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Supermarkets and Standards

Date
Time (GMT +00) 14:00 15:00
Speakers:
David Gregory, Head of Food Technology, Marks and Spencer plc.
Dr William Vorley, International Institute for Environment and Development (IIED)
Chair:
John Battle MP

The Chairman welcomed those in attendance to today's meeting and explained the role of the APGOOD series. The Chairman then introduced the two speakers of the event. David Gregory was to speak first, followed by Dr. William Vorley.

David Gregory set out to both differentiate Marks and Spencer from other supermarkets-alone, it sells only its own brands-as well as give a brief outline of how supply chains work, namely where supermarkets intervene and where they do not.

Marks & Spencer recognises and supports the DEFRA model for sustainable development with the five key principles of environment, society, economy, governance, and science. These values have been embedded in the business principles of Marks & Spencer since its establishment in the 1932. Marks & Spencer attaches importance to Quality, Value, Service, Innovation, and Trust and prides itself in being a 100% own brand with complete command of its supply chain. They have full knowledge and control of the production and raw materials lending to superior quality and innovation. This also requires that Marks & Spencer seek differentiation in the market place which it is able to do through its long-term supply-side partnerships, some of which have been in establishment for 20 to 40 years.

Marks & Spencer places great importance on where they buy their raw materials: 53% from Great Britain, 27% from the rest of Europe, and 6.1% from Africa, making Africa it the third most important trading partner. Work in Africa has enabled Marks & Spencer to create long term partnerships with many of the nations, especially those with historic links to Great Britain. They see it both as a means of poverty reduction and wealth creation.

There are several supply-side models that Marks & Spencer uses: direct supplier, indirect suppliers, smallholders, certified supply chains, and others. Direct suppliers are the preferred method of working and also add to the development of a national economy. Packing at source enables wealth creation at the point of production, coupled with providing the best quality and value product. For example, the Home Grown project in Kenya has allowed the farmers to produce predator bugs as a means of bio-control for export all over Africa, creating jobs and wealth at the source.

The model of indirect suppliers is a more complicated area. He gave the example of UK milk prices. They work with the UK dairy producers to set up a long-term contract for milk prices to help farmers plan for the future with set forward milk prices.

Smallholders are those very small farmers that are very important to the African economy, especially if these small farmers can gain market access and grow their own business. Marks & Spencer is aware that some of the high standards that they set for their products can be detrimental to these small scale farmers. This is why they have been actively involved in the Ethical Trading Initiative (ETI) to develop practical guidelines to ensure they both meet the standards and that Marks & Spencer can gain better knowledge of the needs of these farmers.

The Certified Supply Chain model, a Fair Trade model, is an interesting one. Marks & Spencer did not sell Fair Trade products for many years but currently is enacting an initiative exclusively to sell Fair Trade coffee and tea in their coffee shops, the third largest coffee chain in Britain. The Fair Trade Foundation has said that Fair Trade sales have increased substantially since this initiative was undertaken.

Marks & Spencer is now developing another form of partnership, one with the Shell Foundation, aimed at working with a charitable foundation to develop sustainable SMEs in the developing world to alleviate poverty and drive innovative trade links, initially through the production and shipping of flowers.

IT systems are another means through which Marks & Spencer works with producers. Social conditions are very important to consumers, which is the reason why Marks & Spencer was at the forefront in establishing SEDEX, an approach to managing excessive numbers of expensive social audits being imposed on small suppliers.

The leading issues can be categorized under four headings: standards, innovation, long term relationships as a barrier for access to others, and stable political climate. The standards set by Marks & Spencer, both non-negotiable (pesticides and food safety) and aspirational (social standards), are completely necessary. Innovation is necessary because, if people merely develop more of the same product, this increase in supply simply drives down prices. It may be that some supermarkets do do this in food trade, but it is not a policy which succeeds in broadening and deepening markets. Long term relationships may not allow new or smaller farmers to gain market access because of these already established ties. Finally, a stable political climate is crucial for making partnerships work. A few years ago Zimbabwe rather than Kenya, etc., would have featured in such a presentation as this, as an example of a pioneering partnership. This is not currently the case.

David then gave the floor to Dr. William Vorley, who presented the work of a group at IIED which worked also with DFID and the Natural Resources Institute.

The supermarket retail market is one in which provides opportunities for the poor, connecting producers to value-added markets, exploiting comparative advantage of small farmers, and allowing them to escape the volatility and low prices of commodity markets. At the same time, voluntary private standards, although a value-added domain, are becoming a de facto condition for market entry as standards are exclusionary. There are also new forms of private sector governance moving the supply chain to a demand chain, which is a tougher environment in which to work despite some success stories in Africa. The OECD and the Africa Commission have recognised the sometimes constricting impact of private standards and have produced statements on this issue.

tandards come both private and public. Private standards, themselves, can be broken down into two categories: collective standards (ie. EurepGAP) and retailer-specific standards (e.g. Tesco's Nature's Choice). These can either be pre-Farm Gate or post-Farm Gate. Those standards to be talked about will be collective standards at the pre-Farm Gate level. He gave the example of EurepGAP as a development by a coalition of retailers.

The drivers of private standards are essential to explore. It is not just about consumers, but also about government policy passing the responsibility and liability to the private sector through the privatisation of food safety. Reputation and brand protection, global sourcing, differentiation in the marketplace, and control and rationalisation of supply are also important drivers.

There are benefits, not just costs, to private standards. These include health benefits through reduction of chemical, enforcement of labour standards through minimum wages, and spill-over into the domestic market.The convergence of standards from the public and private sectors is something IIED found to be important. This is currently being initiated through the New European harmonised framework for food and feed hygiene, a 'farm table' approach with what looks like a mission of full traceability.

It is important to note that compliance with standards is not the only barrier to market entry or sustained market access. Supermarkets want reliability, consistency of supply, quality, and scale. All of this requires capital, technology and infrastructure, and organisation at the farmer level.

Standards are supposed to be exclusive, but how can we approach some sort of equity within the framework? Much of the investment has gone into training small farmers and promoting producer organisation. In terms of the standard setter, there has been adjustment of protocols and standards. From the angle of the buyer, we should look at modifying procurement policies. As a government or state, attention should also be paid to investing in alternative chains and applying development tests to the new [European] standards.

This is all easier said than done. In reality, the buyer tends somewhat to stalemate this process as he or she takes comfort in large producers and expects low costs with high quality. There is also an asymmetry of power between supermarkets and suppliers, not necessarily through collusion but through partnerships. This leads to opportunistic behaviour, unfunded demands for services and standards, and annual price deflation. Importers say that supermarkets have little concern about UK development policy, yet company policy, like Fair Trade, can certainly also operate favourably.

There is currently on IIED-NRI-DFID project underway exploring dialogue in the supply chain, information about standards and links between markets, and good practice in procurement.This is not just an export story. Nor is it a question of taking refuge in domestic markets as they too are changing, less so in Africa. Supermarkets are growing in overseas markets, especially in India, Russia, and China, and changing the way food works nationally.

What, then, can the UK government and development agencies do?
  • Become informed and create policy that anticipates change. There should be direct dialogue between supermarkets and DFID about getting a better development impact from African procurement.
  • Join the debate about purchasing practice and mainstreaming fairness and justice in trading beyond the Fair trade labels.
  • Develop a greater European lobby on these rules.
  • Establish coherence between departments; eg. DFID should not be expected to do it all.

The developing country agenda is about strengthening voice in standard-setting, as there is so little inclusion of developing countries in the way standards are set, although things are beginning to change, even in the trade facilitation area, and DFID has made some valuable anticipatory investments.

The Chairman then opened the floor to discussion and questions. In the discussion that followed, the following points were made:

One observed that is not just about standards in horticulture; the standards now apply to things like bread and cereal. He commented that the standards debate makes very little mention of small scale farmers and asked the speakers to discuss what they believe these standards truly mean for them. The speakers responded by agreeing with the sense of romance surrounding the referenced competitive advantage of small scale farmers, but do believe that small farmers are benefiting from the schemes. They agreed that there is a need for more research to be done to better understand the evidence and to further compare the impacts on large and small scale farms. A member from the audience added that the reason why some companies decide to stick with small farmers is to diversify their risk. The speakers responded by saying there is another argument for this, increasing the food bank.

Another asked whose responsibility it is to deal with diversification and the supply being larger than the demand. The speakers said it is the responsibility of all parties involved, the farmers, the supermarkets, and the consumers.

Another brought the debate back to equity and standards. He pointed out that the poorest people in the supply chain are not the producers, but are the seasonal workers and women, even in a developed country. He asked why there is a lack of voice for workers. The speakers responded by saying they too agree that voice and organisation are key in the corporate social responsibility movement, but also believe that the models need to be implemented here first before applying them to developing countries. They pointed to the Gangmasters Bill and their support of it.

A member of the Fair Trade Foundation thanked both speakers for mentioning Fair Trade and its impacts, as sales are steadily increasing. The foundation is working to educate buyers more on the products and to invest in workers' representation in larger scale farms. Retailers tend to practise their ethical models at home first before transposing them into developing countries.

Another questioner, from McKinsey, asked the speakers to comment on how this form of trade affects the regional trade model. David gave the example of the Marks & Spencer partnership with Woolworth's in South Africa as a stimulus for regional trade. Bill said it was more about reinforcing the market position of those companies that already have high standards. The man from the Fair Trade Foundation pointed out that there is a growing Fair Trade market within South Africa, with products both coming from there and being sold across the region.

The debate was brought back to the question of how concerned we should be about the likely demise of small scale farmers.

Another queried the supposition and underlying assumption that standards are a good thing. They may be for northern retailers and consumers, but were they in the interests of poor countries and producers in the South? He asked if these are really appropriate for developing countries, if we should be advocating this, and whether we should, instead, be campaigning for the lowering or gradual implementation of standards. The speakers pointed out that the standards are not simply dreamt up-many of them are predominantly sanitary and phyto-sanitary-and that people buy with their eyes. One woman pointed out that there may be more of a problem with the supermarkets promoting the standards to the consumers, than of consumers demanding these standards.

The final point was made that it is very difficult to differentiate between the good and the bad in the supply chains as consumers. Increasingly, even food products were being sold as manufactures rather than as biological entities. In the end, there were fundamental issues of ethics as well as product safety.

The Chairman closed the session by thanking both the speakers and those in attendance.

Description

This event discussed the opportunities the supermarket retail market provides for the poor, connecting producers to value-added markets, exploiting comparative advantage of small farmers, and allowing them to escape the volatility and low prices of commodity markets.