Farmers Not Able To Subsidise Tesco's Cost Cutting

UK - In response to Tesco's milk price increase for farmers and a decrease in price for customers, the National Beef Association (NBA) says that UK farmers are not in a position to subsidise Tesco's in-store cost-cutting promotions.
calendar icon 28 September 2011
clock icon 3 minute read

The recent increase in prices paid to beef farmers does not mean they are in a position to accept the invitation of Richard Brasher, Tesco UK chief executive, to ‘come to the table’ and discuss sharing the financial impact of offering consumers cut-price in-store promotions.

The NBA says UK farmers are battling with increasing costs and that the recent upturn in prices for prime beef animals has been virtually in parallel with the continuing rise of feed, fuel and other inputs. Therefore, margins remain unchanged and, in general, the majority of beef producers continue to only break even, not having the means to reinvest in their businesses, let alone subsidise Tesco’s latest cost cutting measures.

The Association says it welcomes the increased prices paid by Tesco-contracted processors and also applauds Tesco’s continuing support of British beef, particularly through its development of innovative cuts and recent steps to sell new ‘flat iron’ steaks. However, it cannot support this current pressure on producers and asks the retailer to acknowledge the hard work carried out by UK farmers to provide Tesco with the very best suckler-bred beef and meet world class standards for quality, health, welfare and traceability.

Kim Haywood, NBA Director, says: “Tesco is a multimillion pound business and must accommodate its cost cutting concepts without jeopardising the future of the British suckler herd. It must provide a decent income to farmers so they can continue to invest in their businesses and produce top quality beef animals in an efficient and cost-effective manner."

“Tesco has thousands of product lines and can spread the cost of in-store red meat promotions throughout its business portfolio. Farmers specialise in meat production, which means they are exceptionally good at what they do but have not got the same option of offsetting costs against other enterprises."

“If Mr Brasher is trying to make his mark as the new Tesco chief executive, I urge him to realise this is not the way to do it. He must realise the precarious situation of the UK suckler herd, that there are zero margins behind the farm gate and that farmers simply do not have the money to contribute to his current plan.”

Acknowledging that Tesco may be reacting to fear that rising beef prices will deter customers from buying beef products, Ms Haywood points to recent figures showing an actual increase in retail sales over the summer months. She says there is no proof that consumers are turning to other protein sources amid concerns beef has become too expensive.

In fact, the latest figures from Kantar’s Household Purchase Data show a six per cent increase in beef sales in the 12 weeks to 7 August 2011, compared to the same period in 2010. The increase included a nine per cent increase in mince and 30 per cent in stewing steaks, while in the four weeks to 7 August all cuts except roasting joints increased in volume.

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