 So, gyd switched to meeting of 2015 of the Rural Affairs, Climate Change and Environment Committee. Before we move to the first item on the agenda, I'd like to remind everyone present to switch off their mobile phones as they may affect the broadcasting system. However, you may notice some committee members consulting tablets during the meeting. That is because we provide meeting papers in digital format. We have apologies from Dave Thompson today, and we are expecting Angus MacDonald to arrive slightly later. Agenda item 1 is a decision on taking business in private, so the first item today is for members to consider whether to do the draft letter to the Scottish Government on its dairy inquiry should be taken in private at future meetings. Are members agreed? Thank you very much, we are agreed. The second item today is for the committee to take evidence on the dairy industry from stakeholders. We have two panels this morning, both of which will be utilising video conferencing technology. I remind members that because of the technical aspects of the video link, a delay will occur between the members finishing their questions and the witnesses hearing them and responding. Equally, there will be a delay the other way. Because we are using a video link, it is important that no one tries to speak over anyone else. Therefore, members should speak only if I call them to do so and should not try to interrupt a colleague or witness, as that would affect our ability to hear the answers. I refer members to the papers just now, which have circulated. I introduce the first panel, which is Christine Takon, CBE, Grocery Code Adjudicator. Good morning to you. James Courtney, Investigation Manager, Grocery Code Adjudicator, also via video link. We will now hear from the panel with some answers about their role. Christine Takon, you have not conducted any investigations so far, but you are now embarked on a particular investigation at the present time. We are looking at dairy products. Are dairy products part of your interest here at the present time? The investigation that I actually launched today is into Tesco, and it is because I have reasonable suspicion that they have breached the grocery supply code of practice in the area of delaying payments to their suppliers and asking for payments for shelf positioning, but the code is only about the relationships between the direct suppliers and the retailers, so these delays in payment, if I can elaborate, explain that a bit more, is generally where the supplier has given the retailer the goods the retailer pays for them and then deducts from that invoice for various reasons, and the issue that I am looking at is deductions which were not agreed by the supplier for promotions, for maybe in some cases duplicate deductions, and even some deductions without any areas at all. Unless any of those suppliers, direct suppliers are dairy and there are very few dairy farmers that supply retailers directly, then they would not be covered by that investigation. There are some dairy suppliers who supply directly in Scotland and that they are in a charmed set of pool of farmers and that there may well be individual ones, so does your investigation cover the subject of dairy products then? It definitely does. Anything that is invoiced directly from that supplier to the retailer, it definitely covers that, covers dairy products, and I have today issued a call for evidence and there is about an eight week period for people to submit evidence to me on those areas that I have called for evidence on, but they can also let me know if any other retailers are doing the same practices, in which case it may end up having to extend my investigation as well. We are very pleased to hear that, because we will be taking evidence from other supermarkets and have already heard from other than Tesco about this matter regarding our dairy produce and we expect that that might well be the case for you to open up a much wider investigation perhaps than you had thought. The investigation is just on those two areas of delays in payments and on charging for shelf positioning and one area which I really must emphasise, it is nothing to do with price negotiations which I know is one of the issues that you no doubt will be wanting to address. Do you not have any powers in that area as to whether price being paid is fair? I do get involved if there has been a breach of the contract of what has been agreed. You have been in existence as a judicator for about 18 months and for some of us the belief that penalties and so on are something that are important to giving you clout have taken a long time to be agreed. Do you expect to be able to use those powers in order to make this process more transparent? I had to write a recommendation when I came into office as to what I thought the maximum level of penalty should be and only when that has been agreed by Parliament do I then have the power to find. Although the instrument as you probably know has recently been laid and they have gone ahead with my recommendation which is that the maximum penalty should be 1% of the retailer's UK turnover which is a very large sum of money at hundreds of millions of pounds for the largest retailers. But in this particular investigation I've launched today which is only from breaches from when I started to today I will not have the power to find because that statutory instrument hasn't gone through. I have other sanctions but I think I should also say that the sanctions that I've had and not having the power to find has not stopped me working with the retailers having quarterly meetings with them raising issues I'm hearing all the time and I'm also hearing from suppliers that some practices are being improved so I have been making progress because they all know I'm going to get that penalty and it's the ability to have it that was important. The potential for your inquiry to take some time might actually overlap the time that it takes to pass the parliamentary order to put the... Yes, unfortunately the breach needs to have occurred but when the penalty order has been laid and I'm only able to take evidence of breaches up to from when I started up till today. What a pity. Can I introduce my colleague Jim Hume? Thank you and good morning. Thanks very much for coming along. Just a couple points, it would be very interesting firstly to see which sanctions that you can use if there have been breaches at this point before I go on to my main question. I have three sanctions that were laid out in the act of which one was the financial penalties and that is the ultimate sanction. The first one is to have legally... If I find a breach of the code I clearly have to find a clear... establish that first is I can make legally binding recommendations on the retailers I've investigated which will be likely to do with the processes. If I'm looking at the delays in payments it may well be internal processes. They will become legally binding on them and of course having done that I can then do guidance for the rest of the retailers so what I learned from one retailer will actually hopefully spread across others as well. My other... The next sanction is name and shame which it's not called that but you know sort of requiring people to take out the retailer to take out national advertising apologising for what they have done and the retailers have argued very much that their reputation is the most important thing to them and they argued I didn't need the financial penalties they felt this was a big enough sanction. I will have both those recommendations and sanctions and name and shame in my sanctions for this investigation. Well that's great and I'm glad that the UK government has taken up your recommendations of the 1 per cent turnover. You said that you actually do have the powers to look into the dairy sector if there have been issues of breaches of contract there. I just wonder if that has actually happened if any issues have been risen from suppliers or from farmers and if not if you could give some examples if possible of some of the issues that have been raised to you to this date apart from the one you just mentioned. Most of the issues that I've heard on the dairy sector have been from the farming community and their representatives and their trade associations about pricing and that's not an area I can get involved with. Firstly it's about price and secondly they are in the main not direct suppliers to the retailers. I have not heard any issues raised by direct suppliers of retailers. I've not heard anything from direct suppliers to the retailers apart from an area that is in my top five issues that I have been working on for 18 months which is the drop and drive where people particularly in the chilled chain say they will deliver what they believe to be for example 100,000 units to a retailer depot. They get no proof of delivery. They send an invoice for 100,000 and what comes back is an invoice for 100,000 less 20,000 which the retailer said weren't on the lorry and I've been calling that drop and drive they've got no proof of delivery to be able to challenge it and that comes under this heading of delays in payments that I am now currently investigating. That sounds quite well. I will say shocking to be honest if it is allegedly true of course just to say just a couple other things really. No I think that probably covers it all just now. I bring in my colleague Graham Day to ask a supplementary. Good morning. I just wonder the investigation that you've launched today albeit these are allegations there's nothing proven. Do you think there's a potential here that this will perhaps empower suppliers to come to you with complaints about other supermarkets, other retailers? Do you think this might just be the start of a process that broadens out beyond simply one retailer? Firstly I'm not launching an investigation based on allegations. I am launching an investigation based on reasonable suspicion and when Tesco had their profit misstatement a report was commissioned by Deloitte and I asked Deloitte to include looking for breaches of the code when they did that which they did and there were some indications in that report that made me ask Tesco to do a further investigation which they did fully looking into it and they reported back to me and so that report plus what I've been hearing from trade associations and direct suppliers is what has formed my my decision to investigate. Sorry to spell that out but I do have to have reasonable suspicion and for future investigations I think it's a really strong message I need to give to direct suppliers. I do need more than being told something over a dinner. I do need information and evidence in order to trigger these but when I'm in investigation mode which I now am I can require any information I want from from the retailer involved so that will be Tesco and from that information it will indicate to me suppliers that I need information from so I can then legally require that information might be emails might be contracts or even witness statements from those suppliers as well so I've currently when in opening an investigation I go into a call for evidence so now anybody can come to me with evidence but I will myself be going out and legally requiring information to support all this and if in those either of those processes other retailers are implicated and I have again reasonable suspicion to do it it will be expanded hope that answers your question and so this one point I do want to make I have a legal duty to protect the anonymity of all suppliers involved so any evidence that I require legally require I need that but it will never get out to the retailer. Okay thank you. Bring in my colleague Mike Russell. Thank you. Just if I could pick up something you said just now you said that you would be you're now inviting people to come to you with information regarding these matters and you seem to imply that those people who would be direct suppliers of course in our case therefore that would be farmers directly supplying to supermarkets you would also welcome that information you seem to indicate if there were allegations of similar action involving other supermarkets did you say that? I did. Okay yes. So this investigation which you are launching into Tesco is also has a potential to be an investigation if direct suppliers come to you or others come to you an investigation into other supermarkets? Yes on those two areas you know on the delay of payment the things I'm calling for definitely yes it does but and I have to have I would need more than one or two people but yes please yes and I think I do encourage suppliers to talk to me. If we are just I'm sorry to labour this point to be absolutely clear if there are direct suppliers and in our case that would be farmers who are direct suppliers to supermarkets who have allegations in these areas they are open to come to you. Yes but to be honest yes but they are at any time but you know they can always come to me if there are direct supplier and talk about things but this particular yes even more so now. Yes. Thank you. Alec Farrickeson has a somewhat similar point. Good morning Mr Tackin and thank you for joining us. I had an exactly similar point actually but it's just been neatly taken from me but I wonder if I could just explore a slightly different aspect of this relationship of direct milk suppliers with a supermarket which is really in return for the direct supply contracts which tend to give these producers a better rate than the normal market rate that is going. They are expected to meet certain standards of animal welfare for instance a different environmental standards and in some cases shared data on farm performance as part of that contract. Now I was simply wanting to know whether those aspects of a contract would come under your remit as the adjudicator. I think I need to clarify being a direct supplier to a retailer is actually about you're the person that invoices them not that you're in that retailer's milk pool so you know if that supplier supplies to Muller Wiseman then Muller Wiseman are the direct supplier so just to clarify that so make sure you don't not misleading you into thinking that I'm covering any farmer that thinks they're a direct supplier if they're not doing the invoicing themselves then they're not covered by my code but if there were farmers that were doing exactly that that would really be about their contract negotiation and I would be interested if they felt they'd negotiated something with a retailer and the retailer varied those terms without giving proper notice or did it in an unfair way that is the sort of thing I ask people to tell me about generally at all times. That's exactly the point. Sorry I wanted to make another point is that there was I think a misunderstanding in the effort committee that I couldn't take have issues raised to me by indirect suppliers I can take issues from everybody from trade associations from and from indirect suppliers anybody that wants to can give me information if they think there is a breach in the area that I do cover so an indirect supplier can say I think XYZ retailer is putting pressure on my processor and that is coming down to me and I believe that I've got reason to believe that the code has been broken. That is a very useful clarification thank you very much indeed thank you I move on to Sarah Boyack thank you very much good morning we've been made aware through adverts in newspapers which compare the prices that farmers get from milk sold in different supermarkets to the cost of production and the advert said that the cost of production for a four pint carton of milk was 68p and that farmers would get more than that from milk sold in three supermarkets Marks and Spencer Tesco's and Sainsbury's but the farmers would get less than this from milk sold in Morrison's, Asda, Lidl and Alde and Iceland and the details of amounts that farmers would receive from milk sold by waitrose wasn't available we're interested in whether you are aware of evidence some supermarkets are paying suppliers below the cost of production for liquid milk and in that circumstance what recourse would suppliers have to be able to address that issue and to raise it with you? Whilst I've seen the same adverts and I follow the same stories because it's an area of interest to me having come from the foaming community myself in my last job this isn't an area I can get involved with I really have no remit on price the only way I can get involved is if the the milk processor that is supplying is saying that their contract has been varied without notice or that that the code has been breached in some way so I'm I have no remit in that area so what would be what would be the the way for farmers or suppliers to actually raise that issue just through adverts? It's not with me and I would say I know that they're doing a very good publicity campaign on their issue but it's it's not something I can get involved with I'm afraid. So it's just for rival supermarkets to highlight that to members of the public so that we can take a decision based on price quality and where we're buying our milk? I don't think I should be commenting on that but I get my milk delivered to the door and pay a proper price for it and I think more people should try and do that but that's that's nothing to do with my role I'm afraid. Okay I think it's just quite helpful to us to actually raise these issues because I think people don't have any sense of how this works and I think some of us have been really surprised to go into supermarkets or even corner shops and see the incredibly low price of milk and then compare that with the coverage we see in newspapers about the cost of production even with incredibly efficient farms thank you. We follow on with Mike Russell with a substantive question. It is about information rather than complaint and I suspect your direct remit doesn't cover this but I think given your background in terms of the work you did with the co-op you will understand this and it will be helpful for you if you can to comment on it and the issue really is the transparency of information that is available. Dairy Co of course used to publish data on processor and retailer margins for liquid milk but its website actually now says that it can't do so because of the consolidation within the dairy sector and there isn't enough reliable data. Now clearly your decisions on if hypothetically on the question of contractual relationships would be to some extent based on the data that is available to you. Do you believe that there is a lack of transparency in the data in the sector or in any of the sectors that you deal with? You've caught me out, there's not really an area that I can comment on. I really don't know and I'm out of date in terms of dairying. I think I was lost in dairying 12 years ago but I'm sorry it's not relevant to my role and I don't feel I can comment on it. I just don't know enough. I just wondered whether the availability of transport let me put it more widely to see if you have a view on this. The availability of transparent data on costs and prices must influence the decisions that you will reach on whether or not supermarkets are behaving correctly and according to the code. Where do you get that data? My office very clearly is supposed to respond to issues raised to me by the industry and by direct suppliers so I don't proactively go out and do things. I am responding to issues that are raised so I'm not sitting studying data looking for evidence of the code. I'm responding to people telling me that there are problems. But the data that you receive then from supermarkets or others, that's the data on which you would make decisions. You wouldn't proactively seek other data to see whether to be blunt they were telling you the truth or not. I think so certainly on an ongoing basis I am just having suppliers talking to me about things that are happening. I then generally try and push for evidence but generally I'm sort of looking for invoices or paper trails. It's nothing to do with the transparency of pricing data or anything so like in the delays in payments I've asked for copies of invoices where I can see deductions with no accompanying paperwork or where I can see duplicate invoices so the data I'm looking for is particularly on the area where I have anecdotally been told by enough people that there is an issue and therefore I'm asking them to give me evidence because only when I've got that can I then move to a next stage of investigation. So no I'm not looking at market transparency data or that sort of thing to look for breaches of the code. I'd like to look looking to the future could I ask you about your remit and whether you are able to give any views on whether it would be possible for it to be extended. I note that Prime Minister's questions on the 21st of January of this year that Glen Davies MP asked the Prime Minister whether in the light of the current difficulties in the dairy industry the powers of the grocery code adjudicator yourself should be strengthened. In his answer the Prime Minister said that it was time to look at whether the adjudicator's remit could be extended to make sure it looks at more of the dairy industry. I wonder if you are able to express a view on that. Well I think the answer is that I don't think it's appropriate that I do express a view on it but my job is very clearly defined in the act and also the code has been written by the competition and markets authority. What flexibility I do have is that if I come across areas which haven't been covered by the code which I think should be I can make recommendations for the code to be amended that is the only bit of flex I have within my power but they've also made it clear to me that they may have to do their own investigation in order to extend the code so they've asked me to try and work within the code as it stands and a lot of the code I mean for example the one I'm now investigating on no delays in payments you can put a lot of things underneath it but I think that certainly my understanding of most of the issues with the dairy farmers is actually about the price that they're paid not about breach of contract so even if the remit were extended just as the code is it stands I'm not sure it would actually address the issues that they've got. Right thank you and in view of that would you see that it would be possible in view of what you're saying about the recommendations that you're able to make which is an interesting point that I wasn't aware of until you highlighted it which does seem to be quite a strong power in my in my view at first thought would it be possible for you to consider in view of the difficulties being experienced through the supply chain that you might put forward a recommendation about price that you should be able to consider looking at fair price? I'm quite convinced that I wouldn't be able to make a recommendation on that and particularly if I was looking at no delays in payment I might be looking at internal processes that caused it and therefore saying well you should no longer allow buyers to be able to make these changes because that that is causing delays in payments so it would be about specifically addressing that issue that I had investigated so I really don't I think that would be a to wider stretch of what I'm allowed to do and thank you in in relation to the the whole supply chain is there anything that you think might be able to be extended in terms of giving more of a more of a hearing or a hearing indeed to the suppliers to the producers in say in dairy which we're looking at in our investigation? All there is which is not under my area is that there is an EU voluntary code of practice and that is the issue that I'm working on regulating on you know we in the UK have been one of the first in the world to do something about this so I just yesterday had a delegation from southern Ireland who have got regulation and they're trying to learn from what we're doing to see how they can do theirs better as well so these are these are global issues and I was two weeks ago at a workshop in Brussels where they were looking at whether they should be regulating but they do have a voluntary code and their voluntary code is very much drawn up along the lines of ours and it does go the whole way down the supply chain but it requires people signing up to it and there are there's nothing like the sanctions that we've got but there are trade associations that will come and get involved but given that it's measured it's mirrored on our code it is about breach of contract again rather than fair share of price going going to the producer but that that is something that exists I don't hear it talked about very much in the UK but clearly is an an EU initiative and some of our retailers of the retailers themselves I don't know about the producers will have signed up to it. Thank you. Just really looking a little bit deeper into that and I appreciate you you can't look at contracts where the prices might not be fair but they are contracts for two people who have two bodies have agreed which is fine but regarding yourself as the groceries code adjudicator would you see powers being put throughout the supply chain because we've heard yesterday from some supermarkets that well it's not them that make the prices it's the processors that make the prices and and the contracts between the farm and producers would you see powers to yourself be useful so that you could investigate right across the supply chain rather than just those who supply the supermarket directly. I don't think that's for me to decide at the moment you know I have a small team my my my whole office of five people in addition to me of which I'm part time we are totally funded by the retailers so it's a levy on the retailers that pays for our office so I think any extension to that and the way it operates is something that I am assuming will have to have primary legislation so it's it's not an easy move from where I am now because it's very much set up to regulate those those well the 10 retailers with turnover of over a billion looks like we've got a few more that are coming up to that category as well but it might be more than 10 in future but that is all it is. Yes thank you it was put to us yesterday in evidence that when things get tough in a certain sector there's a temptation to head towards the grocery code adjudicator but that to expect the adjudicator i yourself to sort out the problems of the individual dairy farmer would be totally unrealistic is that is that something is that a position you would recognise yeah if that dairy farmer is a direct supplier then I would be interested in hearing from them and we've we freak I think what I've what I've tried to say to people is if you're the only person that raises something with me then that makes it very difficult for me to talk to the retailer because I have a duty to protect your anonymity so in cases where people are coming to me with with a problem where they think there's been a breach of the code I will frequently refer refer them to the groceries um sorry the code compliance officer that each retailer has to have by law and those code compliance officers are not allowed to be in the buying chain of command so they're generally in legal or in audit or they're the company secretary and they know the code is law and if the supplier goes to them with an issue then they tend to resolve it and they actually have to report to me annually on everything that's come to them if they can't agree that it comes to me to arbitrate and when I arbitrate I can award compensation so I think most of the retailers are desperately trying to sort things out before they get to me although I do have two arbitrations running at the moment but I will I'm always there for a direct supplier it doesn't have to be part of an investigation but um if they want to get immediate if they want to get redressed and get it sorted they will have to go to the code compliance officer and get that one sorted the alternative is that I get enough information and launch an investigation but in investigation mode even if I'm at the stage where I can order have penalties there's no compensation involved the penalties go to the treasury can I thank you very much for that can I can I just ask you if you can answer this have you have you ever received a complaint from a direct dairy product supplier indirectly in terms of the what I call the drop and drive earlier on with deductions from invoices for the fact that they were they were not getting paid for everything they thought they'd put on the lorry and that has come to me through I mean it comes through trade associations as well so the provision trade federation is one of the areas and I I really encourage trade associations to engage with their members and bring issues to me because by the time a trade association has mentioned it to me I've clearly not only got a protection of anonymity from people because there is a huge fear of people that it will somehow get out but also I know that it's significant if a trade association has raised it because it will be more than one member thank you very much indeed thank you thank you very much for your answers I just want to go back to a point that we raised at the beginning about your potential to raise investigations at your own initiative could you be clear about that for us I have to have reasonable suspicion to launch an investigation and if I if I don't do that I can be taken to judicial review I can be challenged by the retailer so I'm obviously very careful to make sure I don't do that and that is why a lot of the area I've been working with where I haven't had enough evidence to give me what I would call reasonable suspicion why I've been working collaboratively with the retailers over the last 18 months and I've had my top five issues that we've been looking for progress and worry you know they report back to me every quarter on their progress against those top five one of them has now been sold so I've added a new one to my top five and I know that the retailers that I've been told you know have got issues in these areas because they haven't all are making progress on it sorry who are the top five then right that well the one that I've sold was what I've called the forensic auditing which is when the retailers are using no win no fee auditors to go back this is actually allowed under the contract law to go back six years and they were frequently using any scrap of evidence they were doing very sophisticated software through emails going back six years looking for evidence that the supplier might owe them some money and then whacking them with an invoice for it and in many cases then threatening to deduct it or actually deducting it from payments that would you do under this no delay and payments that I'm currently investigating and I had so many complaints about that that I asked the retailers and said surely you've got systems that should be able to sort this in the current financial year plus two and eight out of ten of them have agreed to do that so I've now taken that off one of my top five but that was a main one where I had a major progress the drop and drive which I was explained earlier was another one forecasting was another many of the retailers will find or issue penalties for short deliveries and I've been challenging them on well what did you forecast because if you forecast four thousand units and they gave a new then asked for six thousand when the order came through and they gave you five thousand nine hundred you cannot you I mean we all know the weather changes and things change but you cannot then find them for that hundred they didn't manage to pull off and I they're now all of the retailers who got a big piece of homework from me on forecasting on what what their figures are and how accurate they are and interestingly I'm hearing from some retailers they haven't even got systems that talk to each other to compare their forecasts to their orders so they're now all doing some work on that another area was demand for lump sums which I hear very very frequently some of them sort of sort of swept up into sort of end of year margin maintenance agreements but or or just sometimes you know we've got a black hole we need to fill we we we need some money and that that's obviously a significant one and then another one that I think people found more annoying rather than being hugely prohibitive is being overcharged for artwork or photography but the retailers were telling them who they had to use and then also then for packaging if you're particularly own label fresh produce um where you would you know you had a preferred supplier list of one who charged the supplier more than they thought they could get it for externally and having dropped the forensics off my top five now I've now introduced the cost of customer complaints where if somebody takes back one one carton of milk and says this milk was off the retailer will generally give you your money back and another carton of milk but they will then trace it through to the supplier and probably charge them 45 pounds for the for the complaint which when we know what they've received for it you can see us a lot so they've got another piece of homework justifying to me what they're all charging for customer complaints and these are the issues I've been working on for the last 18 months haven't needed investigations because I've been getting progress on them haven't needed the penalties but obviously all of those are part of my armory when I need them thank you very much for your evidence some of us are long enough in the tooth to have been around at the time when we gave evidence for the competition commission long long before you ever got this post and it is absolutely major insight for us at this time to see the kind of work that you're doing and we thank you very much for your evidence today we noticed that behind you we've been hearing a lot of blue light activity which has been passing by we just hope it's nothing to do with the grocery code adjudicator thank you very much thank you we'll suspend just now for a few moments to change over the panels hi mr sinkler can you hear us great have you got control of the camera there with thomas is it well we'll reconvene our meeting just now my name is rob Gibson i'm the convener of the rural affairs climate change and environment committee and we welcome to our panel duncan sinkler the agricultural the agriculture manager of waitrose who's on the video link steve mclean the head of agriculture and fisheries and marks and spenders um callum curc the category trading manager the cooperative food um tom hind agriculture director of teskos uh richard john richardson group buying director for all day um james bailey the business unit director for packaged goods and sainsprays and björn nearhouse the senior buying director for leedle good morning to you all gentlemen and remember that we are dealing with the situation where if we're involving duncan sinkler that we have to wait for a while before he replies excuse me so i know that many of you may wish to to answer the questions but we have a limited time and we need to have short answers if it's all possible so we're interested particularly at this stage about what farmgate price you pay for milk and whether you pay this to all farmers or just to those in a select group anyone indicate who wishes to answer that first yes the sound is automatic yes good morning convener and committee um martin spencer's we have a dedicated segregated pool of farmers we work through a national pool structure um and all the milk in our scottish stores both the retail milk um that sold in cartons the milk we sell in our cafes and the milk that we use in hospitality comes from a dedicated segregated pool of producers the price that we pay currently is 34.256 pence per litre and that price is derived through an independent payment model which is reviewed every six months with the producers thank you kalam kerck yes thank you convener committee um we have a dedicated farming group um which is based upon two independent cost of production models and one base market model we currently pay 29.84 pence per litre which is a premium yeah tom hind morning convener and committee in terms of tesco we have a dedicated segregated relationship with over 600 dairy farmers across great britain who supply all the milk for our fresh milk cream and mature and extra mature cheddar um that's a relationship that's been in place since 2007 we currently pay a milk price of around about 32 pence per litre it's a milk price that's calculated on the basis of the cost of production um of the group of producers who supply milk to tesco that price is reviewed every six months okay john runjotson good morning we buy all our milk from grams the family dairy who were here last week uh they pay um their farmers 26 and a half pence per litre thank you james bailey uh we have a saintry's dairy development group 310 farmers 32 of which in scotland we pay 31.6 pence per litre and that is paid to every single farmer regardless of the volume they produce and uh bjorn good morning convener um i buy all my milk through grams dairies the family business in scotland and currently i think they pay 26.5 pence per litre fine grade price thank you uh and uh dunk and sinkler good morning convener and committee um at wait for us we've had a dedicated segregated group in place for 15 years we meet regularly with the steering group uh with uh the hundred-odd dairy farmers that we work with and at the moment on our conventional milk we're paying 33.1 pence a litre very much for that that gives us an idea of the spread of these things just now um price volatility is a problem for dairy farmers can the supermarket say uh what their farm gate prices have been over the past few years how much volatility has there been at your in your own farm gate prices anyone like to start oh it's dangerous um convener uh since we introduced our cost of production model in 2012 we uh if you look at our price versus the market price we believe there's been half the volatility in our milk price versus the UK spot price so we anecdotally we suggest we've halved the volatility for our pool of farmers so is the spot price the measure against which the volatility is measured i think it's the volatility you're probably referring to in this inquiry yes yes it is any any other comments yes Steve McLean um i can i talk about from a from a Scottish context um because our price is linked to cost to production we've actually removed the volatility through market changes but if i look at the average market price since markets and Spencer established its milk pool which was the first retailer to establish the pool we've paid our producers in scotland over £2 million over that period above the average market price during that time so we think that's a fairly significant indication as to how we've removed the volatility from the marketplace anyone else tom hind yeah i think again given that we review our milk price every six months and it's based on the based on the cost of production we've also helped to remove some of the volatility associated with with market pricing over the course of the last few years and give our dairy farmers a greater sense of predictability and certainty that allows them to to make to make investments over that period of time the investment that we would have made relative to the death for a farm gate average milk prices is over 150 over 150 million pounds i don't have the exact figures figures to hand but i think the important thing is in through that relationship and through the approach that we take we've been enabled some of the volatility to be removed but not completely eliminated. Yes, Callum Kerr. Similar to my colleagues, the cooperative group has also removed a lot of the volatility by having an index based upon two cost of production methodologies. At current rates we would be within a Scottish farming base 34 Scottish farmers and we would be adding over and above the market price of over £1.3 million as it currently stands to those 34 farmers. Also of note is that when the farm gate price has been most under pressure from say 2012 it was very evident and I have shared the evidence after this meeting that the cooperative group has increased the premium paid to farmers in more volatile times. Okay, Mike Russell wants to ask a supplementary here my colleague. When we had evidence yesterday from two other supermarkets they were very dismissive about their influence on milk prices indicating essentially that this was all to do with a global phenomenon which they could not influence. You're telling us something very different. You're indicating that whilst there is volatility you are able to smooth that volatility out for the people who supply directly to you. Would that be a correct interpretation? I mean there's some volatility but you have smoothed it out for the people you have a long-term relationship with. Probably an accurate description. I think retailers can make a choice to a choice of how they pay their farmers or what their farmers get paid and so there are several people around this table who have made the choice to pay a cost to production model, different models but a similar idea and that does take control of the price away from the processes and means that you can insert some stability in the pricing. Thank you. Anybody else? Duncan? On this very point our model would be similar to others in the sense that we have a discussion around cost to production and the proportion of money that's needed for investment because one of the things we've experienced is as our business is growing and continues to grow, we need to make sure we're going to have that security supply as we invest in new retail space, new capacity, different mediums of getting to our customers so you know milk is one of these key products and hence that's why you know in our discussions with the farmers it's absolutely essential that we're paying a fair price to the farmers so that they have the confidence to make that investment. Thank you. Anyone else? Yes, Steve McLean? Yeah, I think again if you go back to the reasons that Marks and Spencer established the first aligned retail milk pool it was at the bequest of producers of that time who were seeing increasing volatility and wanted to work with us at that time to try and find a model that reduced it. I think we're certainly very proud of what we've achieved in that period of time and I know that the feedback that we get from producers it's enabled them to have the confidence to invest in their businesses and to innovate and to produce products which are different from the rest of the high street so it's a model that works very well for us. Thank you. We're interested very much in transparency for the farmers and for the customers in the milk supply chain. Is this important to you as retailers and how do you ensure transparency if you have any transparency in this because much of what you're telling us today is news. Tom Hind. In relation to our sustainable dairy group we're very transparent in the sense that the relationship that we have with our dairy farmers is communicated through our website to our customers so there's information about how we work with our dairy farmers. We recently posted a blog from the chairman of the TSDG committee, a Scottish dairy farmer called James Stevens, that explains his relationship with our business and our customers are keen to understand that information as well. I think more broadly from a farming point of view what matters is they understand how the price that they'll receive is going to be calculated and the process that they undergo to receive that is, I think, from a farming point of view is transparent as well. Do customers get to see this website? Is it something that's widely advertised? It's publicly available and we can send details to the committee after this meeting. That's quite interesting. Anyone else on this point? Yes, Calum Kirk. Yeah, absolutely. It's important. We believe in fair value, essentially, from farm to fridge. Similar to my colleague, we remain committed and proud of the role in the co-operative group play in developing a long-term sustainable Scottish dairy agriculture. To that effect—and I can leave a copy with you—we produce a series of commitments and our responsibilities and obligations to that very point. So we feel yes, it's fundamentally important for high levels of visibility and high levels of end-customer awareness. Steve McLean, James Bailey and then a supplementary from Alec Ferguson. To a degree in common with the other retailers in the room here, we genuinely believe about transparent relationships. It's part of our plan A commitments. It's part of our commitment to fair partner. We have a model in which we run monthly continually looking at the cost productions as communicated with all the farmers in our dairy pool. As I've said before, we changed the price six months based on those indices. The farmers know exactly what's coming. More importantly, to the side of that, we have a tripartite arrangement between ourselves, our processor and farmer reps, where we sit down regularly at least once a month, where we go through a number of things, price being one of them, but also the opportunity to innovate and move our milk forward. To James Bailey. Yeah, I would concur. I think transparency is a very important part of this conversation. We take it seriously enough. I think you referred to our advert a couple of weeks ago where we published our own and everyone else's milk price, which is one way of being transparent. But we do think that's about having informed customers and informed customers can make informed choices. So I mean, my only supplementary point would be I would include in that transparency other buyers of milk. So I think by some estimates around a fifth of all the milk bought in liquid milk, bought in Scotland, actually goes through food processes and in fact is purchased by the public sector. So I would extend that transparency suggestion to all sectors that buy milk. Duncan Sinclair before Alec Ferguson asks his supplementary and Crem Day follows. Duncan? Yeah, thanks. You know, we very firmly believe that, you know, the way our system works working with the farmers, we set the price in conjunction with the farmers, not with our processor, because we have that dialogue direct with them and we've got the steering group that we regularly meet with and we have an operational meeting every month so that some of these aspects are reviewed. So it's vitally important on, you know, coming back as others have said, it's vitally important to be able to communicate that to your customer base and in our internal magazine, Waiters Weekend, and over the last few weeks we've had some articles explaining what we are doing to support our dairy farmers and another one will be in this week. So we can send copies of that to the committee. Very helpful indeed. Alec? Ferguson has a question. I apologise, gentlemen, for being a little late to this particular session. No choice in that matter, I'm afraid, but I do apologise. I know that a number of you, and you've already referred to the fact that you have a group of dairy producers who supply directly to you with their own contracts. What I'm keen to find out is what percentage of the particularly liquid milk that you sell comes from that group of dedicated farmers and what percentage comes from other routes. On top of that, just when I came in, you were talking about smoothing out the volatility of prices and I just wonder what extent that refers purely to your direct group of suppliers rather than the others who are trying to compete in this currently oversupplied market. So what percentage of your liquid product comes from your direct suppliers and do your smoothing out initiatives only apply to them? Steve McLean. A really easy answer from me, it's 100%. It's an easy answer for us as well in the sense that all of our own label fresh milk, with the exception of organic, is bought from a Tesco sustainable dairy group and paid at the cost of production price. Pretty simple similar answer. 97% of our fresh liquid milk comes from that pool. It's 97% because we can't cover the seasonal ups and downs of our demand, but it would be if we could. The crop group is a very similar answer. It's well in excess of 90%. So then again, because we commit to take all milk from our farmers, we need to have the flexibility for seasonal spikes in production. But all of our products does come from Graham's say who we partly chose because of the support they show compared to the other processes and the price they pay the farmer, they pay the most. And 100% of the milk that we sell in stores comes from Graham's, and it's all 100% Scottish. Thank you. Bjorn Nurehouse. Equally all the milk that I sell in Scotland comes from Graham's, the family dairy. I know Graham's pay above the farm gate price compared to other processes. All of our milk in Scotland is 100% Scottish as well, and they manage the relationship with their farms, and they've done so for us for 15 years. I've, myself, negotiated with Graham's family for 10 years, with the senior first, with the junior now, and I hope that there's a good relationship with certain years for little. Thank you very much, amendment. And Graham Day has a short supplement. I'm sorry, Waitrose Duncan Sinclair on the point about the pool or what price is paid to all farmers that supply you? That comes from our dedicated groups. I'm sorry, we missed a little bit earlier on at the start of your answer because of technical matter here. Sorry, 100% of our liquid milk and cream comes from the dedicated groups. And in Scotland, while we've only got six branches and we're a relatively new retailer to Scotland, we do have two farms supplying us through Graham's dairies. Graham Day, I would like to ask a question. Yeah, thank you and good morning gentlemen. Just in relation to the reference to the Sainsbury's advert and milk price, the issue of transparency, and where you perceive the public to be on this issue, do you think that the public's choice of where they'll purchase milk from will be influenced by how fairly that retailer treats the supplier, or do they simply want it as cheaply as possible? James Bailey. Well, I think we just wasted a couple of £100,000 on some adverts if we don't. So yes, we hope they do because, as some of the other panellists have said, it's a considerable investment we make and we make that investment because we think having values in your supply chain is important to our customers and to the customers at large, so that's why transparency and exposing those values and making sure that the customers are well informed is important. Calum Kirk and then Steve. While we would like to think that it is a sole decision making process, unfortunately it's not. Undoubtedly it is a contributing factor to where customers will buy milk, but the price of milk, which has been reduced quite significantly in the market, less so within the cooperative group because we believe that we should hold value to a valuable commodity, our biggest selling line. There was evidence to suggest that there was volume lost when we were at first, we were slightly uncompetitive at the early stages of retail price movements. Steve McLean. We think that it is an important part. We think that customers in general do want to ensure that, as a responsible retailer, we are doing the right thing by the people in our supply chain. I think that you do have to then link it to the fact that we're offering a milk that's got 6 per cent less saturated fat, so we're trying to innovate the product to create a different demand for it as well. No further comment. What were they discounting to us? Where are the use set with us? That it is important to consumers on the price that we pay for the milk, but also all the other Scottish products that we sell. However, there are a large number of customers who are financially restrained, and the price of the milk and the price of the products is also very important to them. If the price was higher, that could affect volume. Indeed, the price that we've been selling it at, we've seen huge volume increases over the past five years because of the value of the offer to the customer. There have been five very challenging years, and we've been trying to support the customers through that period. Thank you very much for that. The next question is from Sarah Boyack. Thank you, convener. As you'll be aware, one of the key reasons we wanted to have this series of witness sessions is to look at the issue of volatility and to look at the future and everybody says that in 10 years, the future is going to be absolutely fantastic. The question is how do dairy producers survive? What is a really uncertain time for them? I wanted to ask about to what extent do you support farmers in terms of helping them to be more resilient and to be more efficient. In written evidence, the co-op told us that they didn't want to just look at price and isolation. They had a series of measures in place helping farmers to increase their efficiency and to reduce the cost of production, doing that through professionally-facilitated workshops on farm management and access to low-cost energy and supporting two vet visits to each farm per year. When I asked that question yesterday, it turned out that it's not entirely unique in that other people do different variations on a theme. I was wondering what support different supermarkets supply to the farmers and the groups that produce the milk that you buy? First of all, it is important to recognise that volatility is a fact of life and will remain a fact of life. There are challenges that farmers face in dealing with that, and we can do something about it in terms of our pricing relationship, but we can't do everything around it. The industry has restructured quite significantly over a number of years and probably will continue to do so as well. What we have done in conjunction with our sustainable dairy group is working partnership with our milk processes on Liverpool University on an applied research facility at Liverpool University. It's a working dairy farm where we work with our dairy farmers on a number of joint research projects, primarily focused on animal health and welfare, given that our customers are concerned to ensure that cows are well looked after. The fruits of that research, which are disseminated across our producers, can help them to improve their own business performance. That is an area where we will look to do more in terms of how we work closer with our dairy farmers so that we can have not only a group of farmers who have a strong relationship and partnership with Tesco, but that there are also a group of dairy farmers who are efficient and resilient to the future challenges that lie ahead. Any other members who wish to comment? Not just common to dairy, but we have a fairly well-recognised programme called Farming for the Future, which is about working with our supply chains and looking at how we can work together to improve farm efficiency, environmental impact and ethics, which is about people and about the animals in the supply chain. We have a rolling programme where we have funded a series of indicator farms across the different sectors and we have funded innovation projects on those farms to try and improve the overall efficiency, impact and effect of the farms. As I have said several times too, we do link that to trying to create systems and products that are different from the rest of the high street. That is how we operate, that is what our business model is about and it is something that we are very proud of what we have achieved. Duncan Sinkler, you wish to answer on that. Yes, thanks. Across all our livestock supply chains, we have a range of activity under the banner of the Waitress Farming Partnership. Just a couple of examples that we have got underway. On the dairy group and across all livestock, we have an initiative with Anglia Farmers, which provides the opportunity for all our farmer suppliers to work together to get better, smarter deals on the whole range of farm inputs. On the conventional milk group, that has become compulsory, a decision taken by the farmers and the steering group seeing the merit of that and seeing that as a means of working together, collaborating and getting a better deal for everyone. We have got a £2 million TSB funded project at growing more home-produced protein. We recognise that volatility in feed markets around the world have a big bearing particularly on dairy as well as the monogastric sectors and that setting a target of becoming much more self-sufficient in producing more home-produced protein and reducing reliance on soya, for example. In that project, we have got both an organic and a conventional dairy farm involved as well as three beef and three lamb farms. I think some of the other areas we are adding value is in the area of animal health. Unlike in Scotland, where you have got a comprehensive national BVD eradication programme, across both our dairy groups, we have put in place a BVD eradication scheme which is a three-year project we have put in train and the two farms in Scotland are naturally ahead of the game there because they are part of the national scheme in Scotland. The other area that we are particularly proud of is what we have done at finding solutions for dairy bull calves, an opportunity to add value there where on the herds not under TB restriction we are using these dairy bull calves for production of veal and linking that through to our beef processor so the dairy for the black and white bull calves, they mostly go off for veal production and surplus beef cross calves are moved through a dedicated calf rearing scheme and then reared and then come to us as finished cattle. So a range of options available to our dairy farms in addition to the price we pay for the milk in terms of tried yard value. Thank you. James Bailey. I would probably make a link between sustainability in the future and efficient farming and I think one of the things that has really made an impression on us and our dairy group so far has been when we kicked off the group in 2007 we set up a data sharing system and we pay for vet visits in the same way that lots of other of the people on this table do and for environmental consultant visits to those farms every year we collect lots of data points on herd welfare and environmental measures and what the farmers are able to do by sharing that data anonymously and benchmarking they're able to share best practice and see what's possible on the best farms and what we found actually in our Scottish farms is a rather remarkable improvement in efficiency more than 10, 15, 20% in terms of the yield you're able to achieve from your herd and the cost of production improvements that you're able to achieve just from benchmarking and sharing best practice and it's one of the things if the Scottish Parliament or this inquiry was supportive in it and wanted to support farming in the future it's one of the things we'd really recommend having a more inclusive version of. Thank you very much. A question from Mike Russell. Yes, I think it's fair to say that those farmers who are in the fortunate position of being reasonably proximity to yourselves and supply you directly are probably if I may use this term without being too facetious the cream of the crop. I represent a rural area where first milk is the only processor that is able to collect milk and can tire and bute. The price there is well the prices you've given the very lowest of the prices is about from the first of every eight pence roughly less than the price that you've given. The only hope for many of those farmers is to make sure that the cheese that is produced, for example, is a premium product that sells well in your stores. Now searching, I'm sorry Tom Hine to use this as an example but searching for mull of kintire cheddar in Tesco in Oban last week there was one small container lurking at the back of a dimly lit shelf. We are not they are not getting their product into the supermarkets in the way that they need to and therefore those dairy farmers who might one might argue are very crucial to the survival of parts of rural Scotland are not being well served. What role can you play in promoting Scottish dairy products? Not just cheese, so that is important. Clearly, Graham's has led the way in inspedible butter and that's very important, but there will be other innovations that need to be made too, although there's a remarkable lack of innovation in the small-scale dairy products market in Scotland. What can you do, what are you doing and what would you intend to do to assist in this way? I may answer that question in two parts. Firstly, as a Campbelltown man, I fully affiliate to the region and area and I'm delighted to say that all the Scottish cheese that you will find in co-optive Scottish stores is actually processed and produced in Campbelltown, so that is a significant commitment to the kintire peninsula and those areas. We also have a number of direct relationships with some of our smaller producers in Orkney, Shetland and also where we actively support those brands. In terms of adding value to that particular area of the country, we did have unfortunately removed because it didn't sell particularly well a specific mull of kintire premium product and I would thoroughly recommend the likes of First Milk. Consider more closely, certainly on behalf of the co-optive group, the customer requirements and the customer missions for visiting convenience stores and bring to us and share with us and we will share ideas with First Milk ways in which we can add value through cheese and in particular the area in which we represent. The co-optive group sees many blocks of cheese in a different wrapper, so the co-optive group is looking to add value to support advocacy of such daily producing areas with products that are relevant to today's customer solutions and the reasons why which customers come into a convenience store. Bjorn Nairhouse For making this point, I believe that it is key for Scottish agriculture as a whole to develop new products, to develop added value products and not to only concentrate on fresh milk. There is an oversupply on milk and forms of exporting basically this milk into the rest of the UK or even into Europe needed. I actually listed mull of kintire cheese at little in 2009 when it was still managed by First Milk myself and there are many other products that I think the Scottish industry, food industry needs to look at whether it's ice cream or dairy ice cream, yogurts that need to be developed and so on and so forth, and that would really really help rural Scotland. Stocking those if they were done in the right way and I'm not negotiating with you. No, no, no, no. I'm always happy when I'm being approached by suppliers with good products that are vandible and be branded products or own label products. We sell butter all across the UK, I don't see why that shouldn't come from Scotland necessarily or why only yogurts shouldn't come from Scotland. I think the key for development is to add value to the products, but I think as Robert Junior said last week that needs investment in the industry, in the food processing and that is very important. Tom Hind and then John Richardson. Scotland's got a great story to tell on food and drink. It's well supported by the Scottish Government, well supported by organisations like Scotland Food and Drink, but as my fellow panellists have argued, in terms of the dairy sector, there is something of a challenge about ensuring that the necessary investment takes place in customer-facing products that add more value to raw milk as opposed to all of the investment that has been in fresh liquid milk, which has probably been the case over the course of the past 10 years or so. From our point of view as Tesco, we're really proud of our support for Scottish food and Scottish agriculture. We're Scottish agriculture's biggest customer. We work with 170 suppliers across Scotland, not only to sell products in our Scottish stores, including 80 stores in Scotland selling more of Cintiaire Cheddar, but we're also using our scale as a business to bring more of those products south of the border into the rest of the UK as well. We're also partnering with Scotland Food and Drink on the Scotland year of food and drink this year. That's some of the contribution that we can make to help extending the reach of excellent food products that are produced here in Scotland. We don't stock branded products. We are 100 per cent focused on label products, but we would welcome the opportunity to get more of Cintiaire as a label. Our block cheese is, with the exception of Red Leicester, 100 per cent Scottish. Our block butter is 100 per cent Scottish. On top of all the block cheese being Scottish, we're also, which is from Lockerbie and from Dumfries and Galloway. We stock cheeses from hard and fine cheeses from Coneg and from Orkney, so we have a very extensive range. When we can stock Scottish, we do stock Scottish, and that is across the range. As far as bringing those products to the market, we have tripled the size of our buying department in Scotland in the past two years. Indeed, now more than 30 per cent of our sales come from Scottish-sourced products, which is a very high percentage. Steve McLean, first of all, is a supplementary. To a degree, supporting what our competitors from the table here are saying, for us it's an important point to make that we have long-established partnerships with processors in Scotland across all the different sectors. We take about 2,500 Scottish products into M&S stores, not just in Scotland through our estate worldwide now, looking specifically at dairy products. Unfortunately, we don't deal with Cintiaire, but we have partnerships with a number of really interesting companies that have devised products that are very different. If I look at Dale Farm Round Glen, we have developed active health strawberry yogurt drinks that deliver cholesterol-lowering vanilla drinks and a number of products like that. We have also tried to innovate traditional products, so first milk, we have a range of different cottage cheeses, onion chive, pineapple prawn, all things that add value and make the product very different from typical. We can't, unfortunately, support every dairy farmer much though we would like to. There is a harsh reality as to where the industry sits at the moment through the change in global demand and the issues around some markets having been closed for different reasons. We are fairly fixed and have a very strong view that if we can help the industry become more efficient, become more innovative and market the products better, it will be to the benefit of Scotland. Certainly, from a Marks and Spencer's point of view, we are always looking for new products. We have a policy of ensuring that we have got newness all the time and there is never a closed door if somebody has got the right product for us. Duncan Sinclair, please. As the second son of Kintire given evidence this morning, convener, I am delighted to say that at Waitress we have got Mull of Kintire around 75% of our branches across Great Britain and products like seriously strong Scottish cheddar, we have got that across the entire state. Where we work particularly well with the Scottish industry like others who have made similar contributions is when we have been opening new stores, working very closely with Scottish Food and Drink and meet the buyer events, looking for new products and to support emerging businesses. And 18 months ago when we opened in Stirling, for example, we launched a range of yoghurt from Katie Rogers, a local supplier in that part of the world. And tomorrow we have got a meeting with Scottish Food and Drink and another meet the buyer event because we are shortly going to open a Waitress branch in Glasgow. So looking for that innovation and opportunity to be able to provide openings for some of the innovation taking place in the sector. I take back to Mr Richardson's comment. You said that 100% of all the butter is Scottish. That makes me wonder about evidence that we have taken previously that suggests that 85% of the butter that is being sold in Scotland comes from Denmark. Why is that? Is it a lack of available options? It does sound like there is something out there at a reasonable price. Why are we in a situation where such a large percentage of the spreadable butter that is being sold in Scotland is coming from out with our country? We don't stock the spreadable butter that you are talking about that doesn't come from Scotland. So because we don't stock the brand, we do stock the Graham spreadable butter. So that is our main spreadable butter in the store along with another label variant. James Billy and then Steve McLean. Yeah, I mean, I think in that particular case of spreadable butter it's a quirk of the brands and the brand sort of the most popular brand happens to be a Danish brand at the moment. I think the work that Robert and his team at Graham's are doing on their own brand and the sales they've achieved in Scotland particularly just demonstrate what you can do with a good brand in the right place at the right time. And that's good for us and good for our customers so we'd encourage that. Steve McLean. I think again I might be in a slightly different place than some of our competitors here. We clearly are a known label retailer and our block butter comes from Lockerbie as does our Cherrers in Scotland. Thank you. A further question? Okay, so Jim Hume. Yes, thanks so much and good morning everyone. Last week we heard from one of our people who are giving us evidence that there's anecdotal evidence of a number of practices with supermarkets who are actually requesting payment for shelf space and that some suppliers needed to pay some supermarkets for the right to tender contracts. Of course we've just heard this morning that there's reasonable suspicion that one of the supermarkets here has actually been delaying payments or paying for better positioning of goods, which has nothing to do with promotion. Therefore it would be quite interesting if any of the supermarkets here today have the practice that someone has to pay for contracts and has to pay for actual prominent shelf space outwith being special promotions. First of all, Calum would be a good lead-off on this one. Absolutely not the case for the cooperative group. I can cite the most recent example where we ran a cheese tender. Our G-scop compliance officer was present with all the suppliers at that particular meeting so that all was fair, equitable and within the lines of G-scop. John Richardson and then Tom Hind. We do not charge any additional cost for our suppliers for a number of different things, some of which were mentioned earlier this morning. We do not charge any link for right to tender charge. We never charge any listing fees. We never charge or have overriders or rebates with any of our suppliers. We weren't even aware of forensic auditing until it came out earlier in the news and we have never charged anybody for the positioning of their product. It's our job to sell their product. It's our job to maximise our sales, no-one else's. Tom Hind. I think that you'll appreciate as the grocery's co-dejudicator mentioned earlier today and the announcement that she made this morning. I'm not going to comment on the specifics of an investigation and we're cooperating fully with that and have said that we will do and have worked very closely with the adjudicator. We take the grocery supply chain co-de-practice very seriously. It's important to the way that we do business in building partnerships with our suppliers for the long term. We have a robust compliance process in place. We're always looking at opportunities to strengthen that so that we can uphold both the spirit and the letter of the grocery supply co-de-practice. Bjorn Nairhouse. I can also confirm that we wouldn't delay payments or charge for shelf space. We have direct negotiations with our processors that are fair and square, hard, but certainly without hidden agenda. James Bailey. I mean much like my colleagues here, all of the practices you described would have been mentioned are against the co-de-practice and the same which takes its commitment to the co-de-practice very seriously. Anyone in our business who comes into contact with any of our suppliers at all has to go through a mandatory annual process of training and that training has to be signed off and the register kept so we take that commitment very seriously and so none of those practices we recognise. So we'll have Duncan Sinclair first and then Steve McLean. Like other colleagues, we very much work to the G-scope requirements and wouldn't charge suppliers in this way and like others it's a mandatory requirement that all people in their commercial division, be they buyers or in my role as agricultural manager, we have to undertake and that's that training annually. I'm Steve McLean. G-scope compliant and a bit like Duncan said, we go through regular training, but actually the practice isn't relevant because we're an own brand retailer. It will be interesting to see how the grocery code adjudicator goes on with that, of our first investigations, but bearing in mind that we've already heard that you're very much all saying that you want to ensure that the farmer gets a fair price for his liquid milk, but of course a lot of it's not all liquid milk, it's cheeses, yogurts etc. So how do the supermarkets ensure that the farmer who's providing liquid milk into the processors is getting a fair price for their milk? Or is that something you don't follow up? James Bailey. Well we do have development groups in other dairy supply chains so we have a cheese development group, we also have an egg development group, we have development groups across lots of different agricultural sectors and we support that group of about 80 farmers with farm investment in the form of milk recording, vet visits and agricultural support. I think in practical terms where milk is a relatively simple product, there is only one ingredient essentially, you take it off the farm, you process it, you send it to a shop with more complicated, more complex production processes, I think it would be the problems we've always run into when we consider different ways of working with those farmers is that the complexity of the production means it's very difficult to disaggregate the cost of one ingredient versus the others and if you do start talking about trying to regulate the cost of one ingredient, you'd have to start thinking about the cost of the efficiency of the production process itself, you'd have to start factoring in things like the cost of the packaging and understand if that was included in this calculation so it becomes very very difficult to come up with actually a fair and transparent process to do it. Alec Ferguson's supplementary. Yes thank you on this on this subject. Yesterday we were told in evidence by a retailer that while they wouldn't dream of charging in any of the ways that we've just been discussing some particularly larger supply suppliers came with I think the expression used was a support package to help promoting that product and I'm promoting that product presumably means acquiring premium shelf space and whatever and I just wonder if that's a situation that any of you recognise. John. Not at Ali, we aren't aware of any any suppliers coming with us with a package and we would always only want a very straightforward, transparent price for the product and that would be the end of the discussion. No further comment, no. Steve McLean. Plied a one particular retailer, is that what you're telling us? Sorry for my right to spend it. Again because we're a known brand retailer it's a very different playing field. I can see the difference absolutely, yeah. No I just find it interesting, thank you for your silence I think. Okay all right with you Jim, right. As you know we've been taking evidence from the grocery code adjudicator. From the point of view of supermarkets what impact has the establishment of the grocery code adjudicator had on your operations in recent years? Bjorn? When the grocery code adjudicator was introduced I actually only noticed what other methods that were being used. It just didn't have any impact on our very straightforward dealing with the suppliers because I didn't know about the mechanisms that seem to have been prevalent or available on the market. Again I do prefer straightforward negotiation and clear settlement rather than strange paybacks. Okay Tom Hind. I think as I said before we have a very strong collaborative relationship with the grocery code adjudicator. We meet with the code adjudicator regularly and we think it's important to have that relationship and to work cooperatively with the adjudicator. Thank you very much. How, you know, the effort committee has suggested that there might be an extension in the role of the grocery code adjudicator. How do you think that that would affect you and how you source your dairy products including liquid milk? Steve McLean? I think on the liquid milk one. I wouldn't see any change we would believe we're doing the right thing anyway. I think when you do go further down the chain it would be interesting to understand the complexity and how that would actually pan out but I think the principle of what that potentially could do would seem logical. I just need to understand how it would actually work and what the mechanisms of it would be. We're all at that stage at the moment but since you're the people most affected it would be very interesting to get points of view. James Spearley? We go further down the line of I'm not sure how it would work in practice. We'd have to be involved somehow in the contracting process of our first tier suppliers with everyone else that they contract with so as I said before in liquid milk that is less complicated but you also have the voluntary code of practice in place which deals with most of the contract and the terms of contract that you would, the preferential terms of contract you would want in a dairy, a farmer and processor relationship and I'm not sure extending the grocery code of practice to that layer would make a great deal of difference to it as the adjudicator said the code of practice doesn't have any remit in terms of price and that's actually the more sort of prevalent issue for a lot of the dairy farmers at the moment so in terms of practicality and the effect it could have I'm not sure it would do any good. We're going to bring in Duncan Sinkler and then a supplementary from Mike Russell. Duncan? Yeah I mean we've always always been very supportive of the establishment of the GCA from the outset and you know if there are any proposals to extend that's something that we would be keen to review as a business but we would be very comfortable and confident that the way we're we're what we're supply base then it wouldn't pose any major issue that we could foresee it as we stand today. Okay thank you. Mike Russell? I think the focus of this inquiry is the dairy industry it doesn't go any wider than that but you know we we heard from the grocery code adjudicator this morning in a series of her top five issues which I have to say having led a sheltered life made my hair curl the the accusations that we should make about things we're handling can we just clear this off in terms of the dairy industry you are all saying quite clearly as far as I understand it that you do not recognise any of those practices as things that are affecting the dairy industry and the dairy market as it exists now. Steve McLean? I mean I have to say as as the adjudicator laid them out they were new to me some of them as well certainly having you know heard them laid out like that I don't believe the practices that we're aware of at all in our supply chains. Bjorn Nairhouse? These practices are new to me and certainly don't reflect the way we at little do business. James Bailey? Yeah I mean I'd referred to the other answer there against the code of practice so we go to strenuous efforts not to breach that code of practice so they're not they're not practices we'd recognise and milk is a fast-moving product we have a daily relationship with our processes and so that some of those some of the things in terms of delaying payments just almost can't exist because of the way the process works. Does Tom Hine wish to make any comment? I'm not in a position to comment given my area given my area of the business I think the adjudicator indicated earlier that she's been working collaboratively with with a number of retailers to to work on how issues that she's identified wherever they may be can be addressed. Duncan Sinclair? I'm sorry I wasn't aware of the five points that was made by the adjudicator earlier so if that could be shared with us we could come back to the committee directly we all thought. Thank you we will send you those on the official report they're obviously got longer term implications did Mike Russell have further? I'm quite happy they were new to me too I'd only read about them and seen them in films like The Godfather I think really. Claudia Beamish some wider matters. Thank you convener good morning to you all I'd like to turn our minds to possible government intervention at a whole range of levels and in written and oral evidence a range of actions have been suggested at Scottish UK and EU level and such as addressing planning problems facing investment in processing, promoting export and possibly home market opportunities and reducing or altering the EU intervention price for milk. Would any of the witnesses giving evidence today want to see particular actions taken by Scottish or UK government or at a UK level specifically in terms of this inquiry to address current issues in the dairy sector and if so what would those be? Tom Hind. Focussed on delivering for our customers so these are really matters for government but in the past we have talked about the importance of ensuring that there is a there is an effective kind of national food plan that helps to ensure that the whole UK agri food industry can improve its capability and capacity to produce more affordable food more sustainably to supply customers in the long term that's a real challenge it probably encompasses a number of different areas but as far as we're concerned we're really really focused on delivering great quality products to our customers. Thank you convener you say that it's about delivering for your customers where do your responsibilities lie further down the supply chain then can you highlight that for us please from your perspective? I think it's really important that we have long term sustainable partnerships with our suppliers and the part of the the Tesco business that I'm involved in in terms of agriculture is about how do we strengthen those relationships and take them further back to farmers because we recognise what it matters to our customers they want to ensure that we're trading and working responsibly as a retailer but also we're very mindful that if we want to secure supply from the best farmers the most invested farmers the ones who are most innovative and dynamic then we have to build stronger relationships with them and move towards a partnership model. Thank you. I'd probably pick on a couple of potential things that the government could do I would refer you back to Robert's evidence last week in terms of planning and investment in the dairy sector I think you have some fantastic Scottish dairy brands but also Scottish food brands who are incredibly successful and they're well invested businesses anything I guess you can do to support the next generation in getting through to that mid size and large size would be of benefit I think in terms of you know I'll probably come back to the subject of transparency and information so anything the government can do to improve the transparency of customer information so you have informed customers making informed choices would would I think give the customers a chance to vote with their wallet which is the one thing that tends to move the market the fastest and you know one obvious example I would raise would be the idea that if you're going to call something Scottish or put a Scottish flag on it that product should have started and finished in Scotland rather than just finished in Scotland so at the moment the rules are relatively relaxed saying to restake the position that we wouldn't put the word Scottish or the flag on anything that was sourced external Scotland but packaged or finally produced in Scotland I think if you tighten the rules and said that it had to start and finish in Scotland to be called Scottish or have a Scottish flag on it that would help inform customers and help them support the industry did we know through qms and so on the kind of work that's been done in that direction with regard to beef etc but it's quite a difficult area to bring about several people want to come in in this I'm trying to keep the answer short please Duncan first of all please Duncan Sinclair yeah I mean the focus for us is very much about working with with the farmers and our supply base and as we continue to grow provide an opportunity through that with that way so that very much is our internal internal focus I think at at farm level planning particularly in relation to adding new capacity as farms seek to capitalise on growing their business in tandem with us is becoming more challenging so that's maybe an area that's worth looking at as well as some of the tax breaks that might be available in terms of some of the investment as well thank you very much we've done a major round of activities one more here Callum yes sorry on this question thank you there was there was two points I noted and it would be interesting to see the minister's progress in terms of labelling and like my learned colleague here the progress that could be made in terms of how and how we serve our customers and what that advocacy actually stands for both at a national ie Scottish and then perhaps more local level as well and we welcome any opportunities of feedback from the minister and progress to that secondly we see as a privilege to serve our Scottish customer in the cooperative group and it would be most interesting to see the developments around the Scottish brand that was made reference to over the last couple of sessions and how that will articulate itself and in particular to a Scottish convenience customer for the business that I represent thank you very much generally we've been pursuing many of the issues around the problems that there are for the dairy industry at the moment we'd like to try and finish in a note where we're thinking about the future some of you have made some hints about that already and we've got a couple of points here from members that they wish to raise Graham Day thank you very much as a committee in the context of this inquiry looking at how the dairy sector perhaps better positions itself for the future by focusing on the production of more than just liquid milk by adding some value I'm wondering what from your perspective it possibly exists as barriers to your better promoting Scottish dairy produce when we asked that question to some of your colleagues yesterday one of them suggested that there was a growth in the market for salad cheeses and yet there was no domestic source of this so are there any other areas you feel that we're coming up short in Scotland and we should be looking to address John Richardson so you're talking particularly about dairy within dairy we find it very challenging to source Scottish yoghurt so we have yoghurt from Newton Stuart which actually is branded in this instance because we cannot find own label yoghurt and we have in the past had a relationship with the Katie Rogers product which was mentioned earlier as well which we did have our own label but yeah we would welcome as many opportunities as possible to source Scottish yoghurt okay Steve McLean I think if I was looking across raw material coming out of Scotland and I made that point earlier about the fact that we massively overbuy out of Scotland in raw material and we buy about £300 million worth of product a year that goes globally it does that because it's the right quality and because it hits the requirements and expectations of our customer and I think doing anything that we can around adding value and innovating product so you've got a point of difference is absolutely down our street in terms of being able to further increase our buy out of Scotland if I may we like my quality to my right also disproportionately take Scottish products into the wider chain 18% of our milk is Scottish only 10% is consumed within Scotland the point I would like to make is for myself it's not merely the innovation in product it's innovation in thinking and innovation in marketing and that's why in my last comment I made reference to the Scottish brand and I await eagerly to understand the opportunities that have been identified in not merely producing but helping us to sell Scottish products to our Scottish customers. Tom Hine I'd echo the remarks of my competitors but I also believe it's important to reflect on the position of the industry and the farming industry as well although now is a very difficult time for a lot of dairy farmers given the severe decline in milk price that they've experienced and the volatility of all of that. We should remember that the British dairy industry and the Scottish dairy industry as part of that has some of the best most well-invested most efficient dairy farmers in the European Union but it is important that it maintains its competitive advantage in the long term and that's about making sure that we do as an industry benchmark ourselves against our other competitors elsewhere in the European Union find opportunities to become more efficient and more innovative in the future and as well as creating the market opportunities that allow dairy farmers to put raw materials onto the market that can be processed efficiently and enter markets efficiently and competitively. Duncan Sinclair I think in this whole area I think that the area of innovation is important certainly for within our business the whole area of life-stage nutrition and where dairy products might have an important role is one area that we are carefully looking at at the moment so you know not a great deal we can say at this point in time but certainly the opportunity there in terms of looking at dairy products, dairy ingredients on what that could mean is could be an area we would like to explore. Ferguson would like a supplementary. Yes thank you and it very much follows on from this point because I think one thing has become totally clear to all of us if we didn't know it already is that there remains enormous potential for us here in Scotland to add value to the basic milk product that we produce so well. I was struck by I think it was Callum Kirk who said in relation to the first milk situation in in Mike Russell's constituency that you were you were keen and willing to work with the creamer at Campbellton to help them produce a product that you would be able to sell more readily if I could put it that way and I just struck me I just wonder how much work you do proactively in going to processors and say look bring us this product and we can sell it or do you sort of wait for the product to be brought to you and say well it's not the one we want or something. I just wonder how much proactive relationship there is between you guys and the processors. Callum Kirk has a smaller in size of store convenience retailer. It's incredibly important that we have a point of differentiation to some of my competitors around the table. Hence why personally and professionally within the dairy team at the co-operative group we are incredibly keen to work with producers to find new ideas, new innovations and to bring them to market. If that means that we need to over invest time and efforts to do so then so be it because we feel that it's absolutely a role to do so. We welcome that opportunity and I would reiterate that we offer to work with any processors including our colleagues in Contira in bringing bringing innovation to the market. It's a very very important part of having a long-term sustainable relationship with our dairy producers and our dairy farmers. Tom Hind. It's very much a two-way street. We actively seek and encourage our suppliers to come to us with great quality, fantastic, innovative but also product products that will sell and are of consistent quality. It is very much a partnership. We can offer the insight into our customers, what they think, what they're looking for and we can work with our suppliers to ensure that the products that they're able to offer are the ones that we think will sell to our customers but it is really about a partnership. John Richardson. We have a Scottish Bind Department which is 100 per cent dedicated to sourcing the Scottish products. They are completely decoupled from the rest of the range. Their remit is to grow the Scottish range so that we can absolutely maximise the number of Scottish products in our store. Every week they are out visiting existing suppliers and new suppliers, searching for new products that we can put into store going forward. We are very focused on that and not distracted by anything else. Steve McLean. We need to be very brief. Hopefully no great surprise but innovation is the hard blood of our business. If you look at our category teams, a third of the waiting in those teams is about new product development and developers but it is a joint process. We've got a number of suppliers with relationships over 50 years so it's a joint process. James Bailey. I mean, like you, the comments were always looking for new, innovative, good selling products. That's basically our job. It does happen in two ways. Often suppliers come to us with new ideas and often in our conversations we talk about things that we can't get. In my experience and in my Scottish buying teams experience, Scottish suppliers are innovative and proactive, shall we say, in bringing their ideas to us. At the cutting edge, I guess, because I represent far north of Scotland, we've managed to have 10 fine cheeses to save a couple of dairy farms there by taking that for their excellent product that some of you sell. It's been suggested to me that sheep milk might be the next development that people start to think about since we have plenty sheep in the far north and it might be an innovative way of using them. Why go for rock for when you could have sheep milk cheese? We wanted to try and get as wide a view from all of you as possible. I'd like to thank you for your evidence. This inquiry is a short one but we have learned a huge amount from you about the role of retailers and we will be considering those now. Thank you all for being our witnesses today. This brings me to the end of the meeting. Before we close, I'd like to point out that next time we meet, we'll be dealing with the Community Empowerment Scotland Bill at stage 2 and hearing oral evidence on the Scottish Government's wild fisheries review. I close the meeting now.