☛ Want the latest procurement and supply chain news delivered straight to your inbox? Sign up for the Supply Management Daily
4 July 2012 | David McAlonan
The British pig meat supply chain is fragmented, adversarial and disorganised, a group of academics have said.
The Centre for Research on Socio-Cultural Change at the University of Manchester has published a report, Bringing Home the Bacon: from trader mentalities to industrial policy, which claims the pig meat supply chain is going through a “prolonged and unresolved crisis” in the UK due to lower production and behaviour of supermarkets.
The report states that the dominant ‘big three’ supermarket retailers – Tesco, Asda and Sainsbury’s – have a “trader mentality” that seeks to extract value from smaller suppliers using methods such as short-term imposition of terms and demands for rebates. This has delivered “shareholder value and low prices for consumers”, but has also discouraged long-term investment by domestic producers. None of the three supermarkets responded to SM’s request for a comment on their practices.
The academics recommended the pig industry adopt a model of vertical integration that is found in Denmark and the Netherlands and that is practised by retail chain Morrisons so as to increase profit margins, reduce transaction costs and better control quality. The academics also called on the government to:
- • Encourage vertical integration between supermarkets and pig farmers through the use of targeted tax breaks;
• Support horizontal mergers to create fewer and larger producer cooperatives; and
• Increase the powers of the Grocery Code Adjudicator to enforce formal contracts and minimum contract lengths.
“The agenda of vertical and horizontal integration and new business models represents something close to a win-win proposal,” the report said. “If stakeholder interests are aligned and this leads to increased economic efficiency, supermarkets will make substantial gains from integration, consumers will benefit and processors will enjoy more stable and prosperous business conditions.”
The study suggested the decline in UK production of pig meat during much of the 2000s was partly due to stricter animal welfare laws, a strong pound and outbreaks of animal diseases.
Official figures published by the government showed UK pig meat production was 759,200 thousand tonnes in 2011 – an increase of 7 per cent on the previous year and the highest level since 2002. But output remained 33 per cent lower than the peak of 1.1 million tonnes in 1998.