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Will Integrated Supply Chain Bring Home the Bacon?

28 June 2012, at 1:00pm

ANALYSIS - A new report into the British pig meat industry calls for an integrated pig meat supply chain, writes Chris Harris.

The report says that at present pig producers and processors struggle to sell their products at a profit and utilise their production capacity.

This discourages productive investment and entrenches the UK pig industry's disadvantage compared to foreign competitors, the report says.

It also encourages a worsening of pay and conditions for the workforce, and undermines job security.

The report Bringing Home the Bacon from researchers from the University of Manchester Centre for Research on Socio-Cultural Change says the system is economically unnecessary because there is a better way, which delivers on broader economic and social objectives.

The more integrated and consolidated national models of the Danish and Dutch pig industry or the profitable in-house UK processing operations of Morrisons represent the alternative, which uses a higher proportion of British meat compared to the other major supermarkets.

The Morrisons model aligns the interests of firm, supply chain and society. Morrisons runs its vertically integrated processing plants at full capacity and proves the benefits of plant loading with demand stabilised. The firm increases margins, reduces transaction costs and controls quality. Society gains through reduced import dependence, stable employment and the capacity to address animal welfare and climate change.

The big three supermarkets cannot choose a better way as long as they are locked into their present business model through the demands of the stock market and their own mentality and practices. Therefore, much depends on whether government can and will play a constructive role in persuading firms to change their business models.

The report suggests that there should be tax incentives from the government to form integrated supply chains.

And it calls for a national debate about whether large national supermarket chains are necessary and specifically about what would be lost and gained if Tesco, Asda and Sainsbury’s were split up into regional chains (e.g. Tesco North and Tesco South or Sainsbury East and West).

The research concludes that the government should move beyond its current ‘code of good practice and adjudicator’ model for regulating retailer-supplier relations.

It recommends that the Grocery Code Adjudicator regulator should secure better practice by reserve powers to enforce model contracts and minimum contract lengths, as well as discouraging, through strong punitive and investigative powers, variations in terms of supply without retailers providing notice and compensation.

It has also called for a year long moratorium on price cut promotions.

However, the researchers appear to bring their whole argument down to a cash and profit basis and overlook other inherent motivation for producing pigs.

However, many pig producers might not wish to tie themselves lock, stock and barrel to a regime where they are beholden to one outlet. Many prefer the flexibility of the market and also do not wish to become involved in the chain after the farm although many will also welcome and benefit from a relationship with both processors and retailers.

Retailers and processors are also likely to baulk at any suggestion of government intervention to control prices.

Producers will also only invest their money. time and effort into an enterprose if they can see they are going to get a good reward, so any partnership or relationship will have to be openly beneficial to all parties.

The report believes that with full backing an integrated chain will improve profits, welfare and conditions, but many producers and processors will have to be persuaded.