2nd May 2013

In praise of Ken Morrison

Media coverage of the horse meat scandal  was dominated by political and corporate attempts to limit reputational damage. Led by the food minister Owen Patterson, everybody was “shocked” to find horse in burgers and lasagne which was the result of “ criminal activity”. Led by Tesco, the retailers owned up in full page adverts after promptly withdrawing products; the Irish processor ABP  temporarily closed a factory; the Food Standards Agency is  investigating but reassuringly says there  is no “food safety” issue.

The minister and the corporates are now aiming for closure as they talk about the need to “rebuild trust” amongst consumers and do more tests. But the public interest issue that will not go away is why do we have recurrent food crises? The answers are of course not simple because our food supply systems are complicated. The 2007 foot and mouth outbreak caused by the escape of a laboratory virus was very different from H5N1 bird flu in Bernard Matthews’ farms probably caused by long distance import of turkeys.

But “value lines” from the meat chiller cabinet do seem to generate more than their share of problems. Many would then blame the consumers who buy cheap meat, especially processed product, because nutritional value and/ or food safety must suffer at low prices.   The “Marks and Spencer pig” is the meat trade’s bench mark product for provenance and purity and that of course is paid for in  premium prices and traceable back along a short chain to a producer working to an M and S specification which covers everything from genetics to slaughter.

The horsemeat scandal  dramatized the point that value burgers and ready meals come from a very different kind of deconstructed euro animal whose parts and products travel in long supply chains right across the EU, with intermediaries trading on price and the chiller trucks routed differently each week. The question then is whether the necessary price of cheap meat is long international chains, dodgy feed, mechanical extraction of slimes and “drind” (dehydrated rind) extender from god knows where. The provocative answer from recent CRESC research is that cheap meat does not have to be inferior.

To begin with, all supermarket meat supply chains are not the same. The big three supermarket chains (Asda, Sainsburys and Tesco) run buyer led adversarial supply chains where they drive down prices for consumers by capturing the margins of independent processors producing  a changing mix of joints and products for several customers.  Morrisons runs a vertically integrated meat chain where it owns and profitably operates its own abattoirs and processing plants which are fully loaded and sell the whole animal to its own stores as their one customer.

The only reliable way to quality and safety is through tight control of a short chain.  That point emerges from current CRESC research into meat, as it did from our earlier research into banking and finance. In meat supply, tight control can be achieved in two ways. There is the up market way of Waitrose and Marks and Spencer where the control comes from supply chain partnership supported by premium pricing. The alternative is the mass market way of Morrisons where the control comes from ownership supported by efficiency so that Morrisons can  compete  on price with the current meat counter offer of three joints  for £10 against Asda, Sainsbury and Tesco.

The problem with supermarket meat supply is not many poor consumers but a few rich corporates and the constraint here is not economic necessity but organisation and competence. The integrated supply chain is rejected by the big three chains because their organisations are built around buying not making. It will be a long time before Tesco has a Morrisons-style director of manufacturing who is responsible for one fifth of the products on the shelves.

“Buy not make” delivers shareholder value for the big three supermarkets and low prices for consumers But this works by passing transaction costs to weaker processors whose margins on own brand product for the supermarkets are so low that a respectable Euro processor like Vion in meat is closing or selling its UK operations. Within an EU single market, Romanian abattoirs, Cypriot intermediaries and all the rest are part of the consequence as distressed processors buy in ingredients on price.

The better way of organising meat supply was discovered by a careful Northerner, Ken Morrison, who founded, and for fifty years ran, the Bradford based supermarket chain whose fresh meat is still largely British.  The policy of vertical integration was continued under new management after Ken lost control of the company in 2006 because hard-nosed accountants did the math, found  it made money and got further into processing (albeit recently with some  value meat product from Europe)

No doubt we should all eat less meat for our own health and the planet’s. But let us also praise Ken Morrison who developed a business model of taking responsibility for supply from which other retailers could learn. His folksy justification was that supermarkets is “ just taking money off people and giving them something in return” . His good sense was to see that the return  depended on reorganising the supply chain.

Most of the corporates involved in the horse meat scandal have preferred to place a call with Burson Marseller or one of the other PR firms which now specialise in crisis management. That may limit reputational damage but it will not prevent further problems in the meat supply chain.

Acknowledgements

An earlier version of this article appeared in the Guardian’s Comment is Free on 25 January 2013. Image by ell brown, used under a Creative Commons license.

 

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