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Is Tesco's gain our pain?

Farming’s biggest customer reports record profits - is it at our expense??

With profits over 24 weeks up nearly 1/5th to just under £1bn, Tesco’s star is surely shining with investors and consumers. But it’s a different picture among it’s suppliers, no more so than with farmers.

The biggest customer for British farmers, Tesco, reported an 18.7% jump in pre-tax profits to £908m for the 24 weeks to 13 August while sales went up 14.1% to £18.8bn. In the UK like-for-like sales rose 8.2%. Excluding petrol same stores growth was 6.7%.

The store intends to grow, and has a massive land bank in the UK which provide for a further possible 185 sites which would give it a 45% share of the expanding UK supermarket business.

Farmers would, of course, love to see growth and profit figures just a fraction of these, but many are currently looking a trading losses for their major enterprises.

“There’s just no end to our problems” says FARM IDEAS reader Bob Smith on the phone today. “Tesco have a straight agenda of delivering returns to the shareholders and value to customers, and to do this they have to be competitive - selling their milk, bread, meat, vegetables and so on at less than other stores. So the supplier is squeezed. The government is delighted, as the consumer price index is held down as a result, and the consumer is happy as it makes the soaring costs of petrol, council tax and so on more bearable.”

There’s vocal criticism of Tesco’s business methods from the Forum of Private Business (FPB) which said yesterday that the company was a "bully boy" that is putting unfair pressure on small firms “screwing suppliers into the ground." Friends of the Earth renewed its call for competition authorities to intervene to stop Tesco expanding so rapidly, and wants Tesco's "monopoly" investigated. Tesco controls 30.5% of the grocery market and its nearest rival, Asda 16.7. FoE’s Vicki Hird said: "Tesco's sensational growth is sucking the life out of communities, farmers, workers and the environment."

Despite today’s record interim profits and a promise of further expansion the shares were sharply lower though still up nearly 15% on the year. Rising oil prices are expected to cut into profits later in the year.

Chief executive Terry Leahy said, “The accumulating effects of rising oil-related costs, both on consumer confidence and on our business, are a cause for concern, but we remain confident that we will make further progress in the second half.”

Shrugging off any criticism he said Tesco had opened a total of 630,000 square feet of new sales area in the first half and expects to open a further 1.3m during the second half, with just over 550,000 from extensions. It is also raising the ante abroad with plans for a further 164 new international stores in the rest of the current year, and is also on track to create a further 7,500 new jobs in the UK in the second half and 9,500 world wide.

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