UK retailer Tesco has said there need to be more formal relationships with suppliers in order to remove volatility in the supply chain and encourage investment.

Speaking at an industry conference in Dublin last week, Tesco group food commercial director Matt Simister told attendees that volatility is the “key challenge” to making supply chains in the food industry more sustainable.

“Over the last century we saw a steady deflation in food price and as we came into this century we saw relatively steady inflation. And actually our supply chains are fairly well geared to deal with the steady changes that we saw in that period of time.

“But what we saw in 2007/2008 was this new era of volatility, this spiking of prices, and what that’s really doing is throwing risk into our supply chain. It throws in uncertainty, which leads to volatility, which leads to lack of investment and then lack of innovation. This is the real problem we see, that lack of confidence to invest. And I think we can all do things that can improve that situation through our supply chain.”

Simister said new consumer habits and the “phenomenal” pace of that change has altered the way businesses invest and highlighted the need to “work collaboratively with our supply chains” going forward. This, he said, is something Tesco is working on.

“Some of the stuff we’re doing within the supply chain is to fundamentally re-jig our business, but also ask some fundamental questions of the relationship we have with our processors. These have got to be for the longer term, we’ve got to give longer term commitments. We have got to enter into more formal partnerships, who knows where that will take us.

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“In certain areas, we’ve got to form more formal partnerships in our supply chains. We’re going to give them the confidence to invest in innovation and productivity and for us to look at the ecosystems to waste less together.”

Simister told attendees in Dublin: “It’s not just about looking at our processors but also our producers. Historically we haven’t had relationships with our producers but we really need to understand production much better. We need to understand each other, to build a relationship, because all relationships are built on trust.”

The relationships between suppliers and retailers were brought into sharp focus earlier this year amid the horsemeat contamination scandal. Some industry watchers claimed the margin pressure retailers had placed on suppliers was a factor in the adulteration of beef products with a cheaper ingredient, horsemeat.

The saga rocked public confidence in those retailers caught up in the contamination, which included Tesco. In a bid to shore up their supply chain – and also restore consumer confidence in what they eat – Tesco announced two initiatives it claimed would improve traceability of products and tighten supply chains.

Tesco, which was one of the first to be highlighted by food safety officials as having sold burgers containing horsemeat, pledged to buy 100% British chicken as part of its fightback and sell more meat from “closer to home”.

In March, the UK’s National Farmers Union met with Tesco to discuss how the country’s largest retailer could implement its pledge to source more meat products in the UK.

NFU president Peter Kendall suggested that changes made by Tesco needed to be “measurable” and include “longer term commitments” and “improved relationships”.

The discussions came a month after Clarke announced a raft of changes to its supply chain, including the promise to source all fresh chicken from within the UK and the appointment of an ‘agriculture director’.