UK: Cranks inherit the Earth - ORGANIC FARM FOODS.

UK: Cranks inherit the Earth - ORGANIC FARM FOODS. - Rural Wales may seem an unlikely site for a distribution company. Yet Organic Farm Foods survives - and grows and grows. By Geoffrey Foster.

by
Last Updated: 31 Aug 2010

Rural Wales may seem an unlikely site for a distribution company. Yet Organic Farm Foods survives - and grows and grows. By Geoffrey Foster.

A regular look at small business.

It often takes a small company to be a genuine innovator. Big business is all too easily blinkered by management fashions, or overly committed to the defence of current methods and existing investment. Sure, small businessmen can be shortsighted too, but being less answerable to shareholders (ie less bothered about City opinion), and less fearful of corporate predators, they are generally freer to do the unexpected. Quantitatively, they put less at risk by pursuing original thoughts and making unconventional decisions. Indeed they may have little choice but to act unconventionally.

Who, for example, would in his right mind set down a wholesale food distribution business - one which aspires to national coverage - in depths of rural Wales? Everyone knows that distributive organisations need central locations, close to the confluence of the motorways. They should not be hidden away in the far west, 50 miles from the nearest town of more than 150,000 people. And certainly they should not be 24 miles from the nearest piece of dual carriageway, nor linked to it by a narrow country road which winds around the hills and makes overtaking a farm tractor hazardous, if not impossible.

Yet that accurately describes the geographical position of a small company which has emerged as Britain's biggest distributor - currently turning over around £6.5 million a year - in the fast expanding organically-grown sector of the fruit and vegetable trade.

Organic Farm Foods (Wales), of Lampeter (pop c2,000) in Dyfed, has further claims to originality too - or rather its founders do. They were in almost at the start of the organic foods movement. In those days, of not so long ago, agriculture was all about increasing yields - using whatever help the chemical industry could provide - and organic growers were a bunch of helpless cranks. Now the boot is on the other foot. Over-production has created mountains and lakes of unwanted food that periodically gets disposed of via famine-relief programmes in distant places. These days farmers are paid to take land out of production, and encouraged to turn it over to leisure activities. Very soon they are likely to be rewarded for converting to lower yielding organic methods.

Meanwhile demand for organically-grown foods has spiralled. Consumers have become increasingly suspicious about the effects of fertilisers and herbicides and fungicides. Environmentalists protesting about violation of the landscape - and the destruction of wildlife - are no longer brushed aside as an irrelevance. People all over the western world are now ready to pay a premium for organically-grown produce, which is guaranteed beneficial to animal life of every kind. Yet this market could never have developed without sources of supply - which is where Organic Farm Foods comes in. Here was a marvellous commercial opportunity, and one which, in the nature of things, was available only to small businessmen who were not committed to the existing order.

The company's founders did not at first see a business opportunity at all. But nor were they really businessmen. They were idealists, refugees from the real world who had chosen to eke out a living from organic farming through a conviction, unsupported by prevailing scientific opinion, that food production should be treated in a "holistic manner." They held, says Peter Segger, 46-year old managing director (and prime mover) of Organic Farm Foods, that there was a connection between the quality of the soil and of the crops grown in it; that the production of highest quality food depended not on chemicals but on "the highest level of soil management, to create a level of fertility that would be sustainable over centuries." By coincidence - and because land was cheap - members of this school had tended to congregate in West Wales, which contained the largest group of organic farmers in Britain. What they were looking for was something a lot less than a glaring gap in the market: they wanted only some modest but reliable means of disposing of the produce that they couldn't eat.

Typically they were neither Welsh nor of farming stock. Segger is himself a lowland Scot who came to organic farming by a characteristically circuitous route. He has a scientific training, and at one time worked on nuclear submarines in the Admiralty research laboratory at Teddington, west London. The work was fascinating but the civil service ethos didn't appeal. So, for 18 months in the swinging '60s, he "hustled a crumb": he set up music clubs, managed travelling bands, decorated houses. When he eventually had to get a proper job it was with a subsidiary of Associated Fisheries. He started as a clerk and ended up a director.

The subsidiary imported fish, as a service to other group companies. When the main board decided that it must stand on its own feet, Segger took it upon himself to build up a re-export business, and began travelling to the Third World. He also took a hand in the creation of a new fisheries industry in Scotland, where local boats were in the habit of tossing large quantities of tiny scallops back into the sea. Once Segger had shown that these were a delicacy in the US the group set up a string of small processing plants along the coast. Each one was a joint venture, managed by a self-employed partner with a stake in the equity. But then the group decided to buy all its partners out, and centralise the operation. "I just left," says Segger.

He himself went into partnership, with a substantial Canadian company, and bought and sold seafood internationally. Then, 18 years ago, he made his most remarkable career change: he chucked in the job, sold his house and paid off the mortgage, bought a small property close to Cardigan Bay and took up farming. "I had become a trader in food," he says. "I needed to know how food was produced." There were special reasons behind this compulsion. As a food broker he had once, up in Scotland, stood on a quayside watching fishing boats coming in out of a gale. One of them capsized and sank. "It affected me quite a lot. It made me realise lives were at stake."

There was no question of Segger being a fisherman, and he admits that he "knew nothing, nothing, about agriculture." But after moving from Chelsea out to Henley he found himself closer to the land, and he "became fascinated by the process of producing crops." He claims that he "stumbled upon" organic methods, but he was obviously committed early on. "When I asked why farmers were always spraying chemicals I was told that they couldn't survive financially otherwise" - which he didn't accept. There was a different philosophy down in Dyfed, at least among a conspicuous and vocal minority.

"We came together as a group, and effectively set up a range of charitable national organisations." Segger was made an officer of a then moribund body called The Soil Association. He was founding chairman of a growers' association, and a leading light of several more. Convinced of the folly of striving for ever greater yields against the background of a static population, the organic farmers wrote articles, ran conferences, lobbied government, talked to media producers and to anyone else who would listen. In between whiles they farmed.

The soil in that part of Britain is not naturally top grade. The hills of eastern Dyfed are usually considered suitable only for the production of milk or lamb. But Segger's 50 acres lay on a coastal plateau where crops had been grown in former times, and survival was possible. The problem was, says Segger, "having proved it could work, having proved that we could mix in the political jungle, having won scientific support, we didn't actually have a market."

There were very few customers around partly because there were so few growers. More important, there was no infrastructure to connect the two. The organic farmers sold their produce to the occasional health food shop or carried it to markets in little Welsh towns. "A lot of us were unecologically burning up petrol delivering small loads, and at the same time neglecting our farms - it was a bit stupid," recalls Segger. Thus, in the mid-1980s, he became involved in setting up a co-operative of West Wales organic vegetable growers and simultaneously, in the information of a partnership whose exclusive function was to market the produce of the co-operative.

The latter was a very small undertaking and didn't last long. One day Segger had a serious road accident driving back from Bristol - home of The Soil Association - and smashed his legs, which put him out of action for a while. A colleague took over the running of his farm. On the distribution front, thinking was in any case moving on. It was agreed that there should be a separation of roles. Other members of the organic brotherhood would take on all the lobbying an publicity while Segger would concentrate on developing the commercial side. Organic Farm Foods was incorporated in late summer 1986, with Segger as its principal shareholder.

By that time he had raised a few thousand pounds from farmers and well-wishers, and moved into a small factory unit on the industrial estate at Lampeter about 10 miles from the farm. The company had two significant customers, six employees, virtually no furniture and a telephone on a window ledge. The first task of management (consisting of Segger and Suzanne Rees, the English wife of a local farmer, who is now head of sales) was to create grading, packing and storage facilities, and a reliable quality assurance system. The last was "the hardest part", but critical if the venture was to find favour with those who controlled greengrocery distribution in the UK, the supermarket chains.

The organic growers had approached the supermarkets before. Sainsbury and Safeway had shown "mild interest" in stocking organic foods, and each had conducted a trial from one of its regional depots. The story goes that one of the supermarket technical chiefs came down to Wales to take a look at standards. He found the packing line on a farm, installed in a cowshed surrounded by a sea of slurry. Luckily, the visiting executive was a sympathetic chap. "Don't look too close," he told his assistant, "and we'll bend backwards till it hurts.

Quality wasn't the only worry. Continuity of supply was another, for you can't turn the supermarket tap on and off at will. A supplier has to be able to provide a full range of products six days a week. During the first year it became perfectly clear to Segger that "we could only rely on local volume for five or six months' out of the 12. So, in spite of grave misgivings among the adoptive Welsh growers, he imported. He started buying in Holland and France, then moved on to Belgium, Denmark, Ireland, Spain and Portugal, Israel, Italy, Egypt, Australia and the US. The latest project is to bring in supplies from South America.

These days home-grown fruit and vegetables account for less than 40% of volume, even though the company buys from several other UK co-operatives besides the local - and much enlarged - Dyfed group, and from numbers of individual farmers as well. All purchases are made direct, incidentally, never through agents: it is the growers who have to be certified as organically sound (by The Soil Association in the UK, or equivalent bodies overseas). Expansion on the supply side nevertheless compounded the quality problem. The odd blemish may be acceptable in a consignment of organically grown produce, but rot obviously isn't. "Quality, quality, quality - and profitability" remain the overriding priorities.

"I wanted to make it work," says Segger. And, against considerable odds, he has done so. For its size, he maintains, Organic Farm Foods is "unquestionably the most complicated fruit and vegetable packing house in the UK." It has five main customers: Sainsbury, Safeway, Tesco, Waitrose and the Co-op. Supplying each of them with a complete range of rapidly deteriorating produce every day calls for nifty footwork in the trading department, and constant changes on the packing lines. Yet rural Dyfed is not where you would expect to find sophisticated trading skills - or many others.

Segger had to shop around for expertise. He imported a microbiologist, ex-Beecham, as head of quality control, and a buyer from one of the supermarkets. His own brother Gordon joined as the finance man and deputy MD. A second brother, Laurie, is in charge of the packaging department. But willing hands were never in short supply. Numbers have climbed for six to 150, which mopped up a lot of the local unemployment, and spilled over into adjacent factories. The company now occupies half-a-dozen units, and has ample space in reserve.

It's all a bit makeshift still. Segger claims that £1 million has been invested in the past couple of years (some of it in leased equipment, the rest provided by borrowings) and points to new computers and packaging plant. But there's no money to splash around. Employees had to insulate the new cool store themselves, because contractors would have been too expensive. And even his own office, where Segger sits unecologically chain-smoking, has the temporary air of a company HQ just before the battle.

Margins are wafer-thin. But never mind, the company is both profitable and expanding. "We are blessed with a market that seems to want to grow, and with customers who are not going to go bankrupt," declares Segger. "We should be so lucky." Even the green Welsh landscape is a blessing. Shuttling its vehicles between England and Wales costs Organic Farm Foods maybe an extra £80,000 a year. But set against that the saving in rent (40,000 sq ft at under £2 per sq ft compared to £4.50 - £6 in England), and lower labour costs, and the economic advantage lies with Wales. Besides, a lot of produce from the Continent is carried by South Wales truckers glad to find a return load which is destined for somewhere near home. "That was a piece of grace that fell from the sky."

Find this article useful?

Get more great articles like this in your inbox every lunchtime

Subscribe

Get your essential reading delivered. Subscribe to Management Today