Why a supermarket price war is bad news for Britain's ability to feed itself

Jay Rayner
Sunday 8 June 2014
The Observer
The big four are cutting prices again – and if farmers get less money, self-sufficiency in UK food production, now down to 60%, will continue to slide. Jay Rayner argues that this squeeze matters – and could leave us all worse off
For consumers struggling with food bills, last week seemed to bring a glimmer of hope, as bad news for retailers promised good news on prices. Once again that leviathan of the high street, Tesco, reported appalling sales figures, down 3.1% from a year earlier. One million fewer customers are visiting the stores each week. Meanwhile the discounters, chains such as Aldi and Lidl, are cleaning up, with sales increases of an astonishing 35.9% and 22.5% respectively.
Earlier this year, as profits slumped, Tesco chief executive Philip Clarke announced £200m worth of price cuts. Last week analysts called for more. “Two hundred million in cuts is nothing,” said John Ibbotson, of consultants Retail Vision. “Clarke’s only option now is to get out the big bazooka and blow the competition away.” Spurred by sales down 7.1%, the worst for a generation, Morrison’s has also been offering bargains. A supermarket price war is under way, with Asda and Sainsbury’s piling in, which can only be good news for shoppers.
Or perhaps not. For just as Tesco was sharing its dismal trading figures, the Department for the Environment, Food and Rural Affairs (Defra) was releasing statistics on Britain’s food self-sufficiency. They revealed the cumulative effect of those price wars on our ability to feed ourselves. For the third year in a row, self-sufficiency was down, from a peak in 1984 of 78% to 60% now. And many believe that’s an overestimate. What’s more, when one calculates in products exported the amount that we consume in the UK that is actually produced here falls to around 50%.
Much of that decline is being attributed to the brutal deals on price enforced by the mighty supermarkets. In the mid-80s we grew 4 million hectares of wheat. Now it’s 3.14 million. The national sheep flock has fallen by a third. The only land usage that has increased – by a factor of four since 1984 – is of “uncropped agricultural land” or, more prosaically, farmland that isn’t being farmed. “Much of this is land that would have shown a small profit a few years ago and simply doesn’t now because of the prices being paid,” said Guy Smith, vice-president of the National Farmers Union. It makes more sense for farmers to collect the European Union single farm payment, calculated on land size, than to attempt to make money out of it.
Why does this matter? After all, we live in a globalised world. Clearly we’re supplying our needs from the international markets.
The problem is twofold. First, in the future those international markets will be far less reliable, at least at a price British consumers can stomach. There has been a global explosion of affluence, especially in Asia. At the beginning of this century, 14% of the world’s middle classes were there. By 2050, 68% will be in Asia, and they are insisting on eating as we do, with meat consumption in China alone almost quadrupling over the past three decades. Already Chinese retailers are willing to pay more for ungraded, unpacked apples than British supermarkets will pay for graded and packed.
The simple laws of supply and demand mean that all edible commodities are going to be under pressure. At least if we have access to a robust internal food market we’ll be protected from some of the worst price excesses.
But there is another, more moral issue. The global population is expected to rise from seven billion now to more than nine billion by 2050. The United Nations estimates that by 2030 we will need to be producing 50% more food globally on the same or even less land. What’s more, the latest report from the UN Panel on Climate Change actually predicates a 2% drop in food production. In short, every country needs to do its bit. And we aren’t.
Although we measure food production as a proportion of self-sufficiency, 100% self-sufficiency in the UK is neither an achievable nor desirable goal. Certain countries such as France and the United States may proudly boast that they are more than 100% self-sufficient, but they have far lower population densities than Britain. What’s more, an international trade in food is a valuable mechanism for growth in the developing world.
Even so, this country still has the capacity to get back above the 70% self-sufficiency it achieved 30 years ago. It’s noticeable that the decline, which kicked in through the late 80s and early 90s, corresponds directly with a Thatcherite change in planning laws that allowed for the massive expansion of the supermarket sector into out-of-town megastores and, with it, the wars on price that have forced so many British farmers to give up farming.
Depressingly, questioned a few months ago by MPs on the environment, food and rural affairs select committee about the collapse in our self-sufficiency, farms minister George Eustice said it didn’t trouble him. “If you go back to the 1930s, before the second world war, self-sufficiency at that point was between 30% and 40%,” he said, displaying a lack of historical perspective. Back then we still had an empire. We treated food production in the colonies as our own, to be plundered as we wished. Worryingly, Labour doesn’t appear to be any more across the issue. Last year I attempted to engage with the then opposition frontbench environment and agriculture team. I suggested they should argue that food prices had to rise to enable farmers to invest; they said they couldn’t possibly do that because it would harm their vote.
Perhaps, but not quite as much as will civil disorder as a result of food shortages, were Labour to be elected. Ironically, unlike the Labour party, Tesco chief executive Philip Clarke did actually tell this newspaper, in an interview last year, that food prices would have to rise. It was part of a charm offensive following the horsemeat scandal, during which he also addressed the NFU conference and told farmers that the retailer had changed, would be looking after producers and paying them better. He appeared to recognise his job as custodian of the food supply chain.
But that was before Aldi and Lidl eroded his market share. The problem is that Tesco is now fighting a battle it simply cannot win. The assumption had long been that if you shopped at a discounter such as Aldi or Lidl you were compromising on quality. Consumers now know this isn’t the case. By stocking single lines of products – one type of unbranded chocolate biscuit or ham against the 15 or 20 big-name brands in Tesco or Morrison’s – the discounters have economies of scale that enable them to charge less without eroding quality. What’s more, they are renowned for paying their suppliers a fair price. And it turns out consumers are more than willing to trade choice for price.
Meanwhile, the big four keep trying to add value through choice and service while also competing on price, which simply isn’t possible. The best British farmers can hope for in the short term is that the price they’re being paid won’t go down, though inevitably if a price war is drawn out those costs will be passed on.
That would be disastrous – because if we are going to improve our self-sufficiency, farmers need to be paid enough to invest in our agricultural base. We actually need to pay a little more for our food now to avoid paying much more later. A price war might be good for consumers in the short term. It might offer some sort of relief. In the long term, however, we would all be much the poorer.