Direct sourcing a win-win deal for retail giant, farmers

[rooster59]

Direct sourcing a win-win deal for retail giant, farmers

Somluck Srimalee



Peerada Simamarathorn shows her tomato products from her farm.

BANGKOK: Thanks to her successful collaboration with Tesco Lotus, Peerada Simanarathorn - owner of a vegetable farm in Chiang Mai's Hod district - now generates annual income of more than Bt1 million from her and her friends' tomato farms in the Mae Tho area.

Peerada, 35, took over her family's vegetable farm after graduating with a master's in law from Chulalongkorn University five years ago, when she saw an opportunity to build the farm into a sustainable business by working in partnership with the retail giant.

"I started by learning from Tesco Lotus what customers wanted and how to grow our vegetable products to meet their needs. This began in 2009 with my own farm, then expanded to our relations' farms and has since reached the point where I have up to 200 farmers in Hod district, and other vegetable farms in Chiang Rai province, taking part.

"For tomato products, we have supplied 360 tonnes this year to Tesco Lotus, worth more than Bt1 million," she said.

Peerada's farm and her farmers' group also grow kale, cabbage and strawberries, all of which are also supplied to Tesco Lotus stores.

Sanglar Kaewta, a Mae Tho farmer who raises tomatoes on 20 rai (3.2 hectares) of land, supplies about 55,000 kilograms a year to Peerada, who centralises the purchase of her produce for dispatch to Tesco Lotus. This generates an average income of Bt275,000 a year for Mong's family, based on an average price of Bt5 per kilo.

This is better than selling through middlemen, who offer lower prices than she can achieve via Peerada's group, Sanglar said.

"Most of our produce can be sold and less is rejected than when we sell to the middle man, because we have learnt what Tesco Lotus customers want to buy as the company provides knowledge on production methods, and especially on the use of organic fertiliser to grow our vegetables," Sanglar explained.

Tesco Lotus's head of quality, Pornpen Nartpiriyarat, said the company had been buying fresh food directly from farmers since 2009, and now spent some Bt3 billion a year doing so with around 6,000 farmers nationwide, with each farmers' collective generally comprising between 100 and 200 members.

The retail giant also spends Bt750 million a month to buy fresh meat, pork, chicken and fish directly from farmers around the country, she said.

"Our business strategy is to do business in a friendly way with communities and also create value for our partners. As a result, we began a direct-sourcing campaign in 2009 by contracting to buy fresh food directly from farmers.

"This is better for the company's supply chain and also injects benefits directly to farmers by reducing the need to sell through a middleman, while our customers also get quality food at a reasonable price. This is win-win situation for all parties," she said.

This year, the company has increased the volume of produce purchased from local farmers through direct sourcing by more than 150 per cent. Tesco Lotus provides not only a sales channel for farmers, but also knowledge and support in crop planning to help farmers achieve the most successful and cost-effective crop management, she explained.

Crop planning is significant in the prevention of an oversupply of crops when demand is low, which leads to farmers not getting the best prices possible for their produce, she added.

Pornpen said that in the past, farmers in Hod would grow whatever crops they wanted, and middlemen would come and bring the produce to Tesco Lotus's distribution centre, whose quality-control department would then check that the produce passed the retail chain's quality and safety standards.

A lot of goods were turned down because they contained insecticides or failed to meet the firm's standards, as a result of which the farmers lost their income and were unable to do much with the rejected crops.

Before the retailer implemented direct sourcing wherever possible, as much as 60-70 per cent of produce would be turned down, especially fruits and vegetables with a shorter shelf life, she explained.

Food waste minimised

Direct sourcing, however, solves the problem at the root cause. The company's quality-control team discusses with the farmers from the outset what to grow and what is in demand during specific periods, so that farmers can plan their crops accordingly, minimise food waste and achieve the most optimum prices.

In addition, the company counsels farmers on international safety and hygiene standards as per the Good Agricultural Practices (GAP) codes, which govern the production, harvesting and post-harvest handling of fresh fruits and vegetables, said Tesco Lotus's quality chief.

Charkrit Direkwattanachai, Tesco Lotus head of corporate communications and sustainability, added that while society at large benefited from having strong businesses that generate income and bring about economic prosperity, businesses also depended on society to generate consumption and provide products and services. Only by creating shared value between all parties involved, can true growth and sustainable development be achieved, he said.

The benefits from Tesco Lotus's direct-sourcing initiative at this particular tomato farm in Hod - one of hundreds others around the country that the retailer works with - are plain to see, he added.

Farmers are able to generate more than Bt1 million of revenue per year from selling 360 tonnes of produce to Tesco Lotus.

Customers also benefit from having fresh tomatoes that have an extended shelf life of six days, instead of five. The tomatoes are also of higher quality, as Tesco Lotus sources tomatoes that are of specific sizes, weighing between 55 and 110 grams, said Charkrit.

Communities and the environment also benefit from less food waste, saving as much as 30 tonnes of sub-standard tomatoes every year.

Moreover, knowledge about modern farming methods and agricultural best practices also help farmers to preserve soil quality and other natural resources, leading to sustainable development for farmers, he added. Following the initial success of the direct-sourcing programme, Pornpen said the retail company now planned to increase the number of farmers' groups that participate.

This will form part of Tesco Lotus' sustainability efforts and also build product value for the country's farmers, enabling them to undertake sustainable agriculture for the long term. This business model creates a win-win situation for Tesco Lotus and Thailand's farmers nationwide, she added.

Source: http://www.nationmultimedia.com/business/Direct-sourcing-a-win-win-deal-for-retail-giant-fa-30273626.html

-- The Nation 2015-11-29

[impulse]

Great story.

Now I wonder how long it will be before Thailand requires tomatoes be distributed by licensed tomato brokers like they do with lumber?

You just don't get between the elites and the trough without some reaction.

[trainman34014]

Great story.

Now I wonder how long it will be before Thailand requires tomatoes be distributed by licensed tomato brokers like they do with lumber?

You just don't get between the elites and the trough without some reaction.

A lot of the so called 'Middle Men' are far from the Elite and are middle class bloodsuckers working on a fairly local basis conning their not always so bright local area growers. In the past all the produce rejected by Tesco would very soon be dumped on local markets.

[Srikcir]

A lot of direct sourcing has been done by many large retailers in the West with super food retailers such as Wal-Mart. The drawback is that it requires more resources from the retailer to monitor food quality but if food is purchased FOB destination the supplier takes all the risk.

And as Nestle discovered, suppliers may be involved with inhumane employee treatment that might surn customers; that risk requires direct monitoring where countries have weak enforcement. I expect any savings from direct sourcing will stay with the retailer and will not result in lower prices to the consumer nor to the supplier.

[elgordo38]

Quote "For tomato products, we have supplied 360 tonnes this year to Tesco Lotus, worth more than Bt1 million," she said. unquote. Yes I would presume a lot more a million bahts

[Enoon]

These poor devils, they've got no idea what's coming.

This supply model has worked very well for Tesco and the other supermarkets in the UK. It's not surprising they want to transplant it to Thailand.

For these people, and there will be many more, the nightmare is just beginning.

"The big four supermarkets – ASDA, Morrisons, Tesco and Sainsbury’s – control 75% of the grocery market in the UK and aim to keep their prices low and their profits high. They use their enormous size and influence to put their suppliers under immense pressure to produce goods as cheaply as possible. As well as squeezing their suppliers on price, they dictate terms and agreements, like forcing them to take on costs for discounts and promotions."

Supermarkets & suppliers: Inside the price war - Telegraph

Supermarket price war takes toll on UK food suppliers - The ...

Edited November 29, 2015 by Enoon

[BuaBS]

Quote "For tomato products, we have supplied 360 tonnes this year to Tesco Lotus, worth more than Bt1 million," she said. unquote. Yes I would presume a lot more a million bahts

So they get 3 B/kg , and we pay 20 to 40 B /kg ? That is a nice profit for tesco ! Greedy b-stards !