As the global food market continues to change, both sides of the farm gate need to be taking collaboration more seriously. Julia Glotz reports
As rallying cries go, 'greater collaboration between the food and farming industries' may not sound like the stuff of revolution but could well be the difference between success and failure in an increasingly volatile global market.
That was the key message at the annual conference of agrifood business consultancy EFFP this week.
Creating better working relationships across the supply chain is, of course, one of those ambitions it is "difficult to disagree with", as one conference delegate put it. But the EFFP event is not the only industry forum to have focused on closer farm-level collaboration of late.
Two weeks ago, Sainsbury's staged its first Farming for the Future conference, inviting 1,000 farmers to presentations on collaboration and relationship-building. And this week Waitrose was holding a Value of Partnership workshop with 200 farmers to discuss issues affecting its supply chain. So what has put relations so firmly on the agenda?
In EFFP's case, it is the belief that the very structure of the global food market has changed to such an extent in the past three years that security of supply and stable prices will be achievable in the future only through a fundamental rethink on both sides of the farmgate.
The industry has undergone a "paradigm shift", as EFFP's Siôn Roberts puts it, and needs new strategies to grow and be competitive.
"We have a supply challenge in the food industry which is of a magnitude that hasn't really been seen in the last century," he says. "If raw material prices are no longer falling, we have to have a real debate about how we develop our supply chain and how the relationship between farmers and food companies operates."
Underpinning EFFP's call for greater collaboration is the notion that the commodity spikes of 2007 and the price rises seen this year are not a temporary blip but here to stay in the long term. Although predictions of double-digit food inflation by Christmas may yet prove to be overstated (EFFP itself thinks 5% or 6% is more realistic), the days of food companies being able to maintain margins by sourcing ever-cheaper raw materials on the world markets are over.
Instead, growth will be driven by "the capture of higher levels of efficiency and competitiveness", particularly in parts of the supply chain where working practices and relationships are still reasonably immature, argues Roberts.
An EFFP analysis of the development of world grain prices (which underpin prices for most other foods, including dairy and meat) shows why 2007 rang in such a momentous change in direction.
During the first 70 years of the 20th century, the real-term price of grain fell significantly until the 'great grain robbery' of 1972, when the Soviet Union bought up large quantities of grain on the world market following a severe drought in the wheat-growing areas of the Black Sea. Grain prices quadrupled as a result, but were soon superseded by high inflation levels, meaning that raw material prices, again, fell in real terms over the next 30 years.
Then came the world food price crisis of 2007, which saw prices jump in the wake of poor harvests and increased demand for agricultural commodities from countries such as China, followed by a further spike this year. But this time, there is no high inflation to mask the price increases. "The last time this happened [in the 1970s], we worried about 30% inflation," explains Roberts. "The real difference this time is that the increases we've seen in raw material prices in the food sector are going to be here to stay for much longer."
This bleak outlook is echoed elsewhere. Only this week, the UNFAO warned its food price index, which tracks the prices of staples such as wheat, corn, rice, oilseeds, dairy products, sugar and meats, had hit a two-year high in October, and predicted further price rises into 2011 and, possibly beyond. Continuing food price rises have also been predicted by The US Department of Agriculture, which expects further hikes on cereal, meat and dairy products until the second quarter of 2011.
Historically, supply chain development has focused on innovation in areas such as branding and packaging. Future "value opportunities" in the food industry are going to be at the "interface" between the food industry and the farming sector, believes Roberts.
To unlock these opportunities, buyers and sellers of agricultural produce need to move from thinking "tactically" about their relationships not wanting to put all of one's eggs in one basket by maintaining links with multiple suppliers, for instance to recognising they are mutually dependent and working on building "strategic" relationships with aligned commercial objectives, he says. "The goal has to be the sharing of information and knowledge, the sharing of risk and the sharing of rewards."
The dedicated supply groups for liquid milk that some supermarkets, such as Tesco, have set up are an example of these kinds of new relationships. Although they do involve a form of price commitment, they also establish ongoing dialogue between farmers and retailers, creating a platform from which to address future issues, such as climate change, collaboratively.
Roberts also cites the example of Warburtons, which is working closely with farmers to ensure it has a reliable supply of the particular variety of wheat it uses. That variety is lower-yielding than standard varieties and therefore would not be grown by farmers were it not for an understanding that their investment will be worthwhile.
"Farmers want confidence they have a market," says Roberts, and strategic partnerships could be just the thing to deliver that.
That is not to say that things will be easy. For every story of a good, productive farm-level relationship there are plenty of less successful examples. Recalling the bruising experience of losing a large pea contract with Birds Eye earlier this year, Richard Hirst, chairman of the Anglian Pea Growers and G's Growers co-operatives, told the conference Birds Eye had terminated the 60-year relationship with his growers in a simple phone call. The co-operative has since taken the step of adding a notice period to its supply arrangements.
Then there is the matter of the Adjudicator, the new body designed to enforce the Groceries Supply Code of Practice. Is recourse to an industry 'referee' going to undermine incentives for the supply chain to work out its issues?
Roberts is not unduly concerned. "The Adjudicator will come in at one extreme end of the market. We're more concerned with the real improvements to relationships that can be made in the middle."
When the need for change will start filtering through to that middle ground of the industry remains to be seen. As the conference drew to an end, one delegate, a grower, said calls for greater farm-level collaboration were "nothing we haven't heard before, but it's nice to talk about it once in a while".
If Roberts and his colleagues at EFFP are right, it looks like the "paradigm shift" in the structure of the industry is going to need to be matched by an equally paradigmatic shift in attitudes.
As rallying cries go, 'greater collaboration between the food and farming industries' may not sound like the stuff of revolution but could well be the difference between success and failure in an increasingly volatile global market.
That was the key message at the annual conference of agrifood business consultancy EFFP this week.
Creating better working relationships across the supply chain is, of course, one of those ambitions it is "difficult to disagree with", as one conference delegate put it. But the EFFP event is not the only industry forum to have focused on closer farm-level collaboration of late.
Two weeks ago, Sainsbury's staged its first Farming for the Future conference, inviting 1,000 farmers to presentations on collaboration and relationship-building. And this week Waitrose was holding a Value of Partnership workshop with 200 farmers to discuss issues affecting its supply chain. So what has put relations so firmly on the agenda?
In EFFP's case, it is the belief that the very structure of the global food market has changed to such an extent in the past three years that security of supply and stable prices will be achievable in the future only through a fundamental rethink on both sides of the farmgate.
The industry has undergone a "paradigm shift", as EFFP's Siôn Roberts puts it, and needs new strategies to grow and be competitive.
"We have a supply challenge in the food industry which is of a magnitude that hasn't really been seen in the last century," he says. "If raw material prices are no longer falling, we have to have a real debate about how we develop our supply chain and how the relationship between farmers and food companies operates."
Underpinning EFFP's call for greater collaboration is the notion that the commodity spikes of 2007 and the price rises seen this year are not a temporary blip but here to stay in the long term. Although predictions of double-digit food inflation by Christmas may yet prove to be overstated (EFFP itself thinks 5% or 6% is more realistic), the days of food companies being able to maintain margins by sourcing ever-cheaper raw materials on the world markets are over.
Instead, growth will be driven by "the capture of higher levels of efficiency and competitiveness", particularly in parts of the supply chain where working practices and relationships are still reasonably immature, argues Roberts.
An EFFP analysis of the development of world grain prices (which underpin prices for most other foods, including dairy and meat) shows why 2007 rang in such a momentous change in direction.
During the first 70 years of the 20th century, the real-term price of grain fell significantly until the 'great grain robbery' of 1972, when the Soviet Union bought up large quantities of grain on the world market following a severe drought in the wheat-growing areas of the Black Sea. Grain prices quadrupled as a result, but were soon superseded by high inflation levels, meaning that raw material prices, again, fell in real terms over the next 30 years.
Then came the world food price crisis of 2007, which saw prices jump in the wake of poor harvests and increased demand for agricultural commodities from countries such as China, followed by a further spike this year. But this time, there is no high inflation to mask the price increases. "The last time this happened [in the 1970s], we worried about 30% inflation," explains Roberts. "The real difference this time is that the increases we've seen in raw material prices in the food sector are going to be here to stay for much longer."
This bleak outlook is echoed elsewhere. Only this week, the UNFAO warned its food price index, which tracks the prices of staples such as wheat, corn, rice, oilseeds, dairy products, sugar and meats, had hit a two-year high in October, and predicted further price rises into 2011 and, possibly beyond. Continuing food price rises have also been predicted by The US Department of Agriculture, which expects further hikes on cereal, meat and dairy products until the second quarter of 2011.
Historically, supply chain development has focused on innovation in areas such as branding and packaging. Future "value opportunities" in the food industry are going to be at the "interface" between the food industry and the farming sector, believes Roberts.
To unlock these opportunities, buyers and sellers of agricultural produce need to move from thinking "tactically" about their relationships not wanting to put all of one's eggs in one basket by maintaining links with multiple suppliers, for instance to recognising they are mutually dependent and working on building "strategic" relationships with aligned commercial objectives, he says. "The goal has to be the sharing of information and knowledge, the sharing of risk and the sharing of rewards."
The dedicated supply groups for liquid milk that some supermarkets, such as Tesco, have set up are an example of these kinds of new relationships. Although they do involve a form of price commitment, they also establish ongoing dialogue between farmers and retailers, creating a platform from which to address future issues, such as climate change, collaboratively.
Roberts also cites the example of Warburtons, which is working closely with farmers to ensure it has a reliable supply of the particular variety of wheat it uses. That variety is lower-yielding than standard varieties and therefore would not be grown by farmers were it not for an understanding that their investment will be worthwhile.
"Farmers want confidence they have a market," says Roberts, and strategic partnerships could be just the thing to deliver that.
That is not to say that things will be easy. For every story of a good, productive farm-level relationship there are plenty of less successful examples. Recalling the bruising experience of losing a large pea contract with Birds Eye earlier this year, Richard Hirst, chairman of the Anglian Pea Growers and G's Growers co-operatives, told the conference Birds Eye had terminated the 60-year relationship with his growers in a simple phone call. The co-operative has since taken the step of adding a notice period to its supply arrangements.
Then there is the matter of the Adjudicator, the new body designed to enforce the Groceries Supply Code of Practice. Is recourse to an industry 'referee' going to undermine incentives for the supply chain to work out its issues?
Roberts is not unduly concerned. "The Adjudicator will come in at one extreme end of the market. We're more concerned with the real improvements to relationships that can be made in the middle."
When the need for change will start filtering through to that middle ground of the industry remains to be seen. As the conference drew to an end, one delegate, a grower, said calls for greater farm-level collaboration were "nothing we haven't heard before, but it's nice to talk about it once in a while".
If Roberts and his colleagues at EFFP are right, it looks like the "paradigm shift" in the structure of the industry is going to need to be matched by an equally paradigmatic shift in attitudes.
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