On satisfied consumers The role of supermarkets Publication of the Dutch Food Retail Association Centraal Bureau Levensmiddelenhandel (CBL) centraal bureau levensmiddelenhandel 4 Introduction 5 Dear reader, dear consumer, Supermarket shoppers can have more than 10,000 products to choose from to fill their shopping cart. Naturally these products do not end up on the supermarket shelves by themselves. Each product goes through various links in the chain of production, processing and distribution, before it ultimately ends up on the consumer’s dinner table via the supermarket. For the supermarket industry, the chain starts with the consumer. In a simplified form the food supply chain looks as follows: first the consumer, then the supermarket, wholesaler and the manufacturers and finally the agriculture and horticulture sectors and their suppliers. All links need each other in the food chain. Cooperation is essential in areas such as food safety, sustainability and efficiency in the chain. At the same time, all parties compete with each other to be the consumer’s choice. This competition is fierce, but it is not just about price. Taste, how a product is produced, professionalism of employees, image and other quality aspects are also important. As stated, in any discussion on the food chain, the consumer is the focal point for supermarkets. Consumers weigh up all options and ultimately decide over the entire chain. When purchasing they sometimes vote with their feet, sometimes with their head and sometimes with their heart. And all of this within an average of 7 seconds when standing in front of the shelf. In this brochure the Dutch Food Retail Association (Centraal Bureau Levensmiddelenhandel, CBL) presents the view of the Dutch supermarkets on the working of the food chain. Controversial subjects such as purchasing power and price forming are not avoided. Our message is intended, in particular, for national and European politicians and policymakers. Nevertheless, we hope that many consumers, farmers, producers and wholesalers will understand the importance of the points we make. Leidschendam, the Netherlands, April 2010 Dick Boer Chairman of the CBL 6 1) Core data of the Netherlands supermarket sector 7 Out of every euro spent on food products, the Dutch consumer spends an average of 77 euro cents in the supermarket. The Netherlands has over 4,300 supermarkets, divided among approx. 25 chains. Collectively, they provide employment to over 223,000 employees (full-time and part- time). In 2009 the Dutch supermarkets realised a turnover of approx. 32 billion euros. Of the expenditure in the supermarkets on food, traditionally the expenditure on meat, beverages, potatoes, vegetables and fruit and dairy are the highest. A clear trend is that consumers are increasingly buying supermarkets’ own brands instead of industrial brands. This trend is reinforced because the quality of own brands now equals that of the industrial brands and, moreover, they are priced much more favourably. There are also more and more non-food products in supermarkets. The Netherlands has a high supermarket density. We are in the fortunate circumstance that, on average, we can do our shopping at a distance of 9 minutes. Half of Dutch citizens still do their shopping on bicycle or on foot. This is of great importance for the liveability of neighbourhoods and villages. In addition, the size of shops and product ranges are, on average, increasing. 2) Supermarkets work with narrow margins 8 The food retail trade is characterised by relatively low margins. According to the Research Agency for Business and Policy, EIM, Dutch supermarkets realise an operating result of only 2% on average. It is relevant that operating result is not a net profit. In order to determine the net profit, interest payments and taxes have to be deducted from the operating result. The net profit is thus even lower than the operating result. It is clear, therefore, that supermarkets have modest margins. This is an important indicator that the Dutch market is very competitive in the sale of food products. This conclusion is also drawn by the Central Planning Bureau (CPB) in a study published in 2008 into the working of the Dutch supermarket sector. The CPB established that: ‘In the period 1993-2005 there has been a further concentration among supermarkets in the Netherlands. Other than might have been expected, this did not lead to higher profit margins for the supermarkets. On the contrary: there has only been greater competition between supermarkets, particularly as consumers are more price conscious when they shop and are thus more likely to go to a competitor when they find a supermarket too expensive.’ In a study published in December 2009, the Netherlands Competition Authority (Nederlandse Mededingingsautoriteit; NMa) looks into the concentration in the supermarket sector. The Netherlands competition watchdog reviewed price forming over the period 2005-2008 in the chain of eight food products: apples, potatoes, bread, eggs, cucumbers, bell peppers, uncut and cut onions. The NMa concluded that: ‘There are no indications that the supermarket sector has a dominant role in price forming in the agri-food sector. In general, supermarkets cannot permanently improve their margin as price increases at consumer level go together with price increases at the wholesaler’s. Over the period 2005-2008 supermarkets were not able to unilaterally profitably increase the prices of the reviewed products at the expense of the producer and the consumer.’ With this the NMa negates the often heard claim that supermarkets achieve a relatively high profit margin at the expense of the producer, i.e. the farmers and growers. NMa director Kalbfleisch said in the Agricultural Daily (Het Agrarisch Dagblad): ‘Supermarkets which purchased from small vegetable companies made use of their power. This is not the same thing as abusing their power. Supermarkets are engaged in fierce competition. They passed on the price advantages directly to the consumer; that was the price war. There was thus no abuse of power. We were also able to convince the House of Representatives of the Dutch Parliament of this.’ 9 For the perspective on profitability in the food supply chain it is also interesting to compare the food-processing industry and the supermarkets. In the aforementioned study, the Central Planning Bureau looked at the market relationships in the Netherlands between supermarkets and manufacturers of food products. The CPB concluded: ‘Not only the competition between supermarkets, but also the competition between food producers has increased. In the Netherlands this led to lower profit margins in the period 1993-2005 for both sectors. Consumers were able to benefit from this by relatively lower prices in the supermarkets. The price war since 2003 has only put the margins of supermarkets under further pressure. The food producers are not the only ones who suffered from this price war between supermarkets. Both supermarkets and producers have had to make sacrifices.’ In any event, it is the producers of foodstuffs who financially keep the most, as appears from a study of EFMI Business School of 2009 into the financial performance of 35 retailers and 73 producers from the Netherlands and other European countries1. The selection criterion for all these businesses is that they had to realise at least 50% of their turnover in the food sector. The EFMI has calculated that over the period 1997-2006 producers achieved more than double the operating result of retailers on average. That producers realised a higher margin than retailers does not affect the fact that, as the CPB has determined, both parties have had to make sacrifices with regard to profitability in the Netherlands in the past few years. This makes it clear who has benefitted: the Dutch consumer who can fill his or her shopping cart inexpensively. Research of the European Commission shows that the Dutch supermarket sector is particularly competitive. In all of Europe from the summer of 2007 to the autumn of 2008 the prices of many food products showed a considerable increase. The following graph was made by the Directorate of Economics and Finance of the European Commission. This Directorate has charted whether supermarkets in the period July 2007 – July 2008 were able to pass on the price increases as implemented by food producers to the consumer. The graph shows that Dutch supermarkets were not able to pass on these price increases. On the contrary, in this period they ate into supermarkets’ margins significantly. Once again an important indication that the Dutch supermarket sector is particularly competitive. In any event, this decrease 1 The long-term financial performance of trade and industry, EFMI Business School, February 2009 10 in margin applied to many supermarket sectors in West European countries, albeit to a lesser degree, as appears from the graph of the Directorate-General for Economic and Financial Affairs of the European Commission2. Food producer and consumer prices Source: Eurostat Gap between consumer and producer prices increase July 2007 - July 2008; Old Member State • Strong discrepancies Percentage points difference New Member State across Member NL States in gap between CY PT consumer prices RO increase and producer IT prices increase FR SE Producer prices DE ES have increased • In majority of Old EU EU Member States, LU more than UK retailers have LT AT consumer prices absorbed part of the SK producer prices shock FI LV GR • In majority of New BE CZ Member States, PL DK retailers have IE increased prices more SI BG than producers HU -8% -3% 2% The European perspective is also dealt with in the 2009 study of the Netherlands Competition Authority cited above in this chapter. The NMa concluded that over the period 2005-2008 the prices in the agri-food sector have increased significantly internationally. But in comparison to the European average, the Dutch consumer prices for food products increased less strongly than elsewhere in Europe, according to the NMa. From a European perspective the Dutch consumer can fill his/her shopping cart very advantageously. This has positive consequences for the purchasing power of citizens, for combating inflation and for the international competition position of the Dutch economy. 2 In its policy plan for the food supply chain which was published in October 2009, the European Com- mission establishes that despite the high degree of concentration in the supermarket sector in various countries, the retail sector is highly competitive. This applies both between supermarkets and between various retail formats. In the latter context it is striking that of late DIY shops are selling things such as detergent and fittings and furnishings shops are selling food products. 3) The relationship between farmers and supermarkets 11 Farmers and growers are an important link in the food chain. They take care of plants and animals and possess more than half of the Dutch territory for the production of food. They can count on much political and policy support, including billions of euros in Brussels subsidies. Farmers and growers often provide raw materials for further processing. Some sectors provide a ready-made product like tomatoes which only has to be washed, packed and transported. Supermarkets generally do not buy directly from farmers. Farmers and growers almost always produce a raw material which has to be further processed and packed. Contract growing, particularly in the area of vegetable production, is increasing. Supermarkets make agreements with groups of growers on quality, quantity and price. ‘If it rains growers become less wet, if the sun shines perhaps also less tainted. But growers intentionally choose for this market approach’, says a supermarket manager. Nevertheless, the relationship between the agricultural sector and the supermarket sector is sometimes a little tense. In itself this is not difficult to understand: farmers preferably want the highest price for their potatoes, vegetables, fruit, milk and meat, while supermarkets have an interest in purchasing this as competitively as possible in order to generate a favourable consumer price. This consumer focus puts pressure on all preceding links in the chain. For some years, the agricultural sector has been accusing the supermarket sector of abuse of power in ever harsher words. The various organisations in the agriculture and horticulture sector are seeking support in The Hague and Brussels. Farmers scapegoat supermarkets In 2007 suppliers of dairy products reviewed their contracts with Dutch supermarkets. Reason: the milk prices were surging upward, in line with a huge worldwide demand for milk. Supermarkets thus had to pay considerably more for their dairy products, including milk. In 2009 angry dairy farmers marched through the European quarter in Brussels. The milk prices had fallen significantly as a result of the global recession. The fact that, for example, in the Netherlands only some 6% of the milk production is processed in day-fresh dairy plays an important role in this respect. The bulk is processed industrially in cheese and milk powder in particular and is exported. In times of recession people do keep drinking milk, but the consumption of, in particular, the more expensive (export) cheese falls substantially. 12 Nevertheless, in 2009 dairy farmers in Brussels pointed an accusing finger at the supermarkets. Dairy farmers like to scapegoat supermarkets. But it is not the supermarkets that are responsible for the fact that milk is a commodity product. A product with regard to which farmers virtually cannot distinguish themselves, so that the sale price can fluctuate enormously. In addition, if the demand for milk collapses, it takes some time for supply to adjust accordingly. A grower can switch to a different crop, but a dairy farmer does not have this escape option. The farmer cannot turn the cow off. In short: the milk just keeps coming onto the market. Furthermore, it is clear that dairy production is not particularly rationalised. There are still many small farm businesses, while the market demands more critical mass. Producing milk efficiently requires an increase in scale. Naturally the question can be asked why supermarkets are not simply willing to pay more for milk. However, agreements made between the supermarkets in this respect would be contrary to the stringent competition rules on this point. In any event, such an agreement would not have any chance of being maintained in practice. Subsidised purchasing is alien to supermarkets, and bad for consumers. That there is still a considerable difference between the price which the farmer receives for a litre of milk and the price which the consumer has to pay in the shop, is not because supermarkets have a large profit margin on milk. The difference between the milk price for the farmer and the milk price for the consumer is primarily determined because the milk goes through a number of links, all of which add value, but which also entail costs. Milk goes from the farm to the dairy company in a refrigerated tanker. There the milk is pasteurised, packed and cooled. The milk packs are then transported in refrigerated condition to a distribution centre, to then be transported to the shop and put in the refrigeration unit. While most of the milk packs go past the cash register, a limited part is not sold and leads to spoilage costs. Milk may not be a big money-maker for farmers, but it is not a big money-maker for supermarkets either. The Minister of Agriculture, Nature Management and Food Quality (LNV) Gerda Verburg said the following in January 2009 during a speech to the Horticultural Marketing Board: ‘Suppose a wholesaler visits you. He asks you to supply at a specific price. If you do not do so the wholesaler will go to the neighbours. This is how good entrepreneurs in the horticulture sector are played against each other. And this is not healthy for the equilibrium in a chain. Moreover, it does not promote the economic position of the chain. For the short and longer term it is necessary for the sector to tackle this. I therefore call on all players, and by this I really mean all links, to take action to see how this selling power can be reinforced.’ 13 A few years ago the then Minister of LNV, Cees Veerman, used similar wording. Veerman was concerned about the power relationships in the food chain, whereby according to him farmers are the weaker party. A lack of selling power on the side of the farmers is pitted by the government against the purchasing power of the food retailers. The latter are supposedly playing ‘divide and conquer’. But is this really the case? Are farmers really powerless against supermarkets? To answer this question it is useful to look at the structure of some important sectors within the food supply chain. Dairy In 2008, the two biggest dairy cooperatives of the Netherlands merged: Friesland Foods and Campina. FrieslandCampina resulted in one of the biggest dairy companies in Europe, with an annual turnover of approx. 9.1 billion euros. 17,000 dairy companies are affiliated with the concern in the Netherlands, Belgium and Germany, which annually supply some 8.3 billion kilos of milk. In the Netherlands, Friesland Foods and Campina had a market share of approx. 80 percent at the time of the merger. In order to satisfy competition objections of the European Commission FrieslandCampina felt compelled to hive off a number of business units in the Netherlands and Belgium. The hived off units are good for a turnover of approx. 367 million euros, i.e. approx. only 4 percent of the turnover of the new group. The cooperative FrieslandCampina is owned by the affiliated dairy companies and is the only Dutch supplier who can supply the entire dairy range, i.e. from fresh milk to desserts and cheeses. This is where the true market power lies. More than 60% of the Dutch milk is exported. Day-fresh dairy in the Dutch supermarket only accounts for 6% of the total Dutch milk production. Annually, dairy farmers receive about 5 billion euros in direct income support in the European Union. The amount that these farmers receive is independent of the weather or the economic climate. According to a specification of the Ministry of Agriculture, Dutch dairy farmers receive an average of 3.5 euro cents per litre in direct European income support via the company supplement scheme. With a Dutch annual production of some 11 billion litres of milk, dairy farmers are paid € 385 million in European subsidies. 14 Meat and fish Meat production is also strongly concentrated. The most important supplier is Vion. In 2008, this concern slaughtered almost 8.2 million pigs. Vion’s market share on the Dutch purchasing market for pigs was almost 60% in 2008. More than 75% of Dutch pigs are exported, and more than 90% of veal is exported. The fish market is less concentrated, although this market, too, will soon have fewer players. The biggest Dutch player is the Kennemervis Group with a turnover of over 200 million euros. As an indication: in 2007 consumers spent 998 million euros on fish in the Netherlands. Potatoes, vegetables and fruit Potatoes, vegetables and fruit represent approx. 8% of the turnover in the Dutch supermarkets. Fresh fruit accounts for the greatest part of this. Dutch food production growers are primarily dependent on export. There is a clear concentration trend in the Dutch horticulture sector. For example, in the period 1980-2005 the number of greenhouse vegetable businesses decreased by over two-thirds. The most important greenhouse vegetables are tomatoes, peppers and cucumbers. The tomato market is the most concentrated. In 2003 the collective market share of the four biggest producers of cherry tomatoes was already 48%. If product differentiation is taken into account, the concentration of the market is substantially increasing in a number of important segments. The image that supermarkets can dictate the sale price to farmers and agricultural cooperatives, and that if they do not accept that price the supermarkets will simply go to the neighbours, is not true. In reality, on the agricultural side of the food chain, on the food producer side, and on the side of the supermarkets there is a clear concentration trend. Naturally this trend is not moving equally quickly in all market segments, nor has it advanced to the same degree in all segments. Nevertheless the direction of the increase in scale in which the market is moving is clear. To conclude this chapter, in the food chain there is more at stake than just the price. Although this is important, quality aspects such as food safety, sustainability, health, taste, colour, shelf life, reliability of supply are equally important. Parties in the chain must increasingly meet the high statutory requirements with regard to food safety and traceability of products. For example, entrepreneurs are obliged on the basis of European legislation to draw up far-reaching 15 food safety procedures. Rules which apply to every business engaged in the production, processing or distribution of food products. Furthermore, many businesses in the chain set high requirements for prompt certainty of supply, for which high ISO standards of quality management must be satisfied. This trend of professionalisation reinforces the concentration in the various links in the food chain. In order to be able to continue participating, an increase in scale is often necessary. A characteristic of good entrepreneurs is that they know how to adjust to the market. 4) Purchasing power: the consumer is doing well 16 In the spring of 2009, the European Parliament (EP) accepted a resolution of the Greek socialist Katerina Batzeli, in which large supermarkets are accused of abuse of purchasing power. In this resolution, the EP ignores the fact that as a result of the financial crisis consumers are keeping a close eye on the price of their shopping. For supermarkets this means that to keep the consumer satisfied they have to pare down their costs, starting with their purchasing costs. In its Communication ‘A better functioning food supply chain in Europe’, which was published on 28 October 2009, the European Commission said that the goal to be achieved is sustainable and market-based relationships between the stakeholders of the food supply chain. The Commission points out that within the food supply chain, significant imbalances in bargaining power between contracting parties are a common occurrence and that this issue was flagged as a serious concern by stakeholders. This asymmetry in bargaining power may lead to unfair trading practices, as larger and more powerful actors seek to impose contractual arrangements to their advantage, either through better prices or through improved terms and conditions. Against this background, supermarkets are pleased that the policy plan of the European Commission shows that far-reaching legislative European interventions in their freedom of contract are not planned. Supermarkets are in favour of market-based relationships between the parties in the food supply chain. Relationships which, at the same time, can be sustainable, as long as suppliers can deliver products which satisfy the demands of the consumers with regard to price and quality. It is of vital importance for supermarkets – and consumers - that neither European nor national legislative and supervisory bodies impose far-reaching restrictions on the functioning of the market. During her entire term as European Competition Commissioner Neelie Kroes rightly argued for reticence in intervening in the functioning of the market. Supervisory bodies primarily have to guarantee that there are no cartels and that there are no abuses of dominant market positions. After all, if there is no choice for the consumer, there is no competition and if there is no competition, there is no innovation. However, if the conditions of choice, competition and innovation have been satisfied, there is no justification to impose restrictions on the freedom to contract of market parties. In the free market, there are, by definition, stronger and weaker players and not every match can end in a draw. Indeed, the consumer has every interest in the best teams having the opportunity to rise high on the competition ladder and that every season a number of weaker teams have to leave the competition. Fortunately, despite the financial crisis and the concomitant pressure on free market thinking, the European Commission is keeping its head cool. It is leaving supermarkets free to utilise their purchasing power. This is to the benefit of the price-conscious consumer. 17 On instruction of the Ministry of Economic Affairs, in 2009 the EIM studied market power in various chains. Important conclusion: ‘The shift of the power in chains towards the consumer, as this took place in various markets, is inherent in a dynamic market economy. Suppliers and customers negotiate on prices and delivery conditions and the outcomes are determined by their negotiating positions. These negotiating positions are not fixed in a dynamic market economy, but can change. Such a shift to the customers is in principle to be valued positively, because this is ultimately to the advantage of the consumer. Purchasing power can promote competition between suppliers, which for them can form an incentive for innovation. More innovation results in a bigger and more varied supply of products and consequently in greater freedom of choice for the consumer. An additional consequence of said shift to customers is that they can achieve cost advantages upon purchase. If they translate the advantages achieved upon purchase into lower sales prices, this is also to the advantage of the consumer. If there is a concrete indication that a buyer is abusing its economically dominant position, the NMa can carry out an investigation and in the event of proof can take action for breach of the prohibition of such abuse. Cooperatives in the agricultural sector are subject to a less stringent regime with regard to the cartel prohibition.’ 5) Food producers divide European market 18 In October 2009, in its Communication ‘A better functioning food supply chain in Europe’, the European Commission stated that the geographic division of markets by food producers is an important barrier to market integration. The Commission dislikes the fact that supermarkets and purchasing combinations of supermarkets are forced to purchase uniform products nationally with pan-European operating food producers. Thus it is impossible for supermarkets to purchase food products via parallel imports in those countries where the purchasing price is the most competitive. In the eyes of the European Commission, such practices can undermine the working of the European Internal Market and have negative results for consumers, because they are confronted with artificially high prices and a more limited supply of products. The European Commission is going to study these types of practices in further detail and will come up with an action plan at the end of 2010. Geographic market division by producers: how does it work? Supermarkets would prefer to purchase beverages and food products where this is most advantageous. However, pan-European producers are putting a spanner in the works. For example, beverages producers give bottlers exclusive distribution areas. This prohibits, e.g., a German bottler from supplying a Dutch supermarket. This Dutch supermarket can therefore not benefit from a difference in purchase price between Germany and the Netherlands. This practice is not limited to food products. Producers of personal care products and cleaning products often impede parallel imports. The paradox is that primarily big supermarket chains and purchasing combinations suffer most from this. For cross-border orders they simply do not achieve the desired volumes and continuity of supply. Smaller supermarkets require smaller volumes and sometimes manage to purchase from wholesalers across the border. This geographic market division by producers is not limited to the Netherlands and Germany, but occurs throughout the entire European Union. An additional problem is that there are differences in the bottle return system between the Netherlands and various other EU member states. This also impedes the working of the Internal Market, to the detriment of the consumer. 6) Own brands: the consumer’s new favourite 19 Supermarkets are increasingly selling their own brands, also called private labels. The power of the own brand is that as a rule it is 20 to 30% cheaper than producer brands, while the quality is comparable. In 2009, supermarkets realised on average more than 25% of their turnover with private labels. In 2000 this was not even 20%. The rise of own brands reflects the professionalisation of the supermarkets in meeting the changing needs of consumers. In the past few years they developed the competence to develop products themselves. They can take advantage of the fact that the consumer comes to the shop daily. Changing consumption patterns and customer expectations can consequently be picked up quickly. Supermarkets know their customers through and through. With private labels the supermarket takes on full responsibility for the product quality vis-à-vis the consumer, while the actual production is often outsourced. Developing private labels in conjunction with producers requires a considerable increase in scale from supermarkets. The development and putting on the market of food products – think of the General Food Law and labelling requirements – is relatively costly and these costs can only be earned back by a supermarket chain or purchasing organisation of supermarkets with a market share of at least 5 to 10%. The rise of private labels is a thorn in the side of the producers of branded goods. By working with private labels, supermarkets become less dependent on these producers and consumers are offered a bigger choice. It should be noted, however, that there are many producers who, in addition to their own brands also make private label products for supermarkets, making money on both. Through their private labels supermarkets have much better oversight of the cost structure of products. This knowledge reinforces their negotiating position when purchasing producer brands. If these brand manufacturers wish to increase their prices, the supermarket can offer a better counter-weight because it can estimate fairly well whether this increase is realistic because raw material prices have increased, or whether the increase is only based on the wish to realise a higher profit margin. If the latter is the case, private labels have the advantage for the supermarket that the brand producer can be made to choose: if the price increase is not reversed, we will be heavily promoting our private label in the coming time. 20 In any event, the supermarket certainly does not always win this negotiation game. There are industrial brands which can rely on such a large degree of customer loyalty that a supermarket cannot afford to drop it from the shelves. The European Commission refers to this in its Communication ‘A better functioning food supply chain in Europe’ of October 2009: large multinational food producers have significant negotiating power if they produce brands which supermarkets cannot do without. Brand manufacturers are lobbying fiercely, particularly in Brussels, before the European Parliament and the European Commission to place private labels of supermarkets in the dock. They are claiming, among other things, that it would be unreasonable for supermarkets to ask for money to put industrial brand articles on the shelf, while supermarkets put their own brands on the shelf for free. This reasoning cuts no ice, as the shelf space which supermarkets use for their own brand articles still costs the supermarkets money (this shop space must also be financed). Brand manufacturers furthermore complain that supermarkets copy their brands. This is ironic, because it is precisely industrial brand producers who turned the copying of competitors’ innovations into a way of life. It rarely occurs that an innovation of a food and drink producer is not immediately copied by a competitor. In a more general sense, copying innovations to then develop them further is an important driving force behind progress in a free market economy. Naturally intellectual property rights must be respected in this respect. But such rights sometimes only delay progress, they do not make progress impossible. For example, Toyota was the first in the Netherlands to put a popular version of a hybrid car on the market, which combines the advantages of an electric engine with a petrol engine. Now, ten years later, many producers have developed their own version of such a car, with the big winners being the consumer and the environment because a hybrid car uses considerably less fuel and produces less CO2. This is called progress. As far as innovation, progress and private labels of supermarkets are concerned, one can think of fresh ready-made meals. A segment which has been developed by supermarkets, because they discovered that there is an interesting consumer market for this. 7) Socially responsible food retail trade 21 In the last few years, consumers and society have been more frequently presenting their wishes and questions regarding how food is prepared, where it comes from and what considerations have been made by the links in the food chain. This often concerns topics which fall under the heading ‘sustainability’, e.g. animal welfare and the environment. Supermarkets play a role in the food chain and are the last link before the consumer. Supermarkets take their share of the responsibility and contribute to attuning products and production processes to the wishes of the consumer and society. To support the activities of individual supermarket organisations, the Dutch Food Retail Association (CBL) has a sustainability agenda. Every year a number of new agenda topics are added and together with chain partners, governments and social organisations projects are set up to make the food chain more sustainable. Eggs Since 2005, Dutch supermarkets have not sold any eggs of chickens which are kept in battery cages. With this the Dutch retail industry was acting in anticipation of legislation which wants to prohibit keeping chickens in battery cages from 2012 and for this received the Good Egg Award 2008 of the international animal welfare organisation Compassion In World Farming. The goal is to use free range eggs for processed private label products as much as possible, although this depends on the availability of free range eggs in the producing countries. The supermarkets are working very hard on this issue together with producers of private labels. Pasturing Wandering over pastures is of great value, not only for lovers of the Dutch landscape, but particularly for cows. However, making it compulsory to put cows out to pasture touches on many aspects of the operations on a dairy farm, resulting in possible costs or investments. The CBL therefore does not favour mandatory rules, but does want to encourage pasturing. In 2006 the CBL, together with the Dutch Animal Protection Society and FrieslandCampina, set up the Pasturing Foundation (Stichting Weidegang). Many dairy products produced under private labels come from cows which are guaranteed to have been pastured. Organic Supermarkets have broken open the market for organic products and made them accessible to the broader public. For supermarkets, organic products fit in well in the strategy to make food production more sustainable. In the production of organic food, for example, no use is 22 made of artificial fertilisers and chemical pesticides and animals have more space. Supermarkets sell organic products and participate in the Dutch Covenant on a level playing field for Organic Products, the goal of which is to have the turnover of organic products grow by 10% annually. Recent figures (2008) show that over that year organic sales in the Netherlands grew by 12%. The advantages of organic products are not yet appreciated by all consumers. Supermarkets have broken open the market for organic products and the goal is now to get as many consumers as possible to buy more organic products. Stopping the castration of piglets In the autumn of 2007, agricultural associations COV, NVV, LTO Nederland and the Dutch Food Retail Association, CBL, signed the ‘Declaration of Noordwijk’. The goal, before 2015, is to stop the castration of piglets. As an interim solution, piglets are now anaesthetized before castration. Since July 2009, supermarkets have only been selling fresh pork of anaesthetized castrated pigs and more and more supermarkets are switching to pork where the piglets have not been castrated at all. The CBL wants castration to be stopped as quickly as possible, preferably before 2015. Toward this end the CBL is in ongoing consultation with all sectors to accelerate research and implementation. Seven step plan ‘Fish Better’ With regard to the sustainability of the fish product range, the CBL has prepared the seven step plan ‘Fish Better’. Where wild fish catches are concerned, supermarkets are striving to only sell Marine Stewardship Council (MSC) certified fish from 2011. Since the commitment of the CBL to MSC, the number of certified products in supermarkets has increased tenfold to 400. All supermarkets now offer MSC products, including under private labels. With regard to aquaculture, the CBL is involved with various projects which are geared to quality guarantees for farmed fish and the development of a sustainability standard. Inter alia, the CBL is working with the WWF and Oxfam Novib in this respect. Animal transport Supermarkets want to see an improvement in animal transport. The CBL is in favour of independent certification and quality control and is one of the initiative takers with regard to a new GlobalGAP module, which transporters of animals have to meet. There will be, inter alia, requirements geared to the vehicle (e.g. dimensions), loading and unloading (e.g. work method, stress) and welfare during transport (e.g. anti-slip floors, load factor, ventilation, temperature, hygiene and travel time). The module will be available during 2010. 23 Working conditions Supermarkets are improving working conditions in developing countries. For their private labels, supermarkets demand from producers in development countries that they comply with the BSCI (Business Social Compliance Initiative) in order to guarantee decent working conditions. Currently, the CBL is starting up a project to gain experience with BSCI, together with governments and other parties in the supply chain. On the basis of the system, retailers are encouraging and obliging their suppliers to satisfy the guidelines and standards of the International Labour Organisation and other declarations of the United Nations. BSCI has been established within the textile sector and is currently rapidly expanding to other sectors. The project of the CBL will show, inter alia, to what extent the system is suitable for the food sector and where it requires adjustment. Veal Consumers must have confidence that the veal in supermarkets comes from calves who have had a good life. That is why the CBL announced at the beginning of 2009 to see to it that all the veal in the supermarket comes from calves with an iron level which satisfies the welfare standard. A number of supermarkets were one step ahead of this goal and removed white veal from the shops altogether. In addition, supermarkets, the Animal Protection Society and veal suppliers have made agreements on making production more animal-friendly, which entails that the calves do not suffer from anaemia, can eat and drink at the same time and are transported in an acceptable manner. In addition, the sector and scientists are working on a welfare monitor, whose outcomes will be known in 2010 and will be the leading guideline in determining the welfare of calves. The primary focus in this respect lies with the exclusion of anaemia in calves, while in addition housing systems must be viewed critically and adjusted where possible. Soy and palm oil For the production of meat, eggs and dairy, pigs, chickens and cows are fed with soy products. The growth of soy, in particular in South America, can be accompanied by social, ecological and economic problems. Dutch supermarkets have a small and indirect role in the soy animal feed chain, but nevertheless believe it is time to take action. That is why the CBL launched the ‘Sustainable Soy Action Plan’ in June 2009. In order to make the soy animal feed chain more sustainable, the CBL is seeking alignment with the Round Table on Responsible Soy (RTRS). The RTRS recently reached agreement on the criteria which sustainable soy must satisfy. Now, by means of large-scale field tests it is necessary to start as soon as possible with 24 the certification of soy growth. The CBL wants soy from these field tests to be transported to the Netherlands with priority so that meat, dairy and eggs of supermarket private labels are produced as quickly as possible on the basis of sustainable soy. The CBL Sustainable Soy Action Plan mentions a number of specific points for attention. For example, it is essential that local parties (small holders, workers) are better represented in RTRS. There must also be an extra critical review of the use of pesticides in the growth of soy and no more Amazon forest may be cut down for soy production. The CBL supports the Amazon Moratorium. The Moratorium was made by the Round Table on Responsible Soy (RTRS) and Greenpeace. Similar problems play a role in the production of palm oil and the CBL wants to achieve similar solutions. The Round Table on Sustainable Palm Oil (RSPO) is an existing chain approach. Raw materials which satisfy the criteria of the RSPO, can be processed in the supermarket private labels. Meat consumption Aside from the welfare aspect, animal production (meat, dairy, poultry and eggs) are up for discussion due to the use of raw materials, the use of space, the environmental load, the emission of CO2 and methane and water consumption. The CBL is therefore endeavouring to come up with more sustainable production methods to get a responsible piece of meat in the shops. In addition, from this perspective there is attention for alternatives, such as meat substitutes, so that the consumer can choose from various products. GlobalGAP GlobalGAP stands for: Global Good Agricultural Practice. These are the requirements which are set worldwide for farmers and growers with regard to food safety. However, in the current society it is not sufficient to only look at food safety. The consumer sets other conditions, and consequently GlobalGAP is increasingly focusing on aspects like quality and sustainability. For example there are plus-modules for animal welfare, in which the CBL is fully involved in the development. Operations With regard to the operations the sustainability activities are primarily geared to the approach to the greenhouse gas CO2, effective and efficient energy consumption, transport, packing and return flows. 25 Transport With regard to transport the CBL is focusing on expanding the times when trucks may stock supermarkets. At present, the mandatory delivery times often coincide with the rush hour, so that trucks end up in traffic jams. If supermarkets could be stocked throughout the day, this would result in 14 million litres of fuel less being needed, 60,000 kilos less emission of fine dust and 36 million kilos less CO2 emission. This reduction in CO2 emission is equal to the CO2 emission of 3,500 households on an annual basis as a result of heating the home, driving cars and air travel! Packaging Dutch supermarkets have not offered free carrier bags at the checkout for years. This is to encourage reuse of these bags. Furthermore, supermarkets invest a lot of money and energy in making packing lighter and smaller and in separating waste; many supermarkets have glass and paper recycling centres and in cooperation with the Foundation Netherlands Clean (Stichting Nederland Schoon) they are tackling litter around the shops. In addition, by means of the Packing Waste Framework Agreement the CBL, together with the Ministry of Housing, Spatial Planning and the Environment and the Association of Netherlands Municipalities, is actively contributing to the collection of plastic waste from households. Climate During 2010, the CBL will prepare a Climate Plan as part of the CBL Sustainability Agenda. Climate-friendly shops (e.g. refrigeration), logistics (e.g. reduction in kilometres) and climate- friendly consumption (e.g. meat production) are part of the Climate Plan. There will be alignment with European and global initiatives for the preparation of the plan. Finally… The CBL supports the efforts of the supermarket industry in the area of sustainability. Inter alia via the website www.passievoorfood.nl the CBL shows a broad public what sustainability means for the supermarket industry. Together with chain parties, governments and NGOs, supermarkets want to give more and better information on food and the way in which it is produced, processed, packed, transported and sold. 26 Literature Central Planning Bureau (CPB), Static Efficiency in Dutch supermarket chain, April 2008 European Commission, Communication on food prices in Europe, December 2008 European Commission, A Better Functioning Food Chain in the European Union, October 2009 European Commission, The evolution of value-added repartition along the European food supply chain (published working paper), October 2009 Gerda Verburg, Improvements in Vegetable and Fruit Chains primarily help the Supermarkets (speech), January 2009 Netherlands Competition Authority (NMa), Price Forming in de Agri-Food Sector, December 2009 EIM, The nature and scope of purchasing power, Research into the perception of suppliers, November 2009 In addition to the above-mentioned sources, intensive use has been made of information obtained from discussions with members of the CBL. Author This brochure has been prepared on instruction of the CBL by Hendrik Jan van Oostrum.