Whether the issue is food safety, sustainability, traceability or other supply chain issues, the industry model is now set. Retailers and other large buyers dictate a set of standards to their vendors. They may be established industry standards, say the California Leafy Greens Marketing Agreement metrics or they may be proprietary standards such as Marks & Spencer with its Field to Fork program. In either case the supply base is told to invest time and money to conform to these standards, the implicit promise — business from the buyer.
Now, however, with value the watchword for retailers across the globe, this deal — “you invest to meet the standards and we will pay you back by buying your product” — is disintegrating. If we needed additional validation for that concept we received a letter, from a major producer, that responded to our piece regarding retail pressure on producers in the UK:
I wanted to write you to reinforce your excellent article, Do UK Retailers Use ‘Bully Tactics’ To Squeeze Suppliers, about the UK market and Tesco in particular. You were spot on.
We can reiterate much of what the article stated. However, one glaring item has not been given the emphasis it deserves… the implication of all this on food safety commitments. The subject was alluded to in one of the interviews that spoke of the financial commitments that Tesco has asked suppliers to make on its behalf.
As you are aware, Tesco embarked on a program 5 years ago or so, that would have Tesco buying 100% of its produce from suppliers who achieved the Tesco Nature’s Choice (TNC) certification for food safety standards. This was a rigorous program that required a large investment in both capital and time because the required standards were far higher than EurepGap and later GlobalGap. It truly was a two-way commitment that Tesco made to insure that it had full participation from its suppliers worldwide.
Many growers deferred making the investment, including most of our competitors. We decided to make the investment, a substantial one, for two reasons: First, we felt that food safety would become a huge global issue (wow, is that ever an understatement in hindsight)and second, it would give us a competitive advantage as Tesco would only be able to buy from the very few producers in our categories that had such certification.
Everything was running smoothly until recently when we began receiving demands for deep discounts and, in some cases, we believe Tesco simply seized the discounts claiming quality or other problems. Obviously, we had a number of discussions with Tesco executives to get their help and to inform them that this was completely unacceptable going forward. We had invested heavily to meet the Tesco standards and couldn’t make a living at the prices they proposed to pay.
We were not particularly worried. We figured that as one of the few suppliers meeting the Tesco Nature’s Choice certification for our categories that we could exert some influence on the process. We knew that there was not enough Tesco Nature’s Choice certified product in our categories many times of the year to meet Tesco’s volume requirements without our production. Even if we were to ultimately lose the business, certainly we would have a lot of time to transition as it would take time for Tesco to persuade other producers to implement Tesco Nature’s Choice and then for them to do so, even if Tesco felt it could get better prices elsewhere.
Were we ever way too naive on that one! Tesco merely purchased from non-TNC vendors that were offering lower prices.
Wondering precisely why we had spent all that money to meet TNC requirements, we confronted several top Tesco executives. We were told that management had reiterated its commitment to food safety, but authorized “special opportunities” to provide value to their consumers.
That’s exactly what the “Pundit” predicted would happen to US growers from US buyers in several of your columns.We kick ourselves now for believing these people were ever serious. We invested time and money thinking they believed in this program, that TNC meant something. That they so blithely would walk away from the food safety programs that we had struggled for years to enforce is simply astonishing.
So, this is what we learned: In the end, a cheap deal will triumph over food safety. Our worst fears were confirmed. The whole program turns out to be just PR to keep the BBC at bay; not any commitment to safety or sustainability for their shoppers.
So, now we head into 2009 and we continue to sell some product to Tesco. The future, though, is uncertain. We may sell some product to Tesco or we may not. Probably not, because we focus on producing the best quality and we have been bluntly told that Tesco is looking to get away from premium product produced in accordance with TNC standards and is moving toward very cheap product from all comers.
Reading your columns over the years, it was obvious that Tesco didn’t have the best reputation among suppliers. I had heard that statement from others as well. However, the speed with which our deal changed, the casualness with which Tesco would drop a supplier that had committed to it, still boggles the mind.
We thank our correspondent for this powerful and plaintive letter. Although this letter is focused on Tesco and, clearly, the UK growers think both that Tesco is the toughest and that as the market leader it should be the most progressive in trying to ensure everyone meets supply chain responsibilities, the issue is hardly unique to Tesco.
It squarely addresses the single-most important problem in the industry, a problem that is getting steadily worse as the economy gets tougher.
It is also a problem that trade associations and others have been unable to face head on.
From an industry perspective, the problem is clear and simple: There are supply chain responsibilities in areas such as food safety, traceability and sustainability. The top producers in the industry strive to meet these responsibilities. Then, they are put in a position by many retailers of having to meet the price of vendors that have not met these responsibilities.
Since meeting the responsibilities is expensive, this is a recipe for the ultimate insolvency of many of the best producers in the industry.
It is also a situation that our vertically integrated trade associations have trouble really speaking up about to retailers. We have written a great deal about traceability, and we are glad that the industry came up with a solution. We know that many individual industry leaders are intent on seeing the program through.
But individuals are perishable — they retire, get transferred, pass away. One simply can’t rely on the goodwill of individuals in making investments. And the basic fact is that not one major retailer has agreed to constrain its supply chain to vendors that are in conformance with the traceability program.
The vertically integrated structure of our trade associations is extremely good at fostering what consensus can be achieved. But sometimes it creates a difficult structure for telling “truth to power” — and many producers feel they are being set up again to invest money without any assurance that buyers will actually value the investment.
The Tesco allegations are worse only because instead of a general industry effort, these are individual companies that have partnered to meet individual standards. In other words, these producers are the teammates; they did something special that the retailer requested, then they get launched adrift.
It is not good for the industry as it discourages future investment in doing things to the highest standard. It also is not right.
What we found missing from our interviews was any discussion of the role of the consumer in all this.
You go to Tesco’s web site and you get info such as this:
i) What is Tesco Natures Choice?
Tesco Nature’s Choice is a standard, which all of our fresh produce growers around the world must achieve in order to supply us with fresh fruit, vegetables or salads.
The standard was developed to ensure that our top quality fresh produce comes from growers who use good agricultural practices, operate in an environmentally responsible way and with proper regard for the health and well being of their staff.
Growers have to demonstrate that they operate in the manner which meets these requirements, laid down by Tesco in the Nature’s Choice Code of Practice.
ii) Why Tesco Nature’s Choice
Our customer’s demand fruit and vegetables that are fresh, tasty and excellent value. Not only this, but they expect Tesco to ensure that these fresh products are grown safely and with minimal environmental impact. Integrity is paramount. It matters greatly where and how product is grown.
Tesco Natures Choice was first introduced in 1991 to control chemical usage and develop environmentally sustainable production standards for our growers. We were the first supermarket to introduce a formal code of practice and have since revised the scheme to become a world wide stand alone scheme, which is independently audited.
We are not an expert in British law but to us, publicly declaring that “all of our fresh produce growers from around the world must achieve” the Tesco Nature’s Choice certification, which is “independently audited,” and then selling produce that has not been independently audited to meet that standard is perpetrating a fraud against the consumer.
Wanting to provide “special opportunities” for value to the consumer is a reason but no excuse. The premise of the Tesco Nature’s Choice program is that part of the value equation is safety, sustainability and traceability — if Tesco wants to offer cheap product that has not been audited for adherence to this standard, then it needs to make clear to consumers that when they buy this particular product, they are not getting all the assurances they usually do when shopping at Tesco.
The British producers have it tough; they have few large customers to sell to. So Del Monte, as we discussed here, can walk away from an ASDA tender and send the boat somewhere else — but a British producer can’t. To date, the focus has been on looking to ombudsmen and other structures to restrict retailers in their actions. We wonder if an alternative path isn’t to look to retailer’s relationships with their consumers.
In the US, McDonald’s and others have agreed to so-called “penny a pound” schemes where they agree to pay workers extra per pound because the advocates for the workers found out that the leverage point for tomatoes is not packers but restaurants that deal with the public. One wonders if the advocates for growers wouldn’t be better off leveraging Tesco’s desire to impress consumers with its food safety, sustainability, etc., than looking to trade-specific solutions such as ombudsmen.
