Official Report: Minutes of Evidence

Committee for Agriculture and Rural Development, meeting on Tuesday, 20 October 2015

Members present for all or part of the proceedings:

Mr William Irwin (Chairperson)
Mr J Byrne (Deputy Chairperson)
Mr S Anderson
Mrs J Dobson
Mr Declan McAleer
Mr K McCarthy
Mr I McCrea
Mr O McMullan
Mr I Milne


Dr Chris Brown, Asda
Mr Joe McDonald, Asda
Mr Barney Kay, Tesco
Mr Cliff Kells, Tesco

General Purchasing Policy: Asda and Tesco

The Chairperson (Mr Irwin): I welcome Chris Brown, sustainable business director from Asda; Joe McDonald, senior manager in corporate affairs from Asda; Barney Kay, head of agriculture from Tesco; and Cliff Kells, commercial manager for Tesco Northern Ireland. You are all very welcome. I ask you to take up to 10 minutes for a presentation. We will not be tight with time; do not worry about that. We will then ask some questions. Who wants to kick-off?

Mr Cliff Kells (Tesco): Shall we go alphabetically?

Mr Joe McDonald (Asda): That must be us, then. Thank you [Laughter.]


Dr Chris Brown (Asda): I will introduce myself, and then Joe will make the statement. I am Chris Brown. I have been with Asda for 15 years. My responsibilities are for agriculture, agriculture development and what is broadly sustainable business as much as we can do.

Mr McDonald: I am Joe McDonald. I am Asda's corporate affairs manager in Northern Ireland, and I am now into my third year with Asda. Thank you, Chairman and members, for the invitation to come to the Committee. I have a few opening remarks to make before we look forward to answering your questions and engaging with the Committee on supply chain issues.

I will give a little bit of background about Asda, in case anyone is unfamiliar. We are celebrating our 10th year in Northern Ireland this year and 50 years overall as a business. We are part of a bigger organisation —Walmart — which we became part of in 1999. We are now one of the UK's biggest retailers. We have over 600 stores and 26 distribution centres across the UK, and we employ about 170,000 colleagues.

The business has a farming heritage. It was founded in Yorkshire in the 1960s by a group of dairy farmers, so we see ourselves very much as a responsible retailer and take that farming heritage seriously. We have been working closely with the industry and will continue to do so, to find a way to strengthen the food and drink supply chain. In Northern Ireland, a bit closer to home, Asda has 17 stores and a distribution centre in Larne, and we employ about 4,500 colleagues. Our market share is about 17%. Our regional management team is based in our store in Antrim, including, very importantly, our local sourcing team for Scotland and Northern Ireland, and we have four colleagues working full time in that role in Antrim. That is a dedicated role to source from local companies.

I want to say a word or two about our local sourcing commitment. We source about £300 million annually from Irish-owned companies. The local sourcing team tends to buy from the smaller food companies locally. That team in Antrim has a target to buy about £85 million worth from small suppliers. I noticed that, when we started out in that process 10 years ago, the figure was £26 million. There has been quite a growth year-on-year in what we are sourcing locally. We have had some great success stories with local suppliers. You will all be familiar with some of these names: Mash Direct, Irwin's, Finnebrogue and, most recently, Forest Feast. Those businesses have done a very important thing: they not only have done business with Asda in Northern Ireland but have become suppliers across the UK. That is a very important pathway for everyone. Mash Direct now supplies 439 Asda stores across the UK; Irwin's supplies 395 stores; Finnebrogue supplies 571 stores across the UK with our Extra Special range of sausages; and Forest Feast is relatively new to Asda but now supplies 269 stores in a national contract.
It is a strong point that we have a local sourcing team. It is available to speak with local suppliers, and we have that clear pathway, not just to do business in Northern Ireland but to take the bigger step and supply Asda across the UK and our 18 million customers. That is a really important growth opportunity for the Northern Ireland agrifood sector and for the local economy, and, with the increase in volatility in global markets, the relative stability of the UK market should be an attraction to some of our suppliers locally. We look forward to doing business.

It is worth mentioning — Tesco might touch on it as well — that the UK retail sector is going through a very significant period of change. The structural change in retail is maybe unprecedented. Consumers are shopping around, convenience shopping is growing, online shopping is growing and the discounters are growing, so it is a very challenging period for everyone in the retail sector, as well as the rest of the supply chain. I will not labour that point, but I would like to note it.

I will go back to our own supply chain and the issues of transparency and communication and so on. We would like to think that our door is always open for any stakeholder to speak to Asda about our supply chain. Last week, we attended the supply chain forum, which was set up by the Agriculture Minister, and the focus there was on communication, trust and transparency in the industry. We have welcomed the Ulster Farmers' Union (UFU) on many occasions to our stores to talk about the supply chain. In fact, in the middle of September, its chief executive met our chief executive in Leeds, in our head office, and had a very good conversation about supply-chain matters and got into the nub of the issue.

We have hosted supplier development academies to grow the capacity of our suppliers in Northern Ireland. We recently had a Meet the Buyer event in Enniskillen. It was a very successful event for us; a lot of potential new suppliers came along, and that created some concrete leads. We are looking forward to the Year of Food in 2016. I think that is an opportunity for all of us. We are also one of the principal sponsors of Open Farm Weekend. So, a lot is going on; but our door is open at all times, and we had no hesitation in accepting your invitation today.

There are also a lot of things outside our control in the supply chain. They are well documented. We are only a portion of the UK market. In a global sense, there are lots of other things going on; for example, the Russian import ban; anticipated demand in other parts of the world, such as China; and currency fluctuations. There are lots of things outside our control in the supply chain, including, sometimes, legislation. We are well aware of the efforts that you have made on intervention price. Trade agreements also affect the supply chain.

The good news, I suppose, bringing it back to Asda and to retail, is that we know that our customers care where their food comes from. They want assurances on welfare, provenance and quality. Asda does a survey that we call "Everyday Experts". We have 20,000 consumers across the UK on a panel, and they give us their feedback. Recently, 72% of participants on the Everyday Experts panel asked where their food comes from. Three quarters of our customers want to know where their food comes from. That is a good thing. We also have to maintain our commitment to everyday low pricing. That is our commitment to consumers, as well. However, I think that Northern Ireland products are very well placed to meet all those challenges and to keep customers at the heart of what we do and also what our supply chain does locally.

Finally, just a word about relationships in the supply chain. We work very closely with our suppliers. It is in our interest to have a long-lasting relationship with our supply base. I will use Dale Farm, a farmer-owned cooperative, as an example. We have a very open and transparent relationship with Dale Farm and others, and we work very closely with them. Recently, we introduced their farmer-owned milk mark at our point of sale, just to highlight in even more detail to our consumers where their food comes from and how it was produced.

We work closely with all those suppliers to drive sales in their particular category. We have been working with ABP Food Group since 1965. So, we have very long-lasting relationships. That is in everyone's interests. We also operate on online platforms something we call Sustain and Save Exchange. That allows our suppliers to exchange best practice on environmental initiatives. That takes costs out of their business and out of our supply chain. It makes them more efficient and allows us to offer customers an everyday low price. We operate a farm links programme, and we sent you some of the details on that in our written submission. There is quite a bit of detail in the farm links programme.

Those are just some opening comments. There is an awful lot happening in retail. There is an awful lot happening in global commodity markets and across our business. I think that it is fair to say that things are getting more challenging for everyone in the supply chain, but we certainly look forward to discussing all these issues with you today. Thank you.

Mr Kells: Thank you, Mr Chairman. I will introduce myself and my role, and then my colleague will make our introductory statement. My name is Cliff Kells. I was recruited by Tesco in 1997, and in 1998 we formed the Tesco local support office. I suppose that in some ways I am an embodiment of a Tesco long-term commitment to build relationships and to build a Northern Ireland supply base. Of course, it is not just about me; it is about the 10 people who have worked with me in Newtownabbey, since 1998, forming and developing our relationships right across all the sectors and all the suppliers.

We are proud of all the work that we do. We are very privileged that some of you around the table come to our events, and we have been very privileged to host events here in this building in support of Northern Ireland food. The people who work on that with me on that are very passionate. They are from here, and they believe in the food and the people. That is a story that we certainly want to get across in our responses to your questions today. I will now hand over to Barney Kay, our head of agriculture, to make our overall opening statement.

Mr Barney Kay (Tesco): Good afternoon. Thank you very much, Chairman and colleagues, for inviting us to speak at your Committee. As Cliff said, I am newly started as head of agriculture. This is my fifth week with Tesco. I have a dedicated agriculture team, looking after all the sectors that we source from. Prior to that, I was at Moy Park, where I was general manager of its broiler division. Tesco is very proud that we employ 9,200 colleagues in Northern Ireland and is the second largest private sector employer. The largest is Moy Park, where I worked most recently. I have supported the industry with Moy Park and then progressed my career in Tesco as one of its key businesses.

I will give a little more detail. Customers are at the heart of everything that we do in Tesco. We want to give our customers products that they love at prices that they trust, with quality that we are proud of and service that makes every customer feel special day in, day out. At a time when there is a growing scarcity of resources and more volatility in prices, we can only achieve this by developing long-term trusted relationships with our suppliers so that we can build secure and sustainable supply chains to meet customer demand today and in the long term.

Developing positive relationships with suppliers is vital to delivering for our customers and across the business. We have invested in establishing an end-to-end supply chain where we have direct relationships with all parts, treating it as a system rather than as a myriad of individual silos. This encourages long-term partnerships with farmers and producers and allows us to better support them to manage risks in a coordinated way. To create more direct relationships with farmers and growers, we have committed to making our supply chain shorter and more transparent. As I referred to earlier, we have invested in the creation of a dedicated agriculture and buying team, which works directly with our producers. Our three core aims with regard to our supply chain are these: first, to secure our supply, principally of core food groups; secondly, to strengthen our brand by building trust with producers and customers; and, thirdly, to drive innovation along the supply chain for both customers and suppliers.

Northern Ireland has a wealth of great produce and products that we know our customers in Northern Ireland want to buy. We are committed to working with local suppliers to ensure that, where we can stock their goods and it is appropriate to do so, we do. This has led to Tesco becoming the largest supporter of the Northern Ireland agrifood sector, purchasing nearly £600 million of products annually across 1,500 local lines and Northern Ireland food and drink suppliers. This equates to more than one quarter — 27% — of all food sold across our Northern Ireland stores. These include working with smaller microcompanies, such as Pizzado of Portaferry and Doherty and Gray in Ballymena, which now have products in our Northern Ireland stores that we hope will establish their brands across the region.

We adopt a collaborative approach and foster dialogue with our suppliers, which ensures that our relationships are sustainable and create shared value, thereby delivering value for our customers. We want to strengthen our partnerships with farmers and producers and are working with them to provide long-term security and lower the cost of production. We have committed to longer-term buying models with consistent and fair payment terms across our supplier network. Greater contract security gives us time to work with suppliers to improve their production processes, which, in turn, allows us to deliver better quality and value for customers. We have a dedicated team based in Newtownabbey so that we are able to deal with our colleagues' stores and suppliers more effectively to achieve this.

We stock some products that are unique to our Northern Ireland stores. These include Clandeboye Estate yoghurt and Fivemiletown Creamery cheese. We would like to see more Northern Irish products in our stores across the UK and encourage our suppliers to speak to our sourcing teams in other UK nations. Products from larger producers such as Moy Park, where I used to work, are already included in our UK-wide supplier network through which we provide support to our suppliers, such as information-sharing as members of produce and supplier groups and incentives to encourage further investment in their business.

Over the last year, we have been listening closely to our suppliers, and they have told us that they want simpler, more transparent working relationships. We have also listened to our customers who want to know that we are treating our suppliers fairly. We are committed to delivering this, and we have created a single product team with standardised payment terms, which will see positive benefits for our smallest suppliers. We have adopted a transparent, longer-term, cost-based buying model that helps us to grow our joint business with suppliers. We have reduced the number of ways we count commercial income from 24 to five, and that will come down to three by 2017. We have simplified our range to make the shopping trip easier for our customers while still backing local suppliers and British products. We have launched our supplier helpline, through which suppliers can raise any concerns about the way we work together.

We know that provenance, as well as quality and price, matters to consumers when buying produce, dairy and meat products, and we work with Northern Ireland farmers and producers to ensure that we source great-quality Northern Ireland products where there is customer demand. For example, 100% of Tesco-branded fresh milk comes from Northern Ireland dairy farmers, and 100% of fresh chicken, beef, pork and eggs comes from Northern Ireland farms. In our Northern Ireland stores, we host an annual Taste of Northern Ireland free food festival, celebrating local produce, and our design standards in-store reflect a strong local produce look and feel, with permanent Taste Northern Ireland fixtures and dressings.

Because provenance matters, our customers expect us to be transparent in providing information on food labels. We are committed to ensuring that our food is labelled correctly and, as a signatory to the industry-defined voluntary labelling principles, we go beyond the expectations set out in them. Moreover, we actively communicate Red Tractor and regional demarcations to customers. The information that customers want is important to us, and we have an ongoing review of our sourcing and communications strategy, which will ask customers about what information they want to see on food labels.

We want to build our partnerships with suppliers around creating new and innovative production and working practices. Through our supplier network, we are bringing suppliers, producers and Tesco teams from around the world together in an online community to share ideas and knowledge. In addition, we want our suppliers to learn about us as a business, and we have developed an interactive platform for suppliers to access to do this.

As we strengthen our supply networks, it is our ambition to create centres of excellence across different supplier groups, so that our farmers across our supply chains can update their knowledge and have the confidence to invest and lead the way in providing quality produce for our customers.

In summary, customers decide what, where and how they buy, based on what they value and what matters to them. As the largest supporter of the Northern Ireland agrifood sector, we recognise that having a constructive relationship with suppliers and producers is vital to meeting our customers' needs, now and in the future. Through creating long-term partnerships, providing standardised payment terms, securing future supply and being committed to sourcing local produce where possible, we believe we can, and are, delivering for our customers. We want to continue building partnerships and working collectively with local suppliers to support a sustainable, vibrant, consumer-focused Northern Irish agriculture industry.

The Chairperson (Mr Irwin): OK. Thank you very much for your presentations. I declare an interest at the outset, as I am a farmer. We hear a lot at the moment and in recent times of low farmgate prices. As corporate entities, what do you feel could be done to improve farmgate prices? Who wants to take that question first?

Dr Brown: Shall we go alphabetically again, Chair? That makes it relatively simple.

Obviously, that is rather a chunky question, but I will try to make some comment on it. We operate in a market and, whilst we represent large organisations, the proportion of Northern Ireland's production that we actually take is not that great. Think about liquid milk, for example: our liquid milk sales represent 0·7% of Northern Ireland's total dairy production. Our beef cattle kill from the national Northern Irish kill represents about 10%. All the factors a farmer takes into account in taking a beast or selling his milk on to a marketplace are factored by other influences that Joe adequately outlined.

The question was about improving farmgate prices. To be honest, when I have that conversation, I talk about two aspects: what can we do about cost, and what can we do about the farmgate price? If you are able to stick to the farmgate price but reduce costs, you will make more of a financial margin. We have tried to get our farmers to improve their efficiency and to find ways to work together to improve efficiency, be that through access to cheaper improved beef genetics or by going overseas. We recently sent a delegation of farmers to the United States, for example, to look at improved soil management.

The Chairperson (Mr Irwin): I understand where you are coming from, and I fully understand the dairy market. There are a lot of beef exports from Northern Ireland. There was one vegetable grower, for instance, who was getting 8p per turnip. In a supermarket, turnips are probably 75p or 80p. Is there any fairness in that? This guy produces turnips and gets only 8p for them. The market is looking for turnips. They are not being exported out of Northern Ireland; this is within Northern Ireland. It is within the remit of a supermarket to help that farmer, but that does not seem to be happening.

Dr Brown: It is difficult to comment directly on that, because I do not know the turnip market or whether or not that farmer was supplying us.

Dr Brown: That is one of the issues: exactly what market is being supplied? Issues about supply and demand affect market prices. My answer is this: who are you selling to, and what is the issue with the turnip market? We have gone through times when we have had quite large shifts in production, but that is not necessarily true of turnips. Think about the potato market: it used to be managed by the Potato Marketing Board, which took a levy to smooth out supply and demand. That no longer applies, and we face increasing price volatility in the agriculture sector. That creates challenges for us, for customers and for farmers. We will need to work on that as we go forward.

The Chairperson (Mr Irwin): It is difficult for producers in that situation. This producer also grows carrots. He gets 12p a kilo on the farm, but, when I was in both your supermarkets recently, carrots were 60p, 70p, or 80p a kilo. There is a vast difference in what a producer gets and what a supermarket sells at. A lot of producers are at their wits' end. They are not making any profit. They do not feel that they get fairness in the overall supply chain. What they receive for their product is not fair. How can that be addressed?

Mr Kells: One way that we try to address that in Tesco is by working locally, particularly in the vegetable sector. This is a feature of the Northern Ireland market that might be pretty unique compared with the rest of the UK, and that is where we can try to help small companies — in fact, some medium-sized and larger companies — to add value to their products so that the end customer gets a better product. The most spectacular example is Mash Direct, which Joe mentioned. Not only does it add value for local customers but, as colleagues said, it has been a success story much further afield.

It is not just about one or two companies. Over the last couple of years, we have been instrumental in giving Gilfresh Produce an outlet for its branded produce. We tend to look for ways in which we can differentiate the product. Our standard Tesco offer on produce will be a good offer. It will be a national offer. We will look, for example, at the mix of a vegetable pack, and we can normally make changes to suit local tastes. There will be a different mix, and we will sell that under the Gilfresh brand and allow the company some opportunities to get that to lots of customers through our stores, which adds value and gets a better return. Adding value is an important principle across all sectors, but particularly in produce over the last couple of years.

Windwhistle Farm and soup veg is another great example. We are just coming into the time of year when soup veg really starts to fly off our shelves. We have a Tesco branded offer, which we complement with a range of Windwhistle branded products, which are very popular with customers and return a better price.

Mr McDonald: I will pick up on Gilfresh as an example. Gilfresh brings a professionalism to that sector, involving specialised moisture control and market-led production. It identifies its market, comes back to its grower base and says that this is what the market wants in the season ahead. That is such an important principle to establish: agricultural production in Northern Ireland is market-led rather than production-led. What Gilfresh is doing in terms of efficiency in production and in taking costs out and in focusing on what the market wants is a great path to take, as opposed to producing a product, taking it to the market and taking a price.

Mr Kells: May I throw in one more example? Last week, as coincidence would have it, we launched a brand new stuffed mushroom product from Hughes Mushrooms. It is an innovative product, and I am not sure that there is anything like it. It is a terrific product and another great example of how we can add value — I am sorry to keep using the same phrase. To try to answer your question, Chairperson, it is a really important feature of all markets and particularly of produce in order to improve returns.

Mr Kay: There is another facet. I recently came from working with Moy Park on the broiler side, and I am going out to see its trial farm tomorrow. I can see, in the way that retailers are working with their suppliers, that longer-term relationships and partnerships enable processors and supplying farmers to make longer-term investment decisions. You see Moy Park's good practices with the gut health of birds, water quality and a range of areas, which is possible only when you have longer-term commitment. That is a move away from previous more transactional-style selling. That longer-term commitment by the farmers who used to grow for me when I was in Moy Park was hugely valuable. You can go to a bank and get a longer-term business loan to enable you to invest in the latest facilities. You have seen the number of new chicken farms that have been built on the back of longer-term contracts like that with businesses such as ours.

The Chairperson (Mr Irwin): There is a perception that retailers take too big a slice of the profit and leave farmers with absolutely no profit. What is your response to that?

Mr Kay: I could probably comment on something that our business leader, Dave Lewis, said on 6 October at an Institute of Grocery Distribution (IGD) conference. He apologised for previous practices with suppliers. It has been much reported in the press that we used to have a reputation for tough negotiations. He is moving from a focus on the income derived from suppliers and is looking more to a growth in sales volume and profit generated there. It is a different dialogue. At the start of the year, the plan for the whole year with suppliers is to look at a plan that will include promotions that suppliers want to invest in. There has been a significant change in that discussion. Christmas deals might have been coming in at the last minute, but it is now much more open and transparent. In my introduction, I referred to the way in which we are driving income, which has gone from 25 measures to five, and it will come down to three in 2017. We are keeping it nice, clean, simple and easy for suppliers to know how they will be paid. That makes a big difference.

The Chairperson (Mr Irwin): I was speaking to a grower who does not get paid for his produce for three months. What are your payment terms for suppliers?

Mr Kay: We recently announced that, as from this month — I will read this out so that I get it right — for our smaller suppliers from whom we take less than £100,000 a year we will move to 14-day payment terms. That is a huge step forward. On average, it will be a decrease of 34 days. For our medium-sized suppliers, this will be rolled out over the next nine months. It will not happen immediately for those suppliers, but it will for the smaller guys. Over the next nine months, our medium-sized suppliers, where we supply between £10,000 and £10 million worth of product a year, will be paid five days sooner than our larger suppliers. We are looking at new 28-day payment terms for meat, fish and poultry, which will be shortened to 23 days for medium-sized suppliers. Those are significant reductions in payment terms. We are in discussions with those suppliers — I cannot talk about them publicly — about rolling out those shorter payment terms to their supplying farmers. I understand the importance of cash flow for farmers; it is absolutely critical.

The Chairperson (Mr Irwin): Why has it taken so long to come to that position?

Mr Kay: We have a completely new leadership team at Tesco, which I am sure you are aware of. We have drawn a line in the sand and introduced new ways of working. We are announcing that now.

Mr Kells: Mr Chairman, I would not like to give a certain impression about our previous practices. I do not know who your specific example was, but I would certainly be very disappointed to think that any of our suppliers were the subject of some sort of error and would take that length of time to receive payment, even under the previous terms. As Barney said, this is a very significant improvement in terms from Tesco.

Mr Byrne: You paint a pretty rosy picture. We should be grateful to your organisations; I have to recognise that.

The terms that I have heard are "a big change in retailing", "discounting", "online", "supply chain forum", "a low pricing commitment" and "customers are the key". How do you strike a balance between a low pricing commitment and providing a return for primary producers? Does either company have long-term supply contracts, or are they volatile pricing contracts?

Dr Brown: With whom?

Mr Byrne: With your Northern Ireland suppliers. Do you go for long-term supply contracts, or are they more volatile pricing contracts?

Dr Brown: As Joe said, we have been dealing with ABP in Northern Ireland for as long as we have existed.

Mr Byrne: Yes, since 1965. I am asking whether there is dynamic pricing or more fixed long-term pricing contracts.

Dr Brown: It varies. Mash Direct is a relatively recent business, so that is a newly formed relationship. You will need to help me a bit more, Deputy Chairman, on where you want to go.

Mr Kells: Deputy Chair, your question goes to the heart of the issue, because it is a matter of balancing sustainability with the right offer or the right prices for customers. Tesco has over 90 Northern Ireland suppliers — it is 95 — and almost every one of those suppliers, apart from the one or two new suppliers that I mentioned, has been with us for 18 years. The answer really is that, depending on the supplier and the sector, that is the work that is done day in, day out and week in, week out by the Tesco team, the supplier teams and the account managers to find that balance of good value product. Of course, suppliers also want a good value product for customers. In a sense, the answer is in the detail. That is the stuff that we do daily and weekly. The fact that all those suppliers are still with us after 18 years and that almost all of them have grown with us over that period suggests that we have worked collaboratively and in a way that has sustained and grown Northern Ireland food and drink.

I do not want to overemphasise the PR, but we celebrate that growth many times through store events during the year. That is the thing: it is there to celebrate. The story of Northern Ireland food and drink with Tesco is a good story. Last month, 25,000 customers from greater Belfast came to our Tesco Taste Festival in Custom House Square. What we heard more than anything else that day was that they did not realise that Northern Ireland had such a range of food and drink. Sixty-five of our 95 suppliers were there. In fact, we could not get any more suppliers in.

There is a great story to take to the broader population of Northern Ireland. When people discover this food and drink, it is quite powerful. It has been an exciting 18 years in that sense. There is so much potential. Joe mentioned the Year of Food next year. My goodness — what a platform. I can tell you — I am sure that Joe will say the same for Asda — that Tesco will be absolutely championing Northern Ireland food and drink for the Year of Food.

Mr McDonald: There is a lot of positivity around Northern Ireland food. I am very conscious of it, working for a business that operates across the UK. A lot of our team is based in our headquarters in Leeds. Obviously, I have a leaning towards the industry here, but Scotland is fighting its corner, the Welsh industry is fighting its corner and so on, but Northern Ireland is picking up Great Taste awards now. There is a momentum around the Year of Food, and Food NI is very active, so an awful lot of positivity and opportunities are being created. It is always my point for Asda in Northern Ireland in the agrifood sector. We have 18 million customers, so, if you want to go for growth and go to the global market, that is fine. It is a very volatile market out there, but we are operating in a relatively stable retail market with 18 million customers — Tesco is the same — so the opportunity is there to be grasped. That is why we do our "meet the buyer" events and why we will be doing Year of Food activity.

We looked at some of the figures before we came in today. Scotts bakery has 35% growth year on year; Daily Bake has 25% growth year on year; and White's Speedicook, in your constituency, has 17% growth year on year. A lot of business is being done with the retail sector, which is great.

Mr Kells: I should add that the innovation is very impressive. At our recent show, we had one of our senior UK executives, who has travelled the world for Tesco. He was very pleasantly surprised at the level of innovation. Joe mentioned White's Oats. It is working on a new protein-based cereal. Dale Farm is working on a protein-based milk. That is at the cutting edge of food development and innovation, and it is coming from our Northern Ireland companies.

Dr Brown: Deputy Chair, you talked about relationships. I was here 10 years ago — we have not been here quite as long as Tesco — and there was an awful lot of commentary about how Asda would source. We said at the time that we would be dedicated or committed to Northern Ireland agriculture and its food sector. The numbers that Joe presented show that we have delivered on that commitment.

Mr Byrne: I recognise what has been said about product innovation and development. Is it left to processors to develop those products, or is there collaboration between retailers and processors on R&D?

Mr Kay: The answer is yes. There is close collaboration between our new product development teams in the Tesco supermarket and our suppliers. So, for example, Moy Park will bring a new product idea to Tesco, and Tesco will say, "Yes; OK". There is constant dialogue about how that could work. In the next stage of our sustainable farming groups — you may have heard of the Tesco dairy group — we want to cross-pollinate those principles across all the sectors so that there are new ideas on how we look after animals or produce on farm, going right the way through so that it links the third party in that chain, who perhaps has not had the same level of connectivity. We want to get our suppliers and supplying farmers in the same room to talk about exactly what our customers are after. They can be part of the discussion about developing new products. It is an exciting new area.

Mr Byrne: Does that mean that Tesco is more or less working with producer groups?

Mr Kay: Yes.

Mr Byrne: Lastly, farmers constantly mention to us that retailers are the baddies in the game and that farmers are being shafted.

Mr Kay: I would have to differ. I do not agree that that is the case in all areas. Given my most recent experience in the broiler sector, Moy Park farmers have grown their businesses in conjunction with a Moy Park processing business through a long-term contractual commitment with Tesco and other retailers. I think that there may be areas — I am not fully versed in all farming sectors — where farmers are struggling, but, if we continue down this path of longer-term relationships between retailers, processors and supplying farmers, their businesses will grow together collectively

Dr Brown: There is always a bit of a risk that we are seen as pantomime villains. It is a one-way street. With the greatest respect, when the milk price was knocking on 30p last year, we were not being summoned to see representatives to be told what a great job we were doing.

The Chairperson (Mr Irwin): You were, however, still getting your profit, as was the farmer. Today, farmers are not getting any profit; they are in a loss-making situation. You can still make a profit.

Dr Brown: You get my point, Chair, that we are called in here only when prices are low, not when prices are high.

Mr Byrne: Is the groceries code adjudicator there only as a bit of candyfloss?

Dr Brown: We think that the groceries code adjudicator is doing a really good job. If you are going to have a set of rules, you need someone to referee it, and we have great confidence in Christine Tacon.

Mr Anderson: Thank you, gentlemen. Good to see you; I know some of your faces.

You tell us in your presentations today that everyone is looking for good products at good prices. There is nothing wrong with that, but there has to be fairness to everyone. The questions up to now have been about whether producers and farmers are getting a fair price. That is the question that we as politicians are always being asked: why are we not getting better prices for our produce?

Farming is a difficult game, and it has come through many difficult times. All sectors are probably at their lowest at present. Weather-wise, farmers also have a lot to face when it comes to their products. They have to make exceptions for different types of weather conditions. They may end up getting nothing, and, a lot of the time, products are lost.

I want to go back to the Tesco submission. Under the heading "Securing our supply", it states:

"We want to strengthen our partnerships with farmers and producers, and are working with them to provide long-term security and lower the cost of production."

Will you expand on that and tell me what you mean by it? Are you telling us that farmers are in a happy situation because of the work that you are doing? Obviously, a lot of them are telling us that they are not happy.

The submission continues:

"We have committed to longer-term buying models with consistent and fair payment terms across our supplier network."

What do you mean by "fair"? If we take those couple of sentences, I would say that everything in the garden is rosy because you are working with farmers and suppliers for a fair price, but that is not what we are hearing. Will you expand on that and tell me what you mean?

Mr Kay: Absolutely. I will go back a stage. In 2007, the Tesco sustainable dairy group was set up. At the time, we had discussions over here with, I think, Dale Farm, and we were lobbied by the Ulster Farmers' Union not to follow the same approach that we took in GB. In GB, we set up a data capture point, using an independent consultancy, Promar, to look at their cost to production. Tesco did not see it as [Inaudible.]

It was independently collated, and the figures were held privately. Every six months, prices were reviewed, taking into account family labour and a range of things, and prices have been paid fairly since then. Industry-leading principles were set up in 2007 in the context of huge issues on price in the dairy industry at the time. We have stuck to those principles, and that has continued from then on.

In Northern Ireland, we decoupled the payment that farmers receive from the price of milk in store. With our milk pool in Northern Ireland, we are paying an average price of 28p a litre. Farmers had the option of coming into the dedicated supply, but, if we went to the dedicated supply, we would probably be sourcing only from between 30 and 40 farms directly rather than that price being spread across the pool of, I think, 1,500.

We are open to discussion on looking at more direct supply principles. We are talking about taking the same principles that were successful in the sustainable dairy group in GB and cross-pollinating them across all sectors. You are quite right that we have not got that up and running across every single sector yet. However, my dedicated agriculture team, with an agriculture manager across each sector, are going to their individual suppliers in Northern Ireland, Scotland, England and Wales to talk to farmers about how we source our products and where we can improve matters. We also share that best practice to help them to reduce their cost of production so that they can make more money and we can offer a fairer price to our consumer, which is paramount.

Mr Anderson: How long has the sustainable dairy group been in place?

Mr Kay: The group was set up in 2007.

Mr Anderson: In eight years, how much headway has been made in bringing it into the other sectors that you talked about?

Mr Kay: We have done some good work on the potato side. We have been working with Branston and Greenvale, predominantly in GB, but discussions with my team about setting up in other sectors are ongoing. We are in the early stages and freely admit that this is not up and running in every sector yet, but that is our direction of travel.

Mr Anderson: Can you see this as a way of reaching a level at which our farmers and producers would see that they were getting a fairer price?

Mr Kay: Absolutely, because, in certain sectors, some farmers will not know their cost of production. From my perspective, having farmed in a number of sectors, I think that there is an opportunity here for us to assist — using consultants who are used to doing farm business costings — in putting together models so that farmers are clear where their true costs lie. It can also help us to cross-pollinate good business practices, perhaps by working the example from the dairy industry into another sector. We can learn a lot from each other.

Mr Kells: That group does not operate in Northern Ireland, and the milk industry did not want it at that stage because the pool of liquid milk producers is so small, so we did not press that case in Northern Ireland, although we remain open to it. At local level, there is still a benefit because the work that the sustainable dairy group has done means that we are able to say to our processor that it must pay an on-farm price, at the minute, of at least 28p, as Barney said. Even where we do not have the model operating, we can use the principles.

Barney is right that the potato side is just developing. However, you made the point very well that we have been through all sorts of highs and lows over the past 18 years. We have managed to maintain a very strong relationship with the Wilson's Country group of growers. In potato crises — years of very bad yield, disease, or poor skin finish — we have been able, in the day-to-day work, to find solutions. I remember, for example, that we adjusted our specification on skin finish. The potatoes were perfectly good, but perhaps the skin finish was not all that it could be. We adjusted the specification and worked collaboratively to help the supplier through the crisis. That has happened a number of times over the 18 years, and we worked through it. That is the other thing that we bring at local level.

Mr Anderson: You are touching on something, Cliff, when you talk about specification. Can something more be done on the specification of products? The Chair talked about turnips, and we have also talked about carrots, potatoes and whatever. Is the specification too critical, in the sense that some good food is not being sent into the supply chain?

Mr Kay: It is not necessarily a question of looking at the specification, although I get where you are coming from —

Mr Anderson: It may help suppliers, in that more of their product would be put on to shelves instead of being sent in some other direction.

Mr Kay: It is about looking at the same problem but from a different angle: is there another part of our business where we could use a product that is out of specification? That is what we are trying to do. We ask ourselves whether, if it is not ideal for the fresh produce, it could go into ready meals or somewhere else. I keep reiterating that we have a commitment to the longer-term supply chain, which means that we can get one supplier talking to another supplier so that, if a product does not meet one specification, it might meet another specification somewhere else.

Mr Anderson: There have to be opportunities to use products to the best advantage of everyone here. Certainly, we must try to get more value from them. I will get straight to the point: to your mind, are our farmers and producers getting a fair price for their products?

Mr Kay: This will sound a little —

Mr Anderson: Straight to the point.

Mr Kay: Absolutely. There are very few instances in which we have a direct relationship with farmers on price. Our principle is that, if we are paying a fair price to our supplier, the commitment is that the supplier is, therefore, obviously paying a fair price to its farmer suppliers.

Mr Anderson: I have heard the Chair and others say that farmers and producers believe that what retailers get compared with what they get is not fair in any way. That is what we are hearing as we try to establish how we can bring in a fair price for products.

Mr McDonald: It is such a difficult topic. Cliff touched on the supply chain model — which is the best model, what is a fair price and so on. Asda buys 0·68% of the milk in Northern Ireland, but a huge focus during the milk issue turned to the retail sector. We buy 10% of the beef, but a huge amount of the focus turns to the retail sector. When the cycle goes into a dip, that is where the attention turns.

During the recent, and ongoing, problems for milk producers, we were paying 28p per litre. The world market was probably returning half that. In the UK, we are probably paying the highest price for beef in Europe. A lot of stuff never gets a mention. There is always talk about how we solve the supply chain problems, but there is an awful lot going on that is outside our control: supply and demand, exchange rates, trade agreements and import bans. An awful lot affects the final return that farmers get, never mind their own cost base, and that is largely outside our control, given that we buy only a very small proportion of what is traded in Northern Ireland. We are a small population with a big agrifood industry whose focus is on exporting.

Mr Anderson: Joe, I take your point about different areas and different products, and I understand your perspective, but we still come back to whether farmers here are getting a fair price for a lot of their products. A lot of them do not believe that they are compared with the prices on the shelves. You spoke about a lot of variables that may be outside your control.

Mr McMullan: I apologise for leaving the meeting earlier. I listened with interest to the start of both presentations, which were nearly the same, even though you represent different companies. You say that you buy only 0·68% of milk on the market. Why do we pay 28p per litre and the market gets only 18p or 19p? Should the intervention levels have been upped to bottom out the market? What is your view of the Groceries Code Adjudicator? I put those questions to both companies.

Dr Brown: I am afraid that I am not qualified to deal with intervention. It is a question probably better directed towards Brussels and how those there spend their money. While you were out, I covered —

Mr McMullan: Sorry, who is better off spending their money?

Dr Brown: Brussels is where that question would best be directed.

Mr McMullan: As somebody involved with the food chain, what do you think would be for the betterment of the market here, given the exceptional circumstances of our farming industry?

Dr Brown: Anything that brings money into the agriculture sector is to be welcomed. We believe that the Groceries Code Adjudicator is doing a good job. I said to the rest of the Committee that we have a lot of faith in Christine Tacon. We have had lots of meetings with her and believe fundamentally that, if you have a set of rules, you need a referee. She is doing a pretty good job.

Mr McMullan: Do you think that she is strong enough for the big supermarkets?

Dr Brown: Yes.

Mr McMullan: Do you think that the Department for Environment, Food and Rural Affairs (DEFRA) is being fair to farmers here?

Dr Brown: Could you be a bit more specific, please?

Mr McMullan: DEFRA did not realise that there was a problem here with the milk price, or did not want to accept that there was a problem. They are getting a higher price for milk in England. You are paying a higher price for beef in England. It costs us nearly £100 to send a cow to England.

Mr Kay: On the dairy price, they are such completely different markets. We take only 10% of the liquid milk in Northern Ireland, whereas we take 50% in GB. A lot of the Northern Irish product is sold as powder, so it is much more vulnerable to the global prices that we were talking about and the significant global price volatility. They are very different markets.

Mr Kells: May I come in on that? It touches on something that Joe said. Joe, you quoted 0·68%. The 10% that Barney mentioned is the total liquid from the production. It is 10% to 12% — around an eighth. Tesco's volume is an eighth of that eighth, which is about 1·5%. That makes sense, as we are a slightly bigger business than Asda. Collectively, we account for, if we put the numbers together, just over 2% of the entire milk pool. You can see that we feel that it is completely beyond our ability, whatever price is being discussed, to counter the effect of the world market price, which, as Joe said, is probably around half that — 14p or 16p, depending on when you look. Ninety-eight per cent of the production is outside our control. As Barney touched on, we can pay a fair price for the milk that we buy from Northern Ireland farmers, and that is what we are determined to do.

Mr McDonald: I heard it quoted that dairy prices in Northern Ireland fell by 36% in the year and, in Britain, they fell by 17%. If the price to our primary production base drops by that amount, it is, of course, a concern, because we want to have a long-term supply base. It does not take long to work out that, in dairy, it was the global market that created that drop. Yes, DEFRA is at the table in Brussels when it comes to the intervention price, but MLAs, the Agriculture Minister, the farming unions and so on lobbied DEFRA in a pretty coordinated way on that point. We were aware of all that, but, commercially, we did what we could, which was to respond by paying 28p per litre. I go back to the point that Cliff made to Sydney: we could take 20 dairy farmers in Northern Ireland, put a fence around them and look after them, and they would be our dairy suppliers, but what about the other 3,000, or whatever the figure is? That is the problem.

Mr Kells: We did exactly the same exercise when the Tesco Sustainable Dairy Group (TSDG) was introduced and we met the dairy industry stakeholders, including the processors, the Ulster Farmers' Union and the Dairy Council. At that stage — it may be slightly different now — we worked out that only about two dozen farmers would be required to service the milk volume. This goes back to the point that so little goes into liquid milk.

When we worked out those numbers, the industry said, "Hold on. We're not comfortable with two dozen farmers receiving a strong price but not the rest of the industry". Rather than do that, we agreed a different model.

Mr McMullan: Four or five supermarkets in GB have 75% to 80% of the food market. Considering your strength, a lobby from you to DEFRA would have gone a long way or could go a long way. You said that MLAs and many others lobbied DEFRA, but it was to no avail; they did not listen. We went to Europe. Farmers need somebody lobbying for them. You are the big outlets. I see your point that yours is a commercial business, but there has to come a stage when that commercial business has to stop and look at its prime producer, the farmer.

Mr Kay: I completely agree with that. However, we have to be careful. We are not political lobbyists; we are commercial businesses that cannot lobby on price. From our point of view, we can have a direct supply relationship whereby we look after the suppliers that come in to us. As Cliff said, at the time, the decision of the dairy industry was that it did not want us to ring-fence our direct supply farmers. Longer term, across the other sectors — perhaps, dairy is not a good example in this case — we will probably have increasing direct supplier relationships whereby, through our supplying processes, we will have a direct relationship with supplying farmers and agree a fair price throughout the chain.

Mr McMullan: Yes. You say that you are not lobbyists, but you have professional lobbyists lobbying on your behalf. They are in Westminster every day and in Europe.

Mr Kay: All that we can do is demonstrate by how we behave —

Mr McMullan: OK. We will leave it at that. Lastly, what is your view on leaving Europe? [Laughter.]

What is your view of the Tory —

The Chairperson (Mr Irwin): Oliver, that is outside the remit of why they are here. There could be four different views on that around the table.

Mr McMullan: It would be interesting to know.

Mr Kay: We would be neutral. [Laughter.]

The Chairperson (Mr Irwin): I was thinking that.

I have a couple of questions to finish. Why can the payment within 14 days to smaller suppliers not be rolled out to all suppliers? Is there a reason?

Mr Kay: It is about acknowledging that different businesses have different cash flow issues. We have tried to ensure that the way in which we pay our smaller producers — under £100,000 — does not cause them cash flow issues. There are historical examples of smaller businesses that were on 90-day payment terms or whatever. We are trying to ensure that, for those smaller businesses —

The Chairperson (Mr Irwin): In the past, was it as many as 90 days?

Mr Kay: I have no idea. I have heard of payment terms like that, anecdotally. We are trying to ensure that we pay our smaller suppliers within 14 days, if they are sourcing under £100,000.

The Chairperson (Mr Irwin): What is the longest time that the larger suppliers wait?

Mr Kay: We have a variety of payment terms for a variety of businesses. Moy Park, for example, is now bigger than Tesco because it is owned by JBS, a large Brazilian multinational. We deal with large businesses that have a variety of payment terms in their own businesses. It is about focusing on what is reasonable for the size of a supplier's business. We have tried to make sure that that is appropriate. What Tesco has announced is considerably beyond best practice in its leading set of principles.

The Chairperson (Mr Irwin): What about loss-leaders? Suppliers complain to me about Tesco and Asda putting on special offers and expecting the supplier to stand that. What is your view on that? Suppliers have complained bitterly about your wanting to sell two for the price of one but expecting the supplier to stand that.

Dr Brown: That is a commercial negotiation because any investment in price has a corresponding increase in volume. Presumably, the supplier goes into that relationship expecting to increase their volume and, hence, their returns.

The Chairperson (Mr Irwin): There is not much point in increasing volume to lose money, is there?

Dr Brown: If it is felt that it is unfair, there is the adjudicator to whom suppliers can make representation. We have an escalation process, and I am sure that other retailers do, too. If a trader or buyer/supplier relationship is not working properly, they can go to the next person in the supply chain, right the way through our business, to seek reconciliation.

Mr Kells: Suppliers want to promote with us. I go back to earlier points that we made. We work collaboratively to grow business. Promotions are part of a longer-term business plan that we have with every single supplier that we work with. Each business plan is done collaboratively, written down and agreed, and it includes a number of promotions per year, or whatever the particular agreement or circumstances are.

The Chairperson (Mr Irwin): Are those suppliers almost buttonholed into a position in which they have to do that?

Mr Kells: No, not at all.

Mr Kay: They know that right at the start. The key difference from historical practices is that, if you are planning for 2016, you have that contractual discussion right at the start of the year and say that you will have x number of promotions. We plan that, and the supplier knows absolutely what that will be during the year. That is the key difference.

The Chairperson (Mr Irwin): Finally, I accept what you say about the milk that you buy being only a small percentage and that there are also a lot of beef exporters in Northern Ireland. The local vegetable grower situation is that the product is not exported but sold solely in Northern Ireland, and possibly the Republic, and I believe that local retailers have the ability to help the producers. You said that many producers need to be encouraged to become more efficient, but many are so efficient that they do not even take a wage and are on the verge of bankruptcy. In the past three weeks, three vegetable growers have told me that, if there is no change by 1 March, they will quit because they are losing money. We are told that they are producing crops for a derisory amount, but, still and all, their product in the supermarket is still 10 times the price. What I am saying is that you have the ability to change that. I accept that there are some situations in which you do not have the ability to change very much, but you certainly have the ability to change things for those who produce locally for the local supermarkets and further afield

Mr Kells: Those local producers are very important to us. It is difficult to comment on a particular case and whether they supply us. However, Roy Lyttle, who is on the Ards peninsula, has been growing leeks and scallions for Tesco for 18 years. I am not saying that it has been easy, but we have been working together and been able to grow business. We also have Mark McKee at Sparky Pac, Windwhistle Farm and Gilfresh, which I mentioned. We have a network of produce suppliers who have been with us for those 18 years.

First, we try to work collaboratively with them, and, secondly, we have a measure of sustainability that has ensured that they have been with us all this time, which is how we plan to continue. I mentioned the innovation and added value that we think is needed. We are encouraging those suppliers in that respect because it is part of improving the business. Not everyone can be a Mash Direct in that dramatic sense, but almost every business can be more innovative, add value and move up the value chain, because customers need value for money. We have worked in that way, especially with smaller suppliers.

Mr McDonald: I will not go into the numbers, but our history with Gilfresh is one of tremendous growth. I am sure that it has been the same for Tesco and Gilfresh in the last seven or eight years. It has a network of almost 40 growers on the island of Ireland. Last week, at the supply chain forum, we heard a contribution from a poultry grower. The attention to detail, the feed conversion and focus in that sector are phenomenal. The vegetable growers bring that same accuracy and professional —

The Chairperson (Mr Irwin): Do you accept that weather conditions can have an impact? There was a late spring this year. I think that, because of the weather conditions, the carrot yield for a lot of producers will be only half that of last year.

No matter how efficient a farmer is, that is beyond his control. I am aware that it is a wee bit easier and more manageable in the poultry sector.

Mr McDonald: It is a different environment; I accept that.

Mr Kells: Mr Chairman, we have tried to work through those difficulties and ups and downs over the years. That is what we have sought to do.

Mr Anderson: On the back of what you asked, Chair, I am interested in the promotional aspect. Do producers sign up to a contract? Is that what you are telling us?

Mr Kells: No.

Mr Anderson: How does it work? Are they standing any loss in this?

Mr Kells: Pardon?

Mr Anderson: Are they standing a loss?

Mr Kells: I am not saying that at all; I am saying that we agree how we work with our suppliers, and if the supplier wants to promote a product — most do, because that is part of growing your business and, of course, bringing value for customers and increasing —

Mr Anderson: Are they happy enough and in agreement with that?

Mr Kells: What I am saying is that we work openly and collaboratively with suppliers; we do not dictate promotions to them.

Mr Anderson: You do not. I thought that maybe I picked up the fact that there were so many promotions a year. Is that not what was said?

Mr Kells: There could be. Obviously, I cannot talk about a particular business, and it would be different for different sizes of companies and different sectors. The point is that it is there and it is written down in advance; it is transparent.

Mr Anderson: Would that affect the price that a producer would get for a product?

Mr Kells: That will be agreed as part of the commercial arrangement.

Mr Anderson: What I am trying to get at is this: if they did not stand that, they might get a better price. I am talking more about the smaller producers that you were talking about earlier getting paid within 14 days for cash flow and suchlike. When it comes to the small producers, every little helps.

Mr Kells: Absolutely.

Mr Anderson: You did not recognise that slogan. Joe did not recognise it. [Laughter.]

You see where I am coming from here; we need to help them as much as we can.

Mr Kells: Absolutely. The recent payment decision that Barney talked about is very significant, especially for the smaller suppliers.

Mr McMullan: You mentioned that, last week, you were all at the new forum that the Minister set up. What do you hope to bring to that? You said that farms will have to change to be more efficient, etc. What will you bring to that forum to bring forward your views on efficiency etc?

Mr Kells: Unfortunately, I was out of the country so I could not be at the forum. Joe, you were there.

Mr McDonald: The Minister set the focus on communication, transparency and trust. She talked about drawing a line and moving forward. There has been some discussion around the same things today. In attending the forum, I found that that was a really important area to focus on because a lot of people in the supply chain have very ingrained views and lean towards their own part of the supply chain and, therefore, there is criticism of other parts of the supply chain. To be honest, it was very early days in the project; it was the first get-together and everyone went into the room probably not really sure about how things were going to shape out. A lot of people in the room committed to participate and to stick with it. I felt that communication was the area where a lot of progress needed to be made, because a lot of people said things that took me back rather than forward in terms of where we are going as a supply chain.

Mr McMullan: Will you be putting anything into it such as research etc? You talked about genetics, which is the buzzword in farming at the minute. A lot of the smaller farmers are becoming worried about how they will be fit to compete. We need to get confidence into the marketplace.

Mr Kay: That should be an opportunity for to use our scale for good. You take a range of smaller farmers supplying us, you have a best-practice farm that is demonstrating some opportunities for new methods of production, be that new genetics for a different type of ram or whatever, and cross-pollinate those ideas across a wider group of farmers. By getting a group of farmers who supply us working with a processor and ourselves, we can exchange ideas about how to share best practice. We are looking to do that across the farmer groups that I was talking about. Each supplier will look to identify a best-practice farm or centre of excellence where we can look at some research and development, explore new ideas, see what things are working elsewhere in the world, and consider whether they could fit into our production system.

Dr Brown: Barney is spot on. There is an enormous amount of best practice, which we have the privilege of being able to see, and it is part of our responsibility to ensure that it is explained to and explored with as many people as possible. Like Tesco, we hold lots of farmer meetings where we try to explain what we have found. Taking farmers to see best practice and then explaining it is our best route. In response to your particular challenge, we put together a catalogue of discounted semen from the best bulls that we can find. There is no restriction on how small your herd has to be; if you wish to access that semen, the catalogue is freely available. That is because we believe fundamentally that people ought to be accessing the better material that is out there.

Mr McMullan: Who has that catalogue?

Dr Brown: ABP.

Mr McDonald: We had a farmer from County Antrim on a trip last week. What was he looking at, Chris?

Dr Brown: He was in North Dakota looking at soil management.

Mr McMullan: To finish, you cannot give a guarantee today that you will not use milk as a loss-leader.

Mr Kay: As I said, the price is decoupled. The price in store is not linked to the price that the farmer gets. What we are discussing here today is fair pricing at the farm gate. That is the key bit.

Mr McMullan: It has the image of a loss-leader and that is doing harm. I can understand what you are saying about the pricing, but there is the image of using milk as a loss-leader.

Mr Kay: I honestly do not know about the pricing and, commercially, we cannot talk about our own individual pricing models. Having come from a farming background, the key thing that I am concerned about is ensuring that we pay our farmers a fair price — that is the critical thing — and also ensuring that we deliver a product at a fair price to our consumers. As long as we are achieving both of those, I am comfortable.

Mr Kells: Just to add something on the supply chain point, and touching on Joe's discussion about the forum's work, there is more that we can do across the supply chain to increase communication and understanding. In April, we took about two dozen suppliers to Queen's University and held a workshop on making customer insight information available to small suppliers. It can be quite difficult for small suppliers to get access to the type of data that tells you how your brand is performing. We organised a whole day of workshops with the help of a chap from the University of Kent who works with our insight company, Dunnhumby. Roughly two dozen suppliers got an enormous amount out of that day in understanding how their products work in today's supermarket. So, there are things like that that we can bring to discussions and communications to help to create a more collaborative and market-responsive approach because, in the end, we have to do the right things for customers.

The Chairperson (Mr Irwin): Two members came in late and want to ask a quick question.

Mrs Dobson: Apologies if my questions have been touched on already by other members. You have invested heavily in promoting your businesses as supporting local farmers. We see that at agricultural shows with your large stands and in your stores as well, with banners declaring names of local farmers. Sorry, I should declare an interest as my husband is a beef and cereal farmer.

What investment are you putting into communicating directly with farmers? I know that you have touched on this. From a personal point of view, my husband was a member of a group of local farmers lobbying with a large supermarket that is not represented here today. He stepped out of that because he thought that it was really to be seen to include Northern Ireland farmers lobbying in mainland UK rather than to achieve tangible results. Farmers need to see results in their back pocket and they need to see that you are communicating directly. That is my husband's personal view on this. What can you do to reassure the farmers you are communicating with that they will see a lasting and tangible difference in their pockets?

Mr Kells: That is something that Barney is passionate about.

Mr Kay: Definitely. While you were out, I talked about the long-term work that we have done in GB with the Tesco Sustainable Dairy Group, which started in 2007. We have agriculture managers across each of the sectors. My agriculture team is looking to take on those same core principles. It is working collaboratively with those farmers and identifying areas where we can work together and cross-pollinate best practice. We are taking the principles that have worked so successfully in the dairy group and looking to cross-pollinate that to all areas of our business across the UK.

Mrs Dobson: Are you listening to farmers directly?

Mr Kay: Absolutely. I will explain the governance of these committees. We have suppliers both here in Northern Ireland and in England, Wales and Scotland. Through our supplier processes, we have a representative farmer, a processor and a sort of governance committee. We have a variety of different processors and suppliers, and those farmers will agree and determine the direction. The dairy group in GB has been so successful because it has not been Tesco-led but farmer-led. It will work only if the farmers themselves buy into what you are trying to achieve. It will be their ideas. There have been simple practical things, such as reducing somatic cell count and reducing lameness in cattle, that will make a difference on their farm. We have an R&D farm at Liverpool University, which is looking at making the latest research and development practically applicable on the farm. My agriculture managers across the various sectors will be working with Northern Irish suppliers and their supplying farmers to come up with these ideas and have these working groups.

Mrs Dobson: I am just basing it on my husband's experience, which was a few years ago. He stepped out of it because he felt that he, along with other farmers from Northern Ireland, was there to be seen to be doing the right thing, rather than doing the right thing. They were simply window dressing. When they made really important tangible suggestions, those were not acted on. You are telling me that your supermarkets will listen to those concerns.

Mr Kay: Absolutely. Years ago, I worked in the pig industry. When you drove around the country, you would see little "PIC Farm" signposts at the end of drives. That stands for "pig improvement company", which is a breeding company. Those farms were proud to put those signs at the end of their drives. My long-term ambition is for farmers to be proud to be part of the Tesco supplier farm group. It can work only if farmers feel that they are directing the group and being listened to.

Mrs Dobson: I know that the supermarkets represented here have community champions who do great work in reaching out, visiting community groups and connecting. No matter how few farmers are in that community group, they feel the benefit. There does not seem to be the same network for individual farming groups as for the farmers that are representative of the store. Perhaps the template of the work that you do with community groups day and daily could be taken out to farmers, even individual farmers.

Mr Kay: We are trying to cross-pollinate. We have held over 1,100 Farm to Fork events, where local schools come out to farms to understand how their food is grown. We have had over 23,000 children out on farms. We also have a supplier network. All our supplying processes and supplying farmers globally have access to this network. It is an electronic viral network where farmers can talk to each other and to suppliers about different ideas and share those remotely. Farming can be a pretty remote business at times. So, while we have physical meetings, we also keep in touch through our supplier network.

Mrs Dobson: It is great that there is a people's champion. However, I would like to see a farmer's champion that is as good as the community network.

Mr Kells: We also feature loads of farmers on a wall of the City Airport, for example. We want those people to be sustainable. We want people to celebrate, otherwise we have no story to tell. To support what Barney said, the commitment is there at that level as well.

Dr Brown: It is the same approach with the agenda of our farm improvement groups. Those are led by the farmers, so they set the agenda. That is incredibly valuable because the industry is going to face challenges, and that will mean change. People are resistant to change, and we need farmers who are going to champion change. It is also important that we have farmers championing their products. One of the things that is happening in GB is farmers doing tasting of Red Tractor products at the store. So, the complete supply chain is represented in the store, encouraging the customers to buy the products that the farmers are producing. We have found that incredibly valuable and supportive.

Mr McDonald: Sometimes things go on and people do not realise. Every year, our red meat team holds a meeting with the farmers in your own constituency area. Hundreds of farmers go to it. I have been to it. We come along, and it covers everything from customer insight and new products to new packaging and practical stuff. We have had people there from Agri-Food and Biosciences Institute. We have had Billy O'Kane there talking about stabilisers and feed conversion.

Dr Brown: Even me.

Mr McDonald: We had Chris Brown there. All that work is being done. We did not out a press release out about it. We did not put it in the paper. We did not say that we did it, but we did it. There is communication going on.

Mrs Dobson: It is about letting the farmers know that.

Mr McCarthy: I apologise that I missed your presentation. Cliff, you mentioned, among others, two of my constituents: Roy Lyttle and the Hamiltons at Mash Direct. Look after them, because they produce nothing but the best. You would not expect anything less from the Ards peninsula or anywhere around Ards. You look after them, and they will look after you. You only have to drive past their properties and premises to see the fantastic produce that is there ready for lifting.

Mr Kells: You are absolutely right. Roy and Sheila Lyttle have been with us for 18 years. I give Sheila particular credit for the work that she has done with schools in our stores. She has really grasped the whole Farm to Fork idea that Barney was talking about. They have done tremendous work in our stores for the community. We regard those as absolutely fundamental partnerships and sustained and long-term relationships.

Mr McDonald: Let us go the whole way and also praise Lindsay for the work that she does at Food NI and what they are going to do in 2016. We might as well bring the whole family into it.

The Chairperson (Mr Irwin): I want to ask you about imported products. We know that, as there is a weak euro, there is a temptation to import cheaper product. On your shelves, are beef, lamb and pork, for instance, clearly identified as imported? Is where it comes from clearly identified?

Mr Kells: Yes, absolutely. I am not sure if I am repeating something that Barney said but we have a 100% Northern Irish sourcing commitment on fresh beef, fresh pork and fresh chicken. Just to be clear, that is not for what we call added value product. However, if you look at our fresh mince, fresh pork or fresh chicken, you will see that we have a 100% Northern Ireland sourcing commitment. If it is added value product that is not possible to procure here, where it comes from will be very clearly labelled.

The Chairperson (Mr Irwin): I saw a report in 'The Scottish Farmer' where one store, which I will not name, was caught selling New Zealand lamb as prime Scottish lamb. It was a big retailer and that was a big headline in 'The Scottish Farmer' a few weeks back.

I frequent both stores now and again, as many customers do. I come back to the issue of fairness in that supply chain, especially for local growers of vegetables and that type of thing. What more can be done to bring fairness into that supply chain? I believe that it is not fair if a supplier is getting 8p for his turnip and you are selling them at 79p or 80p. He is losing money, and he is the one at the bottom of the line. What can be done to bring some fairness to that?

Dr Brown: Because it is a particular issue, we need to go back and find out what the situation is with our terms. I do not recognise those price differentials, so let us come back to the Committee on that.

The Chairperson (Mr Irwin): Carrots are also an issue, with the grower getting 12p or 14p a kilo. The processor is getting it very tight too, but there is too big a margin. The perception out there is that the margin that the retailers are getting is too high.

Dr Brown: It is a fair challenge. Let us respond to you.

The Chairperson (Mr Irwin): OK. We look forward to your response on that issue. Thank you very much again. It was good to have you.

Find Your MLA


Locate your local MLA.

Find MLA

News and Media Centre


Read press releases, watch live and archived video

Find out more

Follow the Assembly


Keep up to date with what’s happening at the Assem

Find out more



Enter your email address to keep up to date.

Sign up