Recent global and climatic events have caused a risk-versus-reward imbalance that is forcing farmers out of production. Retailers need to share more of the burden, report argues
A report launched at the 2024 Oxford Farming Conference (OFC) in January firmly stated that the practice of farmers subsidising consumers’ appetite for cheap food cannot continue.
The agricultural sector’s confidence and bank balances are at an all-time, unsustainable low, said the report’s author, Ged Futter – a former Asda buyer and the director of groceries retail consultancy The Retail Mind.
This is the result of years of ‘permacrisis’ fuelled by Brexit, the Ukrainian conflict, the Covid-19 pandemic, and inflation running up to 20 per cent.
The report – entitled Is the UK Food Supply Chain Broken? – is based on over 40 interviews with business owners across fresh produce, eggs, poultry, pork, importers, frozen food manufacturers and various consultants.
Supply chain weaknesses
Futter, who has over 30 years’ experience in the retail sector, including as a senior buyer at Asda, said: “Recent events have acted as catalysts that have exposed pre-existing and fundamental weaknesses in the supply chain.
“The level of risk is at all-time high, there is consistent oversupply, and coupled with this, a deep understanding of a farm’s cost of production and its profitability is often lacking.
“Widely, retailers get a bad press but, as I was told on a number of occasions, ‘the most sustainable and efficient distribution model is retail to consumer’ and ’the UK has probably the highest standards of production in the world’. The further you move away from the UK, the lower those standards can become and the bigger the food safety risk gets, as well as the food security risk.”
Futter added: “For some, it seems that it is the end of the road: glasshouses are being closed and orchards are being grubbed. Increasingly, farmers are leaving the sector and using the land for non-agricultural uses because they simply cannot afford to continue subsidising the cheap food that the UK consumer has been used to.”
Worth the risk?
He said risk versus reward came up consistently for farmers and growers. “The ratio is now out of kilter. More farmers are asking is it worth doing? For example, an apple farmer front-loads production for seven years, from planting trees to full harvest.
“The cycle that most topfruit buyers work on in the UK is a season, often less than a year. This has considerable implications for growers who must rely on capital once their cash business becomes unsustainable.”
Futter highlighted a need for more rigour in farmers’ accounting practices. “In my interviews I heard: ‘growers are not great at looking at their numbers’, or ‘it’s a classic case of shoe box accounting, one for cheques and another for receipts’. Or that profit or loss for the year would be discovered once the accountant works their ‘magic’ or when the money ran out.”
When it comes to the retailers, the report centres on several key areas that need addressing: fixed price, long-term agreements; the impact of inexperienced and sometimes “arrogant” buyers; limited or no acknowledgment or recompense for a farmer’s risk; and the audit burden. In one business, a different audit was conducted in 42 weeks of the year.
Futter said these issues, over the past 10 years, have squeezed every drop of profit from many of their suppliers.
Loss of trust
Futter explained the impact of a loss of trust and retailers’ intransigence on agreements. “Retailers would rather have empty shelves than break these deals,” he said. “One industry expert explained how trust has been eroded between the farming sector and retailers. The analogy used was that ‘the current negotiation landscape is the equivalent of Premier League footballers playing against a pub team that complains when they lose 38-0 that the other team didn’t play fair!’
“The retailers have become more sophisticated at finding ways of getting better prices, and most farmers, growers and packers have not kept up.
“In some categories – mainly produce – the way that retailers and their grower suppliers do business has fundamentally changed from a trading model – based on short, often weekly, prices dictated by supply and demand – to long-term fixed-price contracts. At their worst, these contracts can straddle more than one growing season. I heard from growers and farmers in multiple sectors just how destructive this model has been.”
Rethinking supply chains
The OFC director responsible for the report is Ali Capper, an apple and hop grower and the executive chair of British Apples & Pears. She said: “The new business landscape of today’s supply chains – with volatility created by geopolitical challenges, unprecedented inflation, increased interest rates, climate change, and the cost-of-living crisis – require everyone responsible for feeding UK consumers to rethink their approach to supply chains before it is too late.
“The costs of production for fruit and veg growing has increased by between 20 and 27 per cent depending on the enterprise. That’s simply unsustainable.”
The 2024 OFC report builds on the conference’s 2023 report which called for fairness, net zero cost-sharing, and the recalibration of value-sharing throughout the UK’s food supply chain. Its author, Forum for the Future, added that failure to achieve a shared, end-to-end responsibility from farm to consumer would put in jeopardy the food sector’s ability to ensure an ecologically safe, sufficient and socially just future for UK food.
Visit www.ofc.org.uk to read the report in full.