many towns across Scotland, you could replace that number with two or three retailers. Can such a situation go on forever without people asking whether it is entirely healthy?

That strikes me as being data that is related to the grocery market, not the food market. I should have said that one of the things about the food industry is that it is incredibly dynamic and progressive. For example, we have home delivery services and there has been a growth in internet retailing. One third of calories are consumed outside the home and there is also an enormous food market in public procurement. The retail market is very competitive and it is heavily scrutinised. We are open to that scrutiny and we comply with the grocery code, which applies to supplier relationships.

How does the market share compare with that in other European countries?

Off the top of my head, you could look at Australia, where there are two major supermarket chains—Coles and Woolworths.

To add to that, there is a lot of competition within the grocery sector, which benefits consumers. As we are in a cost of living crisis, we are extremely mindful of how customers can afford to access good British food. At Morrisons, we have a 100 per cent British sourcing policy, which means that we source 100 per cent British fresh meat, milk and eggs and produce when they are in season. In Scotland, we are trying to think about that from a Scottish focus, so 100 per cent of our milk and eggs are Scottish, as well as a high proportion of our beef and lamb. Competition is important for consumers and it is our role as retailers to have a healthy balance. We are trying to support farmers and growers successfully and fairly. For us, a successful food service means having a resilient grower supply base, as well as being mindful of how we can keep food accessible for customers.

Good morning. Are there differences in how the food supply chain typically functions for the main agricultural sectors, such as fruit and veg, meat, dairy and cereals?

The simple answer is yes. We should have said that Sophie Throup and I are in a strange position in that our supermarkets own their own processing facilities. Asda owns its own fruit and vegetable packing houses, and Morrisons has a bigger range of packing houses. Those who supply us come under the auspices of the groceries code, which would be different for other organisations, which might use intermediaries—we are working to a higher standard than some of our competition. That being said, Asda’s milk and dairy products come from Arla, as do Morrisons’, as Sophie Throup said. I have described our potato supply chain. For some commodities, such as wheat, the market becomes much broader and there is a wider range of markets, intermediaries and processors, which makes the supply chains more complicated.

To add to that, some of that is seasonally dependent, especially the fruit and vegetable sector. Sixty five per cent of Morrisons’ vegetables are UK grown and others are imported. However, we are trying to understand how we can have full, all-year-round supply from the UK and Scotland where possible.

For example, 100 per cent of the swedes for the whole of the UK come from Scotland, and we have moved this year to 100 per cent of our leeks coming from Scotland when they are in season. We are always very conscious of trying to buy locally, from Scotland or the rest of the UK, but we are also mindful of what does and does not grow here. Obviously, that has some effect, but it is important that our customers are able to shop locally.

Good morning. Thank you very much for turning up—it is very decent of you to have done so, given that the rest of your competitors are not here.

You both talked about your commitment to Scottish producers, which I absolutely applaud—that is great. There is potential to talk about the branding of Scottish produce, but, more important, I hear constantly about downward pressure on producers being driven by the supermarkets’ power, to get them to provide their products more cheaply, with less security in their contracts and so on. We are constantly supplied with that information. Do you accept that your commitment to Scottish produce means that you also have a commitment to the Scottish people to ensure that there is a resilient food industry in Scotland?

Absolutely—we do. As we said, it is really important for us to be able to supply such products to our customers, and we can do that only if we have a resilient supply base from which we can buy. We pride ourselves on forming long-term relationships, and many farmers who come into our depots, abattoirs and other facilities have been supplying us for 20-plus years.

We are mindful of trying to make adjustments and provide extra support on prices, because we know that the situation has been incredibly hard. We are also farmers at home, so we know the pressure that farming has been under for the past couple of years and beyond.

On supply, we think about not only the market price but where we can go on to do more. For example, for the past year, we have been doing a shared-risk initiative on root vegetables and potatoes. At the moment, while we see whether it works, the initiative involves only a small number of farms, but we are underwriting the cost of any risk relating to potatoes and whether any costs go down. If there is a benefit, that is shared between the growers and Morrisons.

I am glad that you have brought up that important point. Soft fruit growers have witnessed tunnels lying empty and plants being ripped up, shredded and mulched because the growers can no longer make money from them. My understanding is that, although the increase in the shelf price was about 11 per cent last year and about 14 per cent the year before that, the price that is paid to the producer has remained static or has been pushed down. Will you roll out that shared-risk initiative to all the sectors that you work with?

We listen carefully to all our suppliers when we have discussions with them, but supermarkets’ margins have also been under increasing pressure. For example, Morrisons’ margins have dropped every year for the past 10 years as we have tried to keep paying a fair price to farmers and to other suppliers and growers while maintaining fair prices for customers.

The market is highly competitive. We know that, if we put our prices up out of line with those offered by other retailers, customers would vote with their feet and choose to walk elsewhere. We are conscious of trying to keep a balance between the two. It is important that we ensure that we have producers in the future, so that we can still source, where possible, British and Scottish products. It is not in our interests for that industry not to be there in the future.

Okay, but do you accept that we have only one pig processing plant and only one chicken processing plant left in the country and that the pressures will continue to grow? Do you accept that, if we want to have a resilient industry in Scotland, your group of organisations has a vital responsibility to maintain a long-term supply chain?

We absolutely accept that there needs to be a fair price that provides a decent return for everybody, so that people can continue to invest. It is not the job of supermarkets alone to do that, but we want to support futures in the long run.

We have a pig abattoir south of the border, so we do take pigs south of the border. For chickens, the situation is interesting. We, of course, use that abattoir, but we also do other things. For example, we often get feedback from our egg processors that Scotland would also really benefit from its own end-of-lay hen abattoir. At the moment, laying hens, which are Royal Society for the Prevention of Cruelty to Animals assured, have to travel all the way down to Bradford from Scotland to be processed, which seems unsustainable. There are areas in which it is a question of working together to understand when other elements can help the supply chain.

09:15  

Do you want to come in, Chris?

I will build on that quickly. Sometimes, in a meeting, I ask people what number they think a supermarket looks at first when it is trying to work out whether it has been successful that day. Usually, they say that it is related to profit or something less polite, but I tell them that it is about availability and whether our orders were fulfilled by our suppliers. If they are not fulfilled, we end up with spaces on the shelves. It does not matter what the quality, branding or flavour is, because that is only a concept to a customer. The customer has to buy a physical product. We have to work as a supply chain to deliver that on the shelf day in, day out. If we are not doing that right, that is because there is an interruption to the supply chain, so we have lots of conversations.

Obviously, with the recent energy price spikes, we have had a lot more conversations about the fact that we needed to improve the cost price for suppliers because, otherwise, we would not get the supply that we ordered. For example, 20 per cent of the cost of a potato can be energy, because it is stored in places that need to be kept chilled. Therefore, we have to work with suppliers, but we are still an attractive proposition. Sales of local produce in Asda stores have gone up by 30 per cent and, next year, we will list 240 new Scottish lines. That is great because, as I said to the convener, that shows the positivity in the food industry, which is generating new products that customers want to buy in Scotland.

I absolutely accept that you guys are the place to go and buy our food, but that needs to be on the basis that the guys who supply it get a fair kick of the ball.

As Jim Fairlie has touched on the area that I wanted to cover in this section, I will ask another question.

We have heard some stakeholders calling for fruit and veg to be subsidised by the Scottish or UK Government. Indeed, a paper from Warwick university found that doing so would cost taxpayers roughly £2.5 billion a year, compared with the £6 billion a year that is spent on treating illness related to poor diet. I am interested in hearing your views on that. Would supermarkets support the Government subsidy of fruit and veg?

That would be an interesting concept. Obviously, we are incredibly mindful of our customers’ diets and, although we have not set any targets to, for example, alter the balance of what customers buy, we have started a lot of activity—and, indeed, want to do even more—to encourage customers to eat more fruit, vegetables and whole foods and to ensure that they know what to do with them once they have bought them. We produce fantastic whole foods. Subsidising fruit and vegetables is maybe a bit more straightforward, but it is also important that customers understand how to prepare and eat them, and that would be a good place for Government help.

Such a mechanism would need careful consideration. How is it going to operate? In general, supermarkets push fruit and veg; it is the first area of the store that you hit when you come in. In most stores, when you are beginning to think about what you will buy, you are presented with the fruit and veg. That said, although it is the prime selling opportunity—and although I hope that it means that people make the right dietary choices—the fact is that people are still individuals.

I, too, thank the witnesses for being here.

What we are scrutinising is an agricultural policy bill. Essentially, it is a bill to replace the common agricultural policy, so it is very much focused on subsidy—or some other word for that kind of financial support.

However, I want to go back to the issue of how you agree contracts with farmers, co-operatives and wholesalers, and what the process looks like. Jim Fairlie has already touched on the point about the percentage of the profits that go back to the producer. Some research from 2022 by the food charity Sustain suggested that on five everyday items—apples, cheese, beef burgers, carrots and bread—farmers sometimes make less than 1 per cent of the profits. That will have a direct bearing on where, for example, a subsidy should be set in order to sustain those livelihoods. How, therefore, do you reach agreement on pricing, volume and timescales?

I was also heartened to hear that some of your relationships go back 25 years, which suggests to me that they are mutually beneficial. Is that the norm, or is that rare?

These things are done in different ways. We very much think about a market price when we set prices. Of course, prices can go up and down and ultimately, our suppliers are, in some cases, free to choose where they want to go. It depends on the supplier and what they are supplying; dairy contracts, for example, tend to involve longer supply agreements with later end points.

However, not all the suppliers with whom we have worked for a long time—say, through the abattoirs—have a contract that guarantees that they will send their beef or lamb to us. They are free to send it somewhere else, although most of them will continue to send it to us, as we have worked with them for many years.

Therefore, when we set prices, we are very conscious of market pricing, but we also think about whether there are any extra areas that we are asking farmers to look at and for which we might be able to add an extra payment. For example, we have initiatives on additional welfare and sustainability measures in our milk supply chain, for which we pay above the market price, and that additional support enables the farmers to go and do more.

Similarly, we are quite flexible in our approach to arrangements. In the context of policy and thinking about future areas, we are doing an awful lot with farmers on net zero agriculture and sustainable ways of working. In such cases, we have spent a lot of time investing in farmers having supported carbon footprints, soil carbon testing or other things that will benefit their business but the cost of which they are not beholden to meet. We are trying to work in partnership with our farmers as we take things forward and think about pricing.

When we think about volumes, we think about what it is that we can sell in the stores. From a Morrisons perspective, our manufacturing business sells not only to Morrisons itself but to external customers, too, and that includes quite a lot of export. Therefore, we are mindful of the markets that we are selling into and those that we are gearing up for. As part of that, we will work with other organisations such as Quality Meat Scotland, which can help to open some of those doors and facilitate some of those opportunities for us.

When it comes to pricing and volume, we are very conscious of the need to hit the right balance, and it is very difficult to do that. This time last year, things were tricky for the pig sector—as it had been further back—because of an oversupply of pigs in the market. That is part of the reason why the pig price was so depressed. We therefore took the very hard decision, which involved giving all the right notice periods to our pig farmers, to reduce the number of pigs that we had coming into our business, so that we could balance the supply a little more and help stabilise the price. We are very conscious of our role in demanding the right numbers to ensure that we do not flood the market with more than is required.

Unhelpfully, my answer is that it depends.

That sounds very political.

The supply-and-demand side of things is huge. For the big products in Scotland, we will use the QMS indices for beef, lamb and pigs. Perhaps I can take a slightly broader view and look at, for example, broilers and eggs; in that area, there is not only a price, but a feed price tracker, which we have operated since April 2022 when we started to see massive volatility in commodity markets. Some organisations, such as some of the Spanish co-ops, like to contract for half the volume and then see what the spot market does with regard to the other half. We are happy to accommodate that. In other areas where there is particularly intense price volatility, such as the catching sector, contracts are agreed on a three-monthly basis.

I have a tiny supplementary question. It is well known that farmers typically make a loss without Government subsidy. Can you ever envisage a situation in Scotland in which farmers are sufficiently recompensed by the market so that they do not make a loss?

Again, I think that it depends. We talk to a lot of farmers, and some will say things in private that they will not say in public. I appreciate that there are various farm income studies that show the majority position, but the fact is that there is a range of people and a range of performance.

An awful lot of farmers produce things and then expect that produce to be sold, and I think that, going forward, people will need to think about where they will market their produce. That process was set in motion back in 1990, when the MacSharry reforms came in, as intervention came out of the CAP and things became much more market related and volatile. I think that even the Curry commission about 20 years ago said that HM Treasury should be looking at price volatility measures, a bit like the way in which the US used insurance to manage things.

The Government has levers that it can use if it wants to intervene in marketplaces. If it does not intervene, we will end up with supply and demand being set and shrinkage of production as a result. If that happens, as I think Mr Fairlie rightly pointed out, we lose critical mass, and that is when you lose processing capacity and end up in a bit of a doom loop.

A new environmental assurance scheme was recently proposed under the red tractor scheme, but farmers have raised concerns about the new standard incurring higher costs and supermarkets selling their products at a premium, but farmers not receiving a premium price. It is a similar situation with organics; such products have a market premium, but the Soil Association and others have proposed that more of that premium should find its way back to farmers. I understand that some supermarkets would pay farmers a higher price but they feel that they cannot do that while their competitors keep their prices down. Would your companies welcome regulation in this area, such that farmers who produce a premium product to a higher environmental and animal welfare standard would be guaranteed to receive a premium on the price from all the supermarket buyers?

I do not mind kicking off on that question, but I should make it clear that I am the British Retail Consortium member on the red tractor board.

As you probably know, the red tractor greener farms commitment was proposed as a voluntary, not compulsory, module. When it was being looked at, we, at Morrisons, said that we were thinking about how we could pay a sort of subsidy to farmers for taking the additional steps required by the environmental module. However, that sort of thing would be up to individual retailers, as the price is not set by the red tractor scheme.

That said, schemes such as the red tractor environmental module ensure consistency. An increasing amount of transparency is becoming required in the food supply chain—and probably rightly so—as retailers and processors are increasingly obliged to report their data. Understanding how we get that data from farms as a primary data source in a consistent package is really important; otherwise, we will not be comparing apples with apples. That is why such schemes are very helpful.

Obviously, another benefit of red tractor and such schemes is that they go across a volume of supply. The fact—and this is certainly the case for Morrisons—is that organics will only ever be a relatively small amount of product that is taken in by customers. Our organic sales are only about 5 per cent of everything that we sell, because our customers tend to be much more value focused. However, for those customers who choose to buy organic, we have those products available, and there are associated premiums for the farmers that produce them.

There are other schemes that we have done ourselves. For many years now, we have been paying our egg farmers to take additional steps for the environment, such as additional tree planting and the installation of bee cover or bee strips, and we ask our customers to pay a little more for those eggs. With our for farmers scheme, customers choose to pay a little bit extra for those products, and that money goes straight back to the farmers to help them invest in that activity. We are trying to make schemes and programmes available for customers to support, so we can pass that money back down to farmers.

This area of the market is very dynamic at present. Asda is converting all of our produce, both domestic and overseas, to the LEAF—or linking environment and farming—system, which is an integrated farming module. We have not taken a perspective on the red tractor green module yet, because integrating the LEAF system is taking up a lot of our time.

As for organics, our position is very similar to that of Sophie Throup. Organic farmers receive a premium, and that premium goes through to the retail price. At present, though, organic is in decline.

It is great to hear that both of you are giving farmers that premium price, but do you think that we could go further if there were regulation across the board that meant that everybody had to do it? By that, I mean regulation in general, leaving organics aside.

One thing that you have talked about this morning is the challenge around the competitive market margins. If there were regulation in certain situations that could help all of you take that step together, do you think that that would help us move things along? We have incredible climate targets, and agriculture plays a big role in reaching them.

09:30  

The challenge, if you did that sort of thing domestically, would be in how you would regulate imports, because you might end up with a very great differential between the import price from somewhere that did not have to meet those standards versus the price from domestic producers, given what they have to do. It is a conversation that we have all the time. You would be penalising domestic producers and tying both hands behind their backs, while the consumer, who is very time and finance restrained, will make their own rational choice. You might well end up shrinking the market for domestic product.

Something else that we are very mindful of is that when, as you would imagine, we ask consumers lots of questions about, for example, sustainability, the environment and animal welfare, they say that they want all of those things, but most of them do not want it to cost them any more. Therefore, we are mindful of how we can do both, as much as we can, but we are also putting in place certain schemes and programmes for customers who are able to make a bit more of an investment in their food through, for example, the “For Farmers” scheme or organic schemes.

I have one very quick comment, which is this: do not forget the caterers. You might put chicken prices up to £10, but if someone can go and buy a rotisserie chicken from their local convenience store for £5—cooked and sorted—that is where they will go.

I will keep to questions in the same vein and move to Alasdair Allan.

Can you say a bit more about your work with farmers and others to ensure high standards in environmental and animal welfare? You just touched on that, but will you comment specifically on how that is scrutinised, reported and assessed by you?

As I said, Morrisons has a British sourcing policy anyway, and our core standard for all of our UK production is that we go for a red tractor mark or QMS product. Those are our baseline standards. That also means that we are able to have a standard level of audit and reporting.

On top of that, in certain sectors we have products that are assured by RSPCA Assured—in particular, eggs and things such as outdoor-bred pork, for example. Many of our vegetable growers are already Linking Environment and Farming, or LEAF, accredited for other supermarkets—we do not have that all to ourselves, but we have the benefit from it, because they supply multiple other retailers.

On top of that, we are very mindful about trying to understand where we can ask farmers to do more. I was describing earlier that we have various initiatives that we are doing through our “For Farmers” range of milk and eggs, through which money will be directly returned to farmers who are looking at environmental and animal welfare step-ons in sustainability.

We have set ourselves very ambitious goals in supporting agriculture to get to net zero. For that, we have been trying to take very practical steps to bring farmers along the road on carbon footprinting and—which is more important—on what to do with the information when they have it, and how to think about an action plan and how it could benefit their businesses overall.

We are trying to do various things, from applying standards to using various programmes and ways of working with farmers to encourage them towards the next stages of sustainability, which is, ultimately, what many stakeholders in the food industry, including our customers, are looking for.

Asda uses the red tractor logo as the benchmark standard, and we require that overseas product be benchmarked against it, with adaptations for local positions. We run farmer groups, as Sophie Throup does, in which we invest in groups of farmers looking at best practice and trialling things. None of that is about exclusivity, because the field is a very open laboratory and we want people to talk.

We have been working with Syngenta and have planted 1,000 cover crops on our potato headlands. I would make a policy direction move on that. Although those crops look fantastic—they are beautiful flowers that look terrific—they are not there as horticulture. The fields are not flower beds, so we also pay to have an entomologist sample them to see what biodiversity is being generated. I can give you the breakdown of 150,000 insects; that is apparently what entomologists do in the winter. We are building on that by asking whether we can take the labour out of it. Are there laboratory techniques? Are there new opportunities to get that approach down to farm level?

I think that pretty well all the retailers are engaged in best-practice development and are supporting agriculture.

You have mentioned some of the things that you are doing on that front. Clearly, farmers are committed to environmental and animal welfare aims—as, I am sure, you are. You mentioned some interventions, but the big influence that you have is, of course, the price that you are prepared to pay. How do you ensure that the price that you are prepared to pay is having the right influence and is not creating perverse incentives or pressures that are difficult for farmers to reconcile with the high aims?

There is a constant dialogue. We have a potato buyer who is based in Scotland who visits the growers and hears what is being said. Having been through the energy costs spike over the past two years, we have proved to be adaptable—as did all the retailers. We were hearing from farmers who were saying, for example, “Look—if we try to deliver the contract we agreed three months ago, I’ll go bust next month.” That would not help anybody, so we had to change and be adaptable and we had to listen to the concerns of our suppliers. I would push back on that question and say that the shelves are full, I have not got many rulings against me from the groceries supply code of practice—fingers crossed, touch wood—and we are trying to do a good job.

Morrisons is equally mindful of making sure that we are paying a fair price to the farmers and supporting them in the more holistic aims, as well. We have also introduced things to support new entrants to farming. For example, we have 1,000 head of cattle in our elite beef scheme in Scotland, which is where we take from the dairy herd beef that we pre-pay for—we pay for the cattle at the end of rearing, put them under farms to contract rear them and then we knock off the price difference when they come into the abattoir. We are constantly trying to think of different ways to fund growth and development for farms and to be very practical in our approach.

There is a real tension in trying to understand how to maintain food prices that customers can afford. As, I am sure, you are aware, there is some real food poverty in the UK, which is incredibly sad to see. We want to do our best to ensure that all customers can afford to access healthy and sustainable food, but we also need to make sure that things will not fall over at the other end of the supply chain. Listening very hard and being able to adapt and regularly change things such as supply payments is really important, so that both ends of the spectrum feel that they are being listened to.

It might surprise you to hear that we turn down a lot of commercial offers on the ground that we do not believe that they are viable in the long term. Someone might come in and offer us a price that has been fed down through their supply chain but we say, “We don’t think that’s going to survive. We think you’ll go bust, then we’ve got empty shelves.” As I said to the committee earlier, that is the last thing we want.

You have raised some really interesting stuff; it has been a brilliant session. Sophie Throup talked about the standards. This is a kind of follow-on from the last question, but it will also lead on to my next one. Do you remember the Scottish Quality Beef & Lamb Association? I have to declare an interest: many years ago, I was a sheep and cattle farmer. At the time, the Scottish Quality Beef & Lamb Association was given as an incentive: we were told, “Join this—we’re going to pay you extra.” However, that incentive became a stick. Given where we are now, at what point do you see the incentives that you are encouraging becoming sticks?

I want to ask about carbon credits, in particular, because that natural capital is owned by farmers—it is in their soil; it is theirs. Is that an incentive at the moment to supply you, to be part of your supply chain, that will later become a stick, in that if they do not give you the value of that carbon credit they can no longer supply you?

We are absolutely aware of the burgeoning emerging industry in carbon credits. The whole carbon market needs guidance and a rule book. As Chris Brown does, I go to huge numbers of farmers meetings at which carbon credits are talked about, but no farmer really understands what they can do with them because they do not know what the rules of the game are and what can or cannot be trusted.

However, from a very early stage, we have set out a sort of progression for farmers to understand how they can make themselves as sustainable as possible, and how we can help them to reach net zero. That is not done at the expense of biodiversity or anything else but is done in a holistic way, looking at things in the round.

We were very inspired by the National Farmers Union’s goal of thinking about net zero 2040 or 2035 and we wanted to encourage our producers to do the same thing and to go after that. However, we have never said that that means that we want the credits that would therefore be sitting on someone’s farm. It is about how we can encourage and work with all the farmers in our supply chain to lower their emissions as far as they can and then increase the opportunities on the farms for carbon sequestration and carbon holding—which also have very good biodiversity impacts—so that those are as high as they can go, to enable the farmers to get to net zero.

That is not to say that farmers who are not at that point are out and are not allowed to come into the Morrisons supply chain. We know that our customers are looking for sustainable food, but a huge amount of pressure is put on us by some non-governmental organisations and groups to adopt a meat-reduction target. We do not think that that is the right thing for us. For us, the question is more about how we can make meat more sustainable and how we can make meat, as an excellent protein source for customers, accessible and sustainable and something that customers do not feel guilted into not buying—which reflects some of the narrative that comes through.

For us, it is a matter of supporting farmers to be robust and resilient in the future. They do not cover everything, but many ways of lowering emissions also involve lowering costs and being more efficient. How can we support farmers to get there, using the right skills, knowledge and tools to do the job? We are not here to do a dawn raid on carbon credits; we are thinking about how farmers can improve their own farms’ situation and, we hope, improve soil capacity for the future, too.

We have only 20 minutes, so let me have a quick go at this.

A very quick go. I apologise, convener.

I would not touch this area with the dodgiest of bargepoles. There are a couple of reasons for that. The Department for Environment, Food and Rural Affairs has a group on food data transparency, on which the Scottish Government is an observer. One of its workstreams concerns eco-measurement. Last time I looked, there were four pages of questions. I do not understand for the life of me how we can set Government policy on something as important as food production for this nation when we do not understand the question we are posing ourselves.

I think that the whole area of carbon labelling has run way ahead of the science. I do not think that we have a true handle on carbon cycling, for example. We are going through the process, however, because it is what we have to do. I would point out that, if I put biscuit waste into an anaerobic digestion plant, that means zero carbon, whereas if I put biscuit waste into a cow, which produces methane, all of a sudden that has all the carbon costs associated with it. Are we going to correct for that? How are we going to declare that? Will we put a carbon label on, so that the public can make a choice when they go into the shop? Let us do that—and put it on a kilo of cabbage and a kilo of beef. A kilo of cabbage is 90 per cent water, but a kilo of beef is only 30 per cent water. Are we going to correct for that? Do we want to correct for the nutrition that is in a kilo of beef, such as the amino acids and proteins, which we need, or do we just consider the bit of vitamin C in the cabbage? The questions are so big, but they have been ducked. We need to get a hold of all that.

As Sophie Throup said, it is a bit like the wild west, although I would point out that Clint Eastwood came into the wild west and shot the bad guys, but the bad guys are running the show at the moment.

That is really interesting. We will have to have you guys back again.

I am afraid we have to move on. We have only 15 minutes left and we still have quite a few questions to get through.

Does the contractual process vary among agricultural sectors?

Yes. As has been described, some of the Spanish growing co-operatives contract half of their volume and then spot-market the other half. For bananas, that is done on an annual basis, with a cost reduction for logistics costs and currency changes, so people can fit into that. The QMS market standards apply to beef, lamb and pork. There are feed-tracker contracts for broilers and egg layers. Generally, we will shift the contract or the arrangements, depending on what people want. We have been taking beef from ABP Food Group since 1965. Campbell’s—I am sorry: I mean Glenrath Farms—has been supplying us with eggs for 25-plus years. I have been told off by John Campbell so many times about that.

The arrangements are part of a dialogue. The conversations are face to face—or Zoom to Zoom—but they form part of a greater conversation around supply and demand and the pressures that people are facing.

I have been looking at some of the statistics, and I was concerned to see that one in five farmers says that they have suffered a wasted crop because of cancelled orders. In such cases, 29 per cent of farmers received no explanation, and 29 per cent of them had not been paid in 30 days.

Some of the key concerns among farmers are that they want to sell what they have agreed to sell to supermarkets, they want to be paid what it was agreed they would be paid, they want to be paid on time, they want a longer-term commitment rather than a short-term one, for sustainability reasons, and they want to agree on fair specifications. However, it sounds as though Chris Brown is saying that supply and demand, affordability and other external factors are playing into the issue. Given the really challenging legislative demand on Scotland’s farmers through the agriculture legislation, how can supermarkets look to a sustainable future and ensure that farmers have people to succeed them on their farms?

09:45  

One of the points in your question was about payment terms. When we work with farmers and other small suppliers, including local food makers in Scotland, we have a policy of paying within seven days. That automatically helps the farmers’ cash flow. We are very mindful about paying quickly. With contracts, as Chris Brown described, there are market elements, but we also recognise that, for producers to be able to invest, longer-term contracts are needed. For example, we have just moved to up to seven-year contracts for some of our egg suppliers in the UK, and we have extended to two-year contracts for potatoes in some cases, instead of having annual negotiations. Annual negotiations, however, leave everybody free to move, so we are not tying people in forever.

We are open to listening and therefore to not having just a one-size-fits-all approach for all farmers and suppliers. We try to be responsive in setting contracts, prices and payment terms, particularly for small family businesses, including farming businesses. Such businesses need to understand how they will get the payments. We think that having short payment terms is a sensible approach.

The dairy industry is to be protected—I use that term broadly—so that dairy farmers can stop any contract changes and have a fair say in the process. We hope that that will be quite groundbreaking for dairy farmers. Do other sectors in agriculture have the ability to cancel a contract or come to you and say that they have had issues such as frost, drought or flooding and ask you to be flexible?

We have to be flexible. To cover dairy, I note that both supermarkets are supplied by Arla, which is a farmers’ co-operative, so it will not be covered by the guidance. One thing that has never happened in the UK but has happened overseas and was always available under the EU regulations was the ability to form a producer organisation, which takes businesses out of competition law. Some remedies were in the farmers’ hands, if they could have got together to agree anything.

I cannot quite remember Sophie Throup’s words, but she almost said that her company would honour a contract. We recently had flooding during storm Babet, when many farmers lost their potato crops and others lost neeps, I think. I am interested in whether farmers have to go out to the open market to honour their contracts. I am not sure whether that is necessarily relevant in Sophie Throup’s case, because Morrisons controls that within its growers. However, would Asda support somebody who had to go to the open market to buy potatoes or neeps to supply you?

I was once in a departure lounge on the continent when my brassica supplier wandered in. I said, “What the heck are you doing here?” He said, “We’ve just had a thunderstorm in the UK”—this was high summer—“and the hailstones have bruised my spinach crop. I need to go and find some spinach, so I am here trying to find it.”

There are people who take the opportunity to see whether they can win. For example, there are French growers of parsnips, which the French do not consider to be worth feeding to cattle, who grow them in case there is a bad dose of weather in the UK and they can send parsnips in. That is the dynamic in the industry.

If people have problems, we have conversations with them. We talked about Stewarts of Tayside; we are a very big customer of theirs, and we have big conversations with them.

One thing that is happening from a policy perspective is that people are being given capital opportunities so that they can give themselves personal protection. We increasingly have leaf salads that are not grown in greenhouses but are grown under roofs. That is to protect them not from snow but from excess rainfall, which causes soil contamination of the leaves from splatter and makes them useless for being put in bagged salad. People are making rational decisions. A longer-term view about security of food is needed, which could encompass capital assistance to do that type of thing.

I have a final quick question.

I am afraid that we are way behind schedule. I am sorry. We will move to a question from Karen Adam.

We have had a full and rounded discussion of a few of the points that I would have raised, but I will go back to a few of them, if you do not mind.

In my time on this committee, we have scrutinised the Good Food Nation (Scotland) Act 2022, and we are now scrutinising future agriculture policy. Throughout all of that, we have talked with committee witnesses, and we have gone out and talked to industry leaders, farmers, tenant farmers and constituents in areas of deprivation.

Obviously, there is a move to spotlight the markets when farmers and food producers, for example, tell us that they do not feel that they are getting a good price. Sometimes their eyes move to the consumer, but consumers tell us that they cannot afford the food. It always goes back to the conversation about what is happening with the supermarkets.

I want to give you the opportunity to speak to that and tell us what factors you consider in setting supermarket prices. Do you appreciate that there is that discussion about how you operate?

Absolutely. As we have described, we listen really carefully to customers, and we know that customers are feeling incredibly stressed and that that is regionally dependent. Our customer survey shows that customers in Scotland, for example, are 18 percentage points more sensitive and worried about money than customers in London are. We are very mindful of how customers feel, and we are absolutely mindful of how farmers feel.

As we have described, we buy directly from around 2,500 farmers across the UK—around 900 in Scotland—and it is really tough for them. The cost of production has been a very big challenge for farmers, particularly the costs of feed, fertiliser and fuels.

There has been a step back on energy prices, but we have been mindful of how we can absorb some of those costs. That is partly why Morrisons prices went up a bit sooner than prices went up at other retailers at the beginning of the cost of production crisis. We drew manufacturing costs straight into our chain. As costs have started to ease slightly, we have been able to pass some of those reductions on to consumers but, in the middle, we have our own enormous costs and challenges. We quite rightly think about our colleagues’ pay but also about our energy bills. Our rates and other cost areas in our business have gone up astronomically, so there is absolutely a balancing act. We are very mindful of how we play our part responsibly in that.

As we have described, it is an extremely competitive business. Supermarkets have only between 2 and 4 per cent margins altogether, so there is a tightrope that we have to balance on carefully to get the cost of food right while thinking about our central costs of running the business and making it as efficient as we possibly can. We also have to think about how to make sure that we still have farmers and growers in the future to buy from.

We see that, too. We have an income tracker that looks at our customers. The thing that jumped out at me last year was that 50 per cent of them said that they were not going to go on holiday; they were just going to do day trips during the summer. We recognise those pressures.

Do not forget that there tends to be a bit of a lag because of the contracts and so on. That means that, if the cattle price drops tomorrow, you will not see the price of beef dropping the day after. There are buffers in relation to supply and things being drawn down.

Both of you have spoken about how you source from Scotland, but what are the constraints on sourcing locally? What do you take into account when you are deciding whether to source from Scotland, from the rest of the United Kingdom or from other countries?

We source from Scotland. One of the constraints is the availability of processing. Like Morrisons, we take pigs out of Scotland to be processed in England, and they are then brought back into Scotland. Similarly, we take a couple of thousand lambs a month out of the Borders to go to the Dunbia plant in Preston, in Lancashire.

There is a reality check here as well. Scotland is 500 per cent self-sufficient in lamb, so there is a question mark about whether the investment is in production of sheep or production of lamb. However, one of the constraints with regard to pigs is definitely processing, ever since the Broxburn processing plant closed.

I am mindful of the time, but I can say that we are looking at that area and that we work closely with QMS and do work on the Scottish protected geographical indications. One of the things that we cannot do is assign a Scotch beef status to cows. The meat from cows that comes into the beef supply chain is perfectly good to eat, and it is sold at a premium in France as being particularly aged, but it is not available to be named through the Scotch beef standard—only meat from males is eligible for that designation. The removal of that constraint is an example of a practical change that would enable us to have more beef to sell in Scotland.

That is maybe something that the committee should look at more closely—it seems strange to me.

On the ability to process, I was told about a supermarket—not Morrisons or Asda, I hasten to add—that was sourcing local potatoes but sending them to England for washing and packaging before bringing them back to the local supermarkets. Everyone thought that the potatoes were coming just five miles down the road rather than travelling for many miles in order to be processed. Is there a way that we can overcome that sort of thing? Is that common practice?

We pack our potatoes in Scotland.

We do not do that now. We pack our potatoes south of the border, including in Gadbrook, in Cheshire, and then bring them back up to Scotland, so that is a challenge for us. Having more processing and packing facilities available would be good. The reason why we decided to pack potatoes south of the border was about economies of scale. The way to make a manufacturing business pay is by ensuring that each of the sites is as efficient as possible and running almost as full as it can. We had to make the hard decision to come out of Scotland and move our potato packing to two sites in England. The economies of scale meant that we could not keep the site in Scotland open.

What priority do you put on margins when you look at whether to procure products such as pork or beef products locally? You touched on the overproduction of pig meat, but I presume that that did not mean that you just stopped procuring from overseas. The same would apply to beef—I understand that Morrisons has interests in farms outwith the UK that produce beef. What priority do you put on margins when it comes to looking at limitations around sourcing more locally?

All of our fresh meat is 100 per cent British—we do not buy that from any farms outside the UK. Similarly, we take pork from six farms in Scotland, and that volume has remained consistent. However, we are absolutely bound by the global price when it comes to pork. The fluctuations caused by African swine fever and China’s shutdown of imports had a huge effect on the pig price, as well.

Does Chris Brown have any comments on that?

Just a quick one, as the committee is looking at policy. The fact that we are still measuring beef carcases on the EUROP grid, which was designed for beef intervention purchases, is nuts. We need a much better decision in that regard, and that would help everyone in Scotland.

Yes—one that is aligned with quality.

I hope that that leads us to a question from Jim Fairlie about production size and so on.

10:00  

Are we going on to question 7? Okay. Sorry—we are jumping about all over the place here. Our witnesses have made the discussion too interesting.

What role does a supermarket play in determining specifications for certain products, such as the size of cuts of meat and the size or shape of fruit and vegetables? As a former sheep producer, I know that youse wanted lamb to be supplied at 21kg, so that you could get your chops at the size that you needed them to be to fit in a packet and be sold at a certain price point. However, nature disnae work like that, so can those specifications lead to massive food waste? If food waste were a country, it would be the third-highest emitter of greenhouse gases in the world.

That is a lot to address in 30 seconds. We are very mindful of what is practically going to fit in a pack and also of what consumers want to eat, what sort of fat content the product contains and, therefore, what waste we have to cut off at butchery and the additional efficiency demands that would be involved if the cattle were coming in too fat and therefore needed extra processing. With sheep, in particular, there are many different breeds to go for. However, although we have a bit of tolerance and are not entirely fixed, we are looking towards a certain pack size that we need to be able to satisfy.

With regard to fruit and vegetables, we have a policy of buying the whole crop from the field—we have a similar policy for fish. In our processing facilities, we designate some of the crop as premium, class 1 or class 2, and the rest of the crop goes into our Wonky line or, if it cannot go anywhere else, becomes animal feed. We try to do everything that we can with the whole crop from a field.

So, there is no penalty to the farmer for producing odd-shaped carrots, for example.

Absolutely not.

That used to be the case.

It did—I remember that it was the case about 20 years ago, when I was at Asda. However, we absolutely like taking odd-shaped vegetables, because the Wonky line is actually incredibly well liked by supermarket customers. Sometimes they want to buy more from the Wonky line than from the core lines. Customers are quite accustomed to odd-shaped produce.

I have a quick question for Chris Brown. You said that Scotland is about 500 per cent self-sufficient in lamb, yet we still import lamb from New Zealand. Is that because of packaging size? Is it because of price?

It is because of the spike in demand for legs at Easter and Christmas.

So, because you cannot get rid of the rest of the carcase, you buy New Zealand lamb legs.

Yes. Do not forget that 25 per cent of UK lamb is currently exported. It is not just a supermarket market any more, because there are other markets. Work needs to be done to inform the farming community about where the animals are going and what those markets require.

Yes, but it just seems counterintuitive that we are 500 per cent self-sufficient in lamb but supermarkets still go to New Zealand.

That is because of the out-of-balance requirement, as well as a shift in preference. Customers like leg meat. Shifting whole shoulders is tricky. You need to have quite an interest in anatomy.

We have run out of time, but there is one topic that I would like you to briefly touch on—we might write to you for further clarification on it. It concerns the Groceries Code Adjudicator, which Rachael Hamilton will ask about.

Has the introduction of the Groceries Code Adjudicator benefited anyone in the food supply chain?

Yes.

In what way?

There is a route for complaints to be dealt with, and the adjudicator has statutory powers. Buyers in Asda—and, I am sure, in Morrisons—all have to be trained, and the fact that there is a complaints procedure, which is there in law, with an independent adjudicator sends an incredibly strong message to farmers and to customers about the operation of the supply chain.

It is important from our point of view because we buy from farmers, and they are also covered by the code—it does not just cover suppliers. We find that that makes a big difference. We also have a director in Morrisons who is solely responsible for taking on those complaints independently, which means that the farmers and suppliers do not feel that they can speak only to their buyer or trading director, because they can speak independently to somebody who is absolutely responsible for making sure that the code is adhered to and that farmers and suppliers are being listened to.

Out of interest, how many appeals have there been?

I do not know; I would have to come back to you on that.

We have a compliance officer, too. I think that all retailers who are covered by the code do.

Chris Brown, earlier, you said that not everyone comes under the code, but you feel that you do, because you process a lot of the product that you sell.

We do the processing and, therefore, we buy from growers. Under the auspices of the code, the grower can make a complaint. That would not be true if they were selling to an agent who sells to a packhouse that then sells to a retailer.

Do you believe that the groceries code should be expanded to include everyone in the supply chain?

No.

Why?

That would open a door behind which is immense complexity. I think that we can manage it if it goes to the first point in the chain, but not once we go further down. For example, if a sheep farmer is putting lambs in at St Boswells and they do not know where the lambs will go but they like the price, will they make a complaint if they do not know where their lambs are going? That becomes very difficult to manage and to resource. Do not forget that there are costs and there are checks on the contract being delivered. Price is not talked about.

I am going to disagree with you on that one, Chris. We should have a further conversation about the whole supply chain being included in the groceries code, because where does the primary producer go when they have the feeling that they are being completely shafted—pardon my French, but that is the word that would be used—by the supermarkets? Surely it is to the benefit of the supermarket industry to have the ability to say that, at any stage in the supply chain, producers have someone whom they can speak to who can hold it to account if it did something wrong. Surely that is a good thing.

That could be done on the ground, but they would need to have something stronger than a feeling and, for some sectors, that would be very difficult, because they use disassembly processes and it would be very difficult to work out what has happened in relation to attribution of value.

Okay. This has been a great session. Could we get the witnesses back, please?

Does Sophie Throup have anything to add to that?

As I have already said, Morrisons is slightly different because many of our farmers are already covered by the Groceries Code Adjudicator. I suppose that that makes us think about the issue slightly differently.

I spend a lot of time—as I am sure my colleagues do—going to farmers’ meetings, because it is really important that there is transparent dialogue and that farmers know that they have somebody to talk to, even so that they understand how things work. We have quite a lot of days in which we take farmers round abattoirs and the supply chain. They say, “Crikey. I didn’t know all of this went on after my products left my farm.” Increasing transparency about what happens to the product, as education for farmers, is as important as discussions about price.

I really appreciate your having come to represent Morrisons and Asda today, whereas others have failed to represent their organisations. After this session, I hope that you believe that we do not bite. We are here to bring clarity and transparency to the food chain, and we really appreciate your involvement in that. No doubt, we will be in touch again. We might have some written questions that we would like you to follow up on. Thank you very much once again.

10:07 Meeting suspended.  

10:15 On resuming—