Supporting our farmers and suppliers
13 May 2022
Our farmers and suppliers have always played a vital role in our business. Our partnership approach means developing long-term relationships with our suppliers and farmers so we can grow our businesses together and continue to provide our customers with the quality products and value they expect from Tesco.
We are all too aware of the current challenges facing the food industry, especially when it comes to the supply chain disruption being experienced across all food production sectors. The war in Ukraine is contributing to pressure on the cost of fuel, fertiliser, feed and some food commodities. We know too that these challenges could increase in the years to come as the effects of climate change become more apparent.
Over the last decade and more we’ve worked with our suppliers and farmers to put in place ways of working that can help to protect our supply chains from the headwinds we’re currently experiencing. Crucially, these initiatives also promote and maintain high production standards across our supply chains – and whenever we do import food from outside the UK, we do so to UK standards.
These initiatives and ways of working will not eliminate risk completely and we are talking to our suppliers continuously about what more we can do to help farmers through this difficult time. Our aim remains the same – to build confidence in the short-term so that our supplier partners can invest and plan for the future, especially when it comes to sustainability and innovation. These are two key ingredients for long-term growth in the food sector.
We’ve taken the following steps to increase our support for our supply partners during this challenging time for the food industry:
- Tesco Sustainable Dairy Group (TSDG) - All of our fresh milk is sourced from the 520 dairy farmers that make up our Tesco Sustainable Dairy Group. The TSDG ensures the price we pay our farmers for milk takes into account inputs such as feed, fuel and fertiliser, resulting in an independently set fair price, which is reflective of the cost of production. We’ve invested more than £300m over the market price for milk since the initiative launched in 2007. In March this year, we announced a near 20% rise in the price we pay our dairy farmers to help them overcome challenging market conditions. The Group includes market leading standards on animal welfare and sustainability.
- Poultry & Eggs – All our fresh chicken and eggs come from British farms. Feed represents over 70% of their cost of production, so we’ve set up a fair and transparent feed cost model for our own brand egg and poultry suppliers which adjusts to price changes in the market and provides suppliers with the protection and security they need when buying feed.
- Support for the pig industry – We know the pig industry is facing into challenges at the moment. We fully recognise the seriousness of the situation and we’re working closely with our suppliers to understand what more we can do to support the sector. Through the buying models we already have in place, our suppliers have increased payments to farmers by £3.4million since March 2022. We will do more and are actively working with our suppliers on a further enhanced payment plan to support farmers in the short term.
- Finest Pork cost of production model – Our pork cost of production model is reviewed on a quarterly basis based on feed price changes. All of our Finest pork is sourced from around 100 farms, is RSPCA Assured and goes into our Finest Bacon, Gammon and Pork ranges.
- Tesco Sustainable Lamb Group (TSLG) – Established in 2016,our 120 Lamb Group farmers benefit from an above market price for their lamb, with tools offered to help farmers measure their farm’s carbon footprint, to reduce on-farm emissions and improve sustainability.
- Tesco Sustainable Beef Group (TSBG) - Our integrated beef model offers a bonus to farmers supplying beef into our Finest product range when they meet specified criteria. The scheme continues to evolve with a focus on capturing a baseline carbon footprint and further integration with our TSDG supply chain.
- Tesco Sustainable Potato Group (TSPG) – In partnership with our potato supplier Branston, we have two-year contracts in place with 130 potato farmers, creating the opportunity for the best growers to have a direct contractual relationship with Tesco, while sharing best practice, and developing and scaling innovation.
- Tesco Sustainable Cheese Group (TSCG) - we’ve introduced a milk tracker model where we pay more than the published milk price across 6 of our creameries. This provides our UK farms with the security and ability to plan ahead for the future, while meeting high animal welfare and food quality standards.
- Produce –Many of our produce suppliers benefit from long-term contracts which include agreed sales volumes, and pre-planting and costs agreed in advance. This ensures our suppliers are given the confidence to plant the amount required for the next season. For example, Stourgarden (our onion grower) and Kettle and Huntapac (our carrot growers).
- Own brand bread – We jointly risk manage all the wheat that goes into our own brand bread with our supplier Fine Lady Bakery. This means we reduce the volatility in our prices for customers, remove the inflationary risk for our supplier, and protect security of supply.
- Improved payment terms for small suppliers - Since the beginning of the pandemic, smaller suppliers have been amongst the hardest hit in the food industry. We extended our improved payment terms for all smaller suppliers, with 2,000 suppliers continuing to have their invoices paid immediately, instead of the usual 14 days.