Trading ResponsiblyImproving the way we serve our customers and work with our suppliers

February 2014

Our Founder, Jack Cohen, had a saying that ‘all merchants will grow together.’ It may not have the ring of a modern motto, but its meaning and spirit are just as relevant and important today.

Our success is built on working hard for our customers and making what matters better, together.

We operate in a competitive, dynamic industry which is changing at a faster pace than ever before. We can’t be successful without recognising and anticipating this change – whether it is changes in customer preferences, changes in society’s expectations of business, or long-term global environmental and social change. Managing our supply chains and improving relationships with trading partners are crucial to this.

For nearly a hundred years, we’ve worked hard to build lasting partnerships with our suppliers. Many companies we work with have been able to grow and expand into big businesses themselves. Today, we work with suppliers in over 70 countries. We have a team of experts working on the ground in our sourcing countries. These experts understand the challenges that our suppliers face, work with them to manage risks in the supply chain, help them innovate and improve quality, share our retail expertise and help to support local communities. By doing so, we aim to be the supplier’s customer of choice.

A community of trading partners

Across our international supply base, our trading relationships play a key role in developing local businesses and we are determined to ensure that our partners operate to the highest standards. For example, we are playing a leading role, with other businesses and expert NGOs, to improve standards of working conditions in the garment industry in Bangladesh. In countries like Ethiopia, where international trade is in its infancy, we are working with suppliers to set new standards.

shopping trips a week 75million

stores worldwide 6900

In recent years, we’ve made some significant changes to our trading relationships and brought in reforms to the way we source our food. For example, in the UK we have one team of experts overseeing our beef supply for all of our fresh, chilled and frozen supply chains. All of our beef comes from the UK and Republic of Ireland and we now have 60% fewer processing sites. By simplifying our beef supply chain and working with fewer trusted suppliers we are improving transparency and traceability.

We source from more than

70 countries

This document sets out how we are:

• Building stronger relationships with our UK agriculture partners

• Using our scale and expertise to make improvements in our banana supply chain

• Playing a leading role in improving working conditions in the clothing industry

• Working with our trusted suppliers to drive innovation and quality for our customers

• And more broadly, anticipating and responding to challenges across our supply chain in innovative and effective ways

Over

By making the right changes today we can build supply chains that will last long into the future, offering great value and better products for customers. We want to be the partner of choice wherever we work, by developing economically sustainable relationships that benefit our customers, our suppliers and us.

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To help build customer trust in our meat supply chains we carried out a stringent review of our entire supply chain and published the results of extensive DNA tests, so our customers can be sure that what is on the label is what is in the pack.

We also created a new supplier list, reducing the number of abattoirs we use by around 30 sites. As a result all of our beef, whether fresh, frozen or in ready meals, is now 100% British or Irish. All of our fresh chicken, eggs and milk are also 100% British.

To help build better relationships with our farmers we are in the process of offering them two year contracts: we are the first major retailer to offer two year direct contracts for beef and sheep farmers right back to the farm. More than 200 lamb farmers and 100 beef farmers have signed up already.

Following the success of the Tesco Sustainable Dairy Group (TSDG), which we launched in 2007, we have established Sustainable Farming Groups for our beef and lamb farmers. Our Sustainable Farming Groups will help us to build relationships and trust between Tesco and our farmers. They also provide a forum to discuss customer needs, our standards and how we can work more closely together.

UK AgricultureWe are simplifying our supply chains, demonstrating better traceability and building stronger relationships with farmers, growers and fishermen

We have been making significant changes to the way we source our meat in the UK so that we can support farmer livelihoods and help ensure that we can supply our customers with great quality meat at an affordable price.

Our efforts have been strengthened by the appointment of our new Director of Agriculture, Tom Hind, who has joined us from the National Farmers Union.

Tom Hind AgriculturalDirector

‘We recognise we need to work closer with farmers than ever before. We want to secure the best quality supply for our customers and to do this we need to be seen as the retailer of choice for farmers and growers in the UK. We also need to work for the long-term, aiming to leave a lasting legacy with UK farming communities’

Tom leads a team of dedicated agricultural experts who work with farmers, growers and fishermen in the UK and beyond. They ensure we have presence within farming communities and can work to develop partnerships that benefit our customers as well as our businesses.

British agriculture’s biggest customer

Extending our sustainable

farming groups

Investing in the Future Farmer

Foundation andour Producer

Network

££

£££

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Simplifying our beef supply chains

A dedicated team of experts

overseeing our beef supply chains

To support the next generation of British agriculture, we launched our Future Farmer Foundation in November 2013. Working with 100 young farmers in its first year, the Foundation will offer leadership training, business planning advice and mentoring, including the chance to meet buyers and technical managers.

In recent years we have made significant changes to our banana supply chain. We now work directly with a select number of farms. In 2014 almost half of our bananas will come from just 12 farms in Costa Rica and Colombia which exclusively supply Tesco. This direct approach not only means that we can source the right amount of good quality bananas but also helps us to ensure that our growers are operating to the highest ethical standards, protecting workers and the environment.

We have also invested in local expertise in our supplier countries. Most of our banana technical and ethical trade managers come from the countries in which they work and have expert, local knowledge of the industry. Through regular farm visits they have developed strong relationships with our growers.

We have also committed to play a leading role in cutting out waste throughout the supply chain. By using state-of-the art technology we track and regulate temperature during shipment. We then fix our ordering volumes a week in advance to help our ripeners plan ahead. We have introduced better in-store handling, improved our displays and given customers tips on how to store their bananas at home. Cutting waste is not only important for long-term sustainability, but also helps us to offer growers and customers a better price.

Bananas

We play an active role in the World Banana Forum

to drive global industry standards

We have committed to pay at or above the Fairtrade minimum price wherever

we source bananas

Communicating more regularly with our customers and stakeholders about

how we source bananas

We are working to source one of our most popular products sustainably and to the highest ethical standards

There are well known challenges in the banana supply chain around wages and safety associated with pesticide use. Given this, how can we ensure that we source high quality bananas in a sustainable and fair way?

We have committed to pay at or above the Fairtrade minimum price wherever we source bananas

Our sourcing strategy

£££

WOR

LD BANANA FORUM

WBF

Our Supply Chain

Producer Boat Ripening In-store

We used to buy our bananas from the ripener

Daniel Pacheco - Technical Manager

Now we buy them directly from producers in Costa Rica, Colombia, Ecuador and West Africa. This gives us greater visibility and influence through

the supply chain

‘What makes a really good banana is the care the grower takes of the fruit from the beginning. Harvesting is a very important and delicate process - it takes expertise and experience to pick high quality fruit in the right way. I work with farmers to ensure we meet high standards and ensure we don’t waste the crop.’

Every year Tesco sells over 227,000 tonnes of bananas in the UK and Republic of Ireland. These are sourced all year round from nine countries around the equator. Around 5% of our bananas come from smallholder farms while nearly 95% of our bananas are sourced from large plantations. This provideswider-reaching support to more ofthe communities we source from.

We’re building long-term relationships with our growers and are helping to ensure that we have sustainable production and good environmental practices. In addition we are committing to go further:

Communications Labour standards Collaboration

We source our clothing from 22 countries, with the vast majority from China, Bangladesh, India, Sri Lanka and Turkey. The Tesco Clothing Manufacturing Standard ensures consistent product quality in all of our sourcing countries. We have a team of experts based in our sourcing hubs working across general merchandise and clothing to ensure decent working conditions.

In Bangladesh, we have made a number of commitments to improve working conditions. These include structural surveys for all factories and suspending any factory where we have concerns. We have also commited £1m to fund safety improvements.

We also support the Bangladesh Accord on Fire and Building Safety, a legally binding agreement between two global trade unions and 150 international brands and retailers. It is independently chaired by the International Labour Organisation.

ClothingWe aim to play a leading role in improving working conditions in the garment industry

The Rana Plaza building collapse in Bangladesh was the worst industrial accident in the history of the garment industry. Although we didn’t source from Rana Plaza we have a responsibility to help bring about change to improve the livelihoods of all those who work in the industry.

F&F is now available in

16 Countries

We source our clothing from

22 Countries

We are playing a leading role in improving working conditions around the world, for example supporting the development of the Ethiopian garment industry, and we are committed to further strengthening our global team of labour standards experts. We want our customers to buy F&F clothing with the knowledge that it is made responsibly.

Strong sourcingrelationships

With volatile commodity prices and shifting global supply the food industry needs to invest and innovate to meet customer needs and support the communities that produce and buy our products. We have Tesco experts on the ground across our supply base who work with our partners to identify risks and opportunities.

Basmati RiceWe have entered into a long term strategic partnership with the Marbour Group to supply own-label Basmati rice across Europe from two of their sites in the region. Our collaborative relationship has allowed us to take a proactive approach in risk-managing the fluctuation in commodity prices, currency volatility, packaging and freight costs. The partnership has allowed us to build relationships with producers, which gives security of supply and traceability from source to our customers.

Pork, Beef and LambOur long standing partnership with Hilton has now been strengthened by a five-year contract, with truly global reach. In addition to the significant investment they are making at one of their UK sites, our relationship with Hilton is an example of one where we are giving suppliers the confidence to invest in new countries. As a strategic partner, Hilton are refocusing their site in Poland on supplying Tesco, providing fresher products to our customers in Central Europe. We are also finalising our plan with them to build a new dedicated facility in Thailand to supply one of our biggest international businesses.

Citrus FruitAs well as a strategic approach to developing specially cultivated new varieties through the Citrus Genesis programme, our partnership with MMUK has also allowed us to develop ways of getting our fruit to customers even quicker. By providing volume forecasts further in advance, we allow our suppliers to send fruit straight from their sites in Spain directly to our UK depots. As a result, customers can buy fruit which is up to two days fresher and this extra shelf life helps reduce waste throughout the supply chain.

Our prioritiesAnticipating and responding to challenges across our supply chains

In this document we have shared some specific examples showing how we work with our trading partners. We are committed to trading responsibly and working to:

• Improve quality• Mitigate risks • Improve end-to-end productivity• Reduce waste• Improve the way that we serve customers

We are approaching this in the following ways:

• We are building formal, long-term supplier relationships. In doing so, we will help producers to deal with volatility and uncertainty and give suppliers the confidence to invest in innovation.

• We will continue to build expertise and skills to support the development of our supply chains, primarily through in-country expertise and Sustainable Farming Groups.

• We will listen to and act on feedback. Our improved Partner Viewpoint Survey will be used to identify areas for improvements.

• We will engage externally with the many stakeholders who are trying to improve global trade. We will also aim to get expert advice to help drive ambitious plans, for example by working with our new Independent Supply Chain Advisory Panel.

• We will use our scale to support our producers and share good practice, for example by enhancing and expanding our Producer Network and Knowledge Hub as leading online communities to thousands of suppliers worldwide.

The Network now has over 2000 members

Our Producer Network

We have extended the Network from fruit and

vegetables to dairy, horticulture, beef, lamb,

fish and seafood

We launched our Tesco Producer Network in 2012. It is now 2000 members strong with representation across 47countries.

With producers and Tesco teams regularly participating in online discussions, webinars and surveys, sharing best practice and collaborating, the Network is proving to be a powerful tool in building stronger relationships and in finding solutions to shared issues.

Our members have told us how much they value

interacting with others on an online platform

2000

Our new Independent Supply Chain Advisory Panel

The Panel will provide expert advice on the way we take forward our programmes. It will also assess the effectiveness of our programmes and will monitor, challenge and support our progress.

The external members of the panel are Justine Roberts: CEO and Founder of Mumsnet; Bill Mustoe: Immediate past Chairman of First Milk and Frank Roberts & Sons Ltd; Paul Wilkinson: Chairman of Thorntons plc., Fengrain Ltd and the National Skills Academy for Food and Drink, and also farms 900 acres in Essex and Cambridgeshire; Poul Christensen: President of the National Federation of Young Farmers Clubs and Director of a family dairy farming business in Oxfordshire.

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