Farmers, Supermarkets and Food Supply Chains

Gordon Henderson Excerpts

Tuesday 16th May 2023 Westminster Hall

[Gordon Henderson (Sittingbourne and Sheppey) (Con)]

I beg to move,

That this House has considered farmers, supermarkets and food supply chains.

It is a pleasure to serve under your chairmanship, Sir Mark. I start by paying tribute to farmers, in particular those in my constituency, for their contribution to food security in the United Kingdom.

Food security is becoming increasingly problematic. A combination of unprecedented events has culminated in many farmers facing unsustainable pressures on their businesses, which could have long-term implications for our domestic food production capacity and food security if measures to support British farmers are not taken immediately.

The huge spikes and uncertainty in energy prices since the end of 2021 have had significant cost implications for primary producers. Annual inflation measures are now understating the cost pressures facing businesses and consumers, given that inflation has been apparent for over a year. According to data from the Department for Environment, Food and Rural Affairs itself, compared to the 2019 average, farm input cost inflation stands at 42%, with wholesale energy prices being one and a half times higher.

The UK is seeing a significant decline in production, as horticulture businesses struggle with unprecedented inflation, most notably in energy and labour costs. There are also seasonal shortages of business-critical workers, particularly in the horticulture sector. In the first half of 2022 alone, at least £22 million-worth of fruit and vegetables was wasted, directly because of such gaps in the workforce.

Two of the National Farmers Union’s key asks for the horticulture sector are for a minimum five-year rolling scheme for seasonal workers and the inclusion of horticulture in the energy and trade intensive industries scheme, to help to remove uncertainty and inject confidence in production.

Declining self-sufficiency, coupled with supply chain problems abroad, has resulted in empty supermarket shelves, and the more that we become reliant on imports, the more likely it is that we will see the level of market failure that has led to images of empty shelves across the UK.

In the national food strategy, the Government outlined their ambition to sustainably expand the national production of fruit, vegetables, plants and flowers. British farmers and growers are ready to meet this challenge. However, to achieve that, the Government’s growth agenda must be twinned with reform in the marketplace that levels up the balance of power in the agrifood supply chain and delivers a fair and functioning supply chain.

[Robin Millar (Aberconwy) (Con)]

My hon. Friend has just said something very helpful: British farmers stand ready. My farmers in Aberconwy have made the point that they are ready to step forward. However, does he agree that supermarkets have a duty to support farmers, and that they should not put undue cost pressures on farmers? Farmers need to be there tomorrow in order to deliver tomorrow, and there is a role for supermarkets in promoting farming, not just for their own interests but so that it is there tomorrow.

[Gordon Henderson]

I can only assume that my hon. Friend has been reading my speech, because if he is patient he will find that I will come on to that point.

British growers want to deliver on the Government’s vision for climate-friendly and sustainable land management, but there is a significant risk to our shared endeavour if we do not address market risks in parallel. Only profitable businesses can be sustainable and continue to invest in productivity and environmental outcomes. It is critical that retailers support British farmers and growers to be sustainable, achieve meaningful environmental gains, and invest in innovation and new technology. Food producers should have an equal stake in the value chain, with food processors and retailers sharing risk, data on performance and value gain.

Farm costs are a significant driver of food price inflation. According to the results of the 2022-23 NFU farmer confidence survey, farmers’ primary concern over the next 12 months is input prices, with 88% expecting negative effects. Data released by DEFRA in March shows that agricultural inputs have risen almost 42% since 2019. Inputs closely related to energy have seen the biggest inflation: energy and lubricants are up 58%. Although wholesale energy prices are falling, they remain one and a half times higher than normal. Fertilisers and soil improvers are up 161%, and animal feeds are up 50%. That is directly linked to the disruption caused by the war in Ukraine.

In recent months, the pressures in the horticulture supply chain have led to supermarkets rationing fresh fruit and vegetables. Soaring energy costs and the continued lack of people to pick crops pose a serious threat to the future of the UK’s fruit and vegetables industry. As a result, the industry is not able to mitigate the current supply chain shortages.

A report by Promar International in 2022 found that growers’ production costs increased by as much as 27% in the preceding 12 months, and that products such as tomatoes, broccoli, apples and root vegetables were most affected. The main drivers are energy, fertiliser and workforce costs. Farmers and growers across many sectors are doing what they can to mitigate rising costs, but they cannot be expected to absorb the additional pressure and risk in the supply chain alone.

[Ben Lake (Ceredigion) (PC)]

I am grateful to the hon. Gentleman for making such an important speech on what I consider to be a matter of strategic importance to the UK. He is right to point out that farmers and growers cannot continue to absorb the input cost increases. Does he share my concern about the fact that, according to the latest NFU survey, 40% of beef farmers and 36% of lamb farmers have already said that they expect to reduce production in the light of the rising input costs?

--- Later in debate ---

[Gordon Henderson]

I certainly agree with the hon. Gentleman, and it is not just livestock. In the garden of England—Kent—too many of our orchards have been dug up because they are not profitable any more. There is a growing lack of transparency in the communication received from retailers, in particular, and that leaves farmers in a vulnerable position. They have to absorb additional risk and are unable to plan and make important financial decisions during this extremely challenging period. If farmers and growers are unable to recoup costs, it will become unfeasible for them to run their businesses, resulting in a reduction in production. Ultimately, that will reduce competition.

I have spoken to a number of farmers in Kent, and I can cite examples of unfair practices by some retailers—particularly supermarkets. However, to do so would make it possible for those farmers to be identified, which they do not want for fear of losing business. That in itself is testament to the malign power of some supermarkets.

It is true that the groceries supply code of practice and the Groceries Code Adjudicator have had a transformative impact on the behaviour of buying teams and have helped to curb some of the worst abuses of market power. That is why I share the NFU’s view that any consideration of transferring the GCA’s functions to another public body, such as the Competition and Markets Authority, or removing it altogether, is misguided; that would have a hugely damaging impact on the groceries sector and, ultimately, consumers.

In my view, the farming industry is in crisis. In 2019, there were 149,000 registered agricultural businesses. In 2022, there were 142,000. That means that there are more than 7,000 fewer agricultural businesses today than in 2019.

[Richard Foord (Tiverton and Honiton) (LD)]

In the south-west of England, direct payments fell from 95% of total income from farming in 2016 to just 62% in 2021. Does the hon. Gentleman share my view that that is affecting not only regions such as Kent, but the south-west? Both have seen a dramatic reduction in total income from farming as a result.

[Gordon Henderson]

I do agree. We are all in this together. That is the old saying, and it is true. Farmers across the UK—not just in England or Wales—are struggling. Without sustained, consistent and responsible action from all parts of the supply chain, we risk deepening a crisis that will lead to a significant contraction in supply to the marketplace and reduced availability of British produce, ultimately leaving many farmers and growers with no other option than to leave the sector altogether, which is what is happening.

To create a fair supply chain that supports food security, the sector needs to ensure sustainable farm-gate prices. In all farming sectors, DEFRA lacks the data it needs to monitor the market sufficiently and ensure that it is working properly. Without better data, the Government are unaware of what is happening in the marketplace and are therefore in no position to assess the market effectively, as required by section 20 of the Agriculture Act 2020. The Government need to support and invest in sufficient market infrastructure to enable markets to work efficiently, equitably and in the interest of food security. DEFRA needs capacity and expertise to conduct investigations of actual and potential market issues, and farmers need a concerted joining up of policy across Whitehall to unlock growth in the sector.

Finally, I want to explain what the NFU would like the Government to do. I appreciate that the Minister probably knows, but, given the current crisis in farming, the wish list bears repeating. The NFU wants the Government to produce an enhanced, policy-focused food security report that looks beyond food supply and supermarket shelves to assess the short, medium and long-term health of the food sector. The report should be published annually, as opposed to the three-year commitment in the Agriculture Act.

The NFU wants the Government to use section 20 of the Agriculture Act to conduct an urgent value chain inquiry into market failure in the poultry, meat, eggs and horticulture sectors, and to use powers under section 29 of the Act to continue progress with the dairy contracts code, develop equivalent approaches for other sectors and ensure that all are fit for purpose before legislation is introduced.

The NFU wants the Government to cement the role of the Groceries Code Adjudicator and publicly set out their commitment to its independence and powers. The NFU also wants the Government to publicly commit to supporting the work of the Food and Drink Sector Council and deliver a clear mandate for Departments to support its ambitions for sustainable growth.

The NFU wants the Government to establish a regular food forum with the DEFRA Secretary and senior executives, to support business engagement across the food sector—a similar concept to the Prime Minister’s Business Connect platform. The NFU wants the Government to set out their plans to invest in agricultural technology and innovation centres that bring benefits to UK farming, for example by taking the opportunity created by the Genetic Technology (Precision Breeding) Act 2023.

The NFU wants the Government to ensure that food and farm businesses make a growing contribution to renewable energy generation and have affordable access to transmission infrastructure, improving the sector’s energy resilience and lowering greenhouse gas emissions from food. Finally, the NFU wants the Government to make changes to the planning system to permit development for the purposes of growing and processing fruit, veg, crops and livestock.

I thank Kent’s farmers and the NFU for feeding our nation. I assure them that they will always have my full support.

--- Later in debate ---

[Mark Spencer]

We will look with interest at what the CMA finds. That is something we have looked at closely ourselves. It will require food producers and farmers to come forward with evidence to support the CMA, but that is why we launched our own investigation into the dairy sector. We are due to come back any moment with our findings and recommendations for how to support dairy farmers.

We have also indicated that we are going to support the pork sector and ensure that contracts are fit for purpose. Once we have delivered on that, we will be keen to look at the horticulture sector and the egg sector to ensure that the marketplace is working fairly for all in the industry. That demonstrates how seriously the Government take these challenges and issues. We will step in when we feel the market is not working equitably for all involved.

Last June, we published the Government food strategy, in which we set out our vision for a prosperous agrifood sector that ensures secure food supply in an unpredictable world and contributes to the levelling-up agenda through good-quality jobs all around the country. In the last year, farmers have continued to put great-quality food on our plates. The UK Farm to Fork summit is the next step in growing the thriving food and drink sector, with the aim of seeing more British produce on supermarket shelves in the UK and around the world. The summit focused on how Government and industry can work together to bring great British food to the world, build resilience and transparency across the supply chain, strengthen sustainability and productivity, and support innovation and skills—many of the things that my hon. Friend the Member for Sittingbourne and Sheppey called for.

The Prime Minister has been clear that growing the economy is one of his top priorities, and growing the food and farming sector is key to that.

[Gordon Henderson]

Does the Minister accept that farmers will only be able to help grow the produce if they are making a profit? Does he also accept that farmers are frustrated at retailers that too often force farm-gate prices down so that supermarkets can maintain their margins in the shops? We have to address that.

[Mark Spencer]

I understand my hon. Friend’s statement. It is right that we have a sharing of risk and responsibility in the supply chain and that primary producers get a fair price for their products. We also have to bear in mind that our consumers and constituents want to enjoy reasonable food prices. We do not want to drive food price inflation through the market, so it is important that we co-operate and work with retailers and those who manufacture in the food sector.

My hon. Friend referred to the Groceries Code Adjudicator and hoped that we would commit to keeping that as a separate authority. I can tell him that the Prime Minister announced this morning that we will keep the Groceries Code Adjudicator as a separate authority and it will not become part of the CMA, which I think is an indication of how important the sector is and that it requires its own Groceries Code Adjudicator.

Farmers should be paid a fair price for their produce. We have introduced new powers through the Agriculture Act 2020 to support the sector. We have made great progress in our reviews of the pig and dairy supply chains. We have recognised the impact of global events on the sectors in recent months, and the next reviews will take place in the egg and horticulture sectors, as I have already mentioned.

We can confirm, as I have said, that the proposed merger of the GCA will not go ahead. My Department has championed precision breeding, as my hon. Friend the Member for Sittingbourne and Sheppey indicated, through the Genetic Technology (Precision Breeding) Act 2023. Building on the successful passage of the Act, we will convene a working group to bring plant breeders, food manufacturers and retailers together to agree an approach that enables precision-bred products to reach the shelves as soon as possible.

We will also improve future support for horticulture by replacing the retained EU fruit and vegetable producer organisation scheme when it closes in 2026 with an expanded offer, which will include controlled environment horticulture as part of our new farming

schemes. We will help the controlled environment horticulture sector overcome barriers to accessing future support and make it easier to build new glasshouses through changes to national planning policy.