Monday, 28 April 2008

Food Inflation - Little Link Between Retail Prices and Input Costs, Livestock Farmers Disadvantaged

The hoo-ha about food price inflation which swept the media last week prompted an attempt to disentangle sensationalist headlines from fact. I turned to the independent and usually reliable Office of National Statistics to check their Retail Price Index figures, and what started out as a fact finding mission uncovered some worrying numbers. In a nutshell, there are massive differences in retail inflation between agricultural sectors, and in most cases they bear little relation to input costs, upon which retail price changes are usually based.

Here are the ONS numbers for the 12 months to March 2008 compared with the previous year:
Total Food +6%
Butter +35%
Eggs +32%
Cheese +16%
Milk + 14%
Bread +12%
Poultry +9%
Fresh Veg +5%
Fresh Fruit +4%
Beef +4%
Pork +3%
Lamb -1%*
Fresh Fish -2%
*Home produced lamb inflation +2%, imported minus 3%.

According to a survey by buying group Anglia Farmers, input cost rises across the sectors for the 6 months to April are follows, with the cost increases for the previous 12 months to September 2007 in brackets:

Total Agri Inflation +17% (+7)
Dairy +22% (+9)
Beef and Lamb +19% (+7)
Cereals and OSR + 16% (+6)
Potatoes +12% (+9)

The differences in timing between the surveys mean detailed comparisons are not possible, but what is clear is that huge cost pressures being faced by beef and sheep farmers are not reflected in retail prices.

Many will argue that inflation is complex, that costs are not just about the raw material, which is affected by supply and demand, and accounts for just a part of overall prices, and that in some cases retailers will absorb cost increases but not put retail prices up. All of which is true of course. Nevertheless, one is left with a feeling that achieving appropriate price increases is connected to the ability of different sectors to put their case. The dairy sector was undoubtedly helped by publicity about the plight of the dairy farmer, and cereals by widely reported world price issues.

So, who is speaking up for beef, sheep and pig farmers? The pig industry is making some headway with presenting their case. There's very little about beef and sheep though. Yes, livestock prices to farmers are increasing just now due to external factors such as rising lamb exports and falling beef imports, but they are not increasing enough. Farmers must continue piling the pressure on to industry groups to publicise the huge issues livestock farmers face trying to make a living.

Monday, 21 April 2008

Climate Change and the Farming Industry - At Least They're Saying Something

At last! A glimmer of response from the farming industry to accusations that livestock farming is destroying the environment and the glib message that the answer is to eat less meat and dairy products. Following an article by George Monbiot in the Guardian, both the Soil Association and the NFU got their pens out, and started putting some balance into the debate. (Guardian 17th April)

The Soil Association made the point that grass fed livestock are a good thing because grass traps carbon, so if you plough up grass to plant crops of whatever kind then that benefit is lost. Unfortunately their argument then got a bit complicated when they said that bacteria in the soil of unfertilised grassland breaks down methane without explaining in easy words how, and why this is good.

The NFU wrote that if less meat and dairy is eaten then farmers will turn the land to crops, or just let it go wild with bad environmental effects. Unfortunately they did not explain what these bad effects would be. They also spoiled the clarity, and possibly challenged consumer sympathy, by saying that the problem has arisen in the first place because agriculture has been underfunded for 30 years.

A couple of independent contributors, one in the Telegraph from an organic farmer, have made additional points, namely that most UK beef, and all UK lamb, is grass fed; and that the manure produced by livestock is a natural fertiliser so there is no need to buy in processed product.

The messages from the farming industry are still far too numerous and complicated to influence consumers compared with the crystal simplicity of "livestock bad, so eat less". We know from the free range chicken experience (see blog of April 15th) that to alter opinion the message has to be clear, simple and delivered from a trustworthy source. Nevertheless, within the tentative responses so far lie the beginnings of a sensible debate. The points about grass feeding, and the detrimental impact on our landscape should there be no livestock are powerful, but they need to be honed and simplified. If, as the NFU suggests, investment is an answer then details of investment in what, and why will it work ethically and environmentally must be communicated.

The need for a considered and united agri view is urgent. All sorts of figures and claims are being bandied about, witness the debate on Jeremy Vine's Radio 2 show today following Sir Paul McCartney's interview with PETA (People for the Ethical treatment of Animals) where he advocated vegetarianism as the answer to climate change.

And once farming leaders know what they want to say about climate change, could they please tell the rest of us, so that we who care deeply about a healthy, environmentally friendly and ethical farming industry can respond well when challenged.

Tuesday, 15 April 2008

Free Range Chicken Sales Still Flying

The boom in free range chicken sales continues.

The Sunday Telegraph interviewed chicken buyers from ASDA, Tesco and Sainsbury, and they all report the same thing - rocketing demand following the Fearnley Whittingstall/ Jamie Oliver programmes which highlighted the conditions in which intensively reared chickens are raised. Sales increases in free range and higher welfare chickens have soared by between 50% and 70%, and this might be an underestimate as shelves are often empty because supermarkets can't keep up with consumer demand.

ASDA has seen free range sales increase by 50%, and reckons that it will be August before they are able to keep up with demand from their shoppers. Sainsbury has seen sales of free range and higher welfare chicken grow by 53% in January to March this year, and think it might be close to the end of the year before they are able to keep up with demand. Tesco has seen sales of free range and higher welfare chickens grow by 70%, and these ranges now account for 30% of their total chicken sales.

Eggs are affected too. Executives from the UK's biggest egg packer are reportedly touring the country trying to persuade farmers to convert to free range.

What does this tell us about consumers? Clearly animal welfare is important to them, and they are prepared to pay for it. But the chicken welfare issue has been around for decades, so what has suddenly happened to achieve this transformation in shopping habits? Perhaps the answer lies along these lines....
Animal welfare is something consumers care about but don't want to consider too closely. But all of a sudden the issue is in their living rooms, and so hard to ignore. Further, the issue is clear and simple (are these farming conditions acceptable?). And the solution equally clear and simple (buy free range/ better welfare chicken). Finally, the message is conveyed by trusted people.

Rebels with a cause, seeking change, might learn from the chicken experience.

Wednesday, 9 April 2008

What Do Supermarkets Want from Suppliers?

Well, the cynical might say silly question, its all about lowest price. And indeed there's no getting away from the fact that supermarkets negotiate very hard - to put it mildly. But there are other factors which supermarkets take into account when deciding whether or not to work with a supplier.

According to the Institute of Grocery Distribution (and apologies for mentioning them again, but they do publish some helpful data), retailers' top requirements from their suppliers are as follows:
New product development and innovation, and consistently high service levels, mentioned by 72% of retailers questioned
Understanding the retailers strategic direction, mentioned by 67%
In depth understanding of the category and its future trends, mentioned by 61%.
These four requirements were rated well ahead of any others, with the next highest ranking, mentioned by 47%, being a need for suppliers to have dedicated teams managing the relationship.

It's interesting to see the emphasis put on innovation and understanding future trends. These skills are vital to retailers who are extremely competitive with each other, and all hell bent on attracting more shoppers and growing their business. Retailers recognise that price alone is not enough to do this.

The high priority given to service, ie having the right product on the shelf all of the time, is also key as nothing frustrates a shopper more than finding that the product they want is out of stock. Often they will either not purchase at all, so business is lost, or worse still go to another store.

The IGD also draws attention to the importance of an efficient supply chain, as this is a way for retailers to get costs down. However they can't do this on their own, and are more likely to support suppliers with whom they can partner in an effort to reduce supply chain costs.

So, for those thinking about dipping a toe in the supermarket supply water, its all about new ideas and the ability to implement them effectively with top class service. For those who do not deal directly with supermarkets, but supply processors or packers who do, its worth remembering that they are judged by their ability to innovate and supply efficiently. The producers who help their processor/packer customers either innovate or become more efficient may find extra profit in their pockets.

Monday, 7 April 2008

Ethical Purchasing and the Credit Crunch... Continued

Concern about whether the credit crunch will bring ethical purchasing to a halt seems to be exercising many minds. The latest to publish a survey is The Times newspaper.

In answer to the question "In the next year are you likely to .....", the 1000 people surveyed replied as follows:
Buy more organic food - 34%
Buy more Fair Trade products - 59%
Buy healthier food - 64%
Buy food that can guarantee a better deal for farmers - 66%
Buy more locally produced goods - 71%
Buy food with less packaging - 80%

The same survey also asked the question "Given the growing economic uncertainty, which of the following best describes how you would be likely to respond if you had to cut back on your consumer spending?" Answers to this question have been tracked over time, and are as follows:

Still try to buy the most ethical and environmentally friendly products I could
Nov o7 - 65%
Dec 07 - 69%
Jan 08 - 63%
Feb 08 - 69%
Be more likely to buy products and services that represented the best value for money regardless
Nov 07 - 35%
Dec 07 - 31%
Jan 08 - 37%
Feb 08 - 31%
Mar 08 - 35%
Mar 08 - 35%

The way consumers anwer questions about their intentions should always be treated with a high level of scepticism. What consumers say they will do and what they actually do are two very different things. This is particularly true when it comes to questioning consumers about their ethics. The best way of interpreting the data is probably like this. In the first table, the answers show what issues are highest on consumers minds, and what messages are getting through to them. So, they are irritated about excess packaging, which we know from many other surveys, and they are thinking favourably about locally produced foods, and fairness to farmers at home and abroad. They are less sure about organic foods though. I'd say the second table has little value given that many consumers won't want an interviewer to think badly of them, and so are unlikely to agree that ethics will go out of the window in favour of a better price.

Friday, 4 April 2008

Ethical Purchasing - Inside the Consumer's Head

The Institute of Grocery Distribution has previously provided data about the 5 ethical issues that most concern people, these being Animal Welfare, Local/British, Environmentally Friendly, Fair Trade, and Organics. See blog of 7/3/08 "Whither Ethical Purchasing" for detailed data.

Now, for anyone interested in what goes on inside consumers minds as they make an ethical purchase, IGD has published findings on how and why consumers decide what to buy.

According to IGD, consumers work to 7 guiding principles:

1. Personal beliefs about what food is right and what isn't.

2. Whether food has been produced in a way that is fair to all involved, be it people or animals, both at home and abroad.

3. Worries about sustainability and whether due thought has been given to the environmental impact of food production.

4. A desire to leave the world in a fit state for future generations.

5. Concern about health and well being, particularly if young children are involved.

6. Food safety as it relates to where the food has come from and how it was produced.

7. What makes the consumer feel good at the time of purchase.

It has to be said that some of these findings look a bit vague, and although the IGD doesn't mention this, not all consumers will act on all these principles all of the time. However, they do support the general view that consumers are becoming more aware of ethical issues. They also give clues about why consumers make a particular decision, whether it's to support the environment, or to be sure that no person or animal was badly treated, or whether more selfish motives such as health or feeling good come into play. The findings can also help those thinking about how to advertise their produce develop an appealing message for their customers.