Long term performance depends on Wesfarmers continuing to have access to responsibly-sourced and competitively-priced products to deliver to our customers.
The ongoing sustainability of supply is important for both local and international suppliers.
We have more than 17,000 suppliers across the Group and our relationship with them is very important to us. We want to provide better value to our customers but in a way that is sustainable for our suppliers and their employees and helps them to grow with us.
Coles is our largest consumer business and its relationship with food and grocery suppliers in Australia has been the focus of some attention. An essential element of the Coles turnaround since its acquisition by Wesfarmers in 2007 has been increasing the efficiency and cost-competitiveness of its supply chain. This has been challenging for some individual food and grocery suppliers but we believe the supply chain in Australia must be more efficient to ensure its continued competitiveness. Coles is working closely with its suppliers to ensure it gets fresher, better products to consumers in a more efficient way. This includes engaging with our suppliers to find solutions to deliver growth and greater efficiency. The latest survey of suppliers’ perceptions of Coles showed significant improvement, with Coles’ overall ranking against competitors improving from fourteenth in 2008 to fourth in 2012. The survey ranked Coles against 15 other retailers (14 other retailers in 2008).
Coles has an Australia First sourcing policy which aims to support Australian farmers and manufacturers where possible, when sourcing fresh produce and Coles brand products. This approach has helped Coles source 200,000 tonnes more Australian fresh fruit and vegetables since 2009.
Recent examples of increased local sourcing include Coles brand yoghurt, Coles brand cheese, capsicums, avocados and Coles brand pineapple, all previously imported to a degree, but now 100 per cent Australian.
Over the year, 96 per cent of fresh fruit and vegetables sourced for Coles customers was Australian grown and more than 90 per cent of Coles brand food and drink products are Australian grown or manufactured.
There has continued to be discussion over the past year on the impact of the retail price of Coles private label milk on Australian dairy farmers. Consumers want local, fresh milk and Coles continues to work with processors to ensure this can be offered at an affordable, competitive price over the long-term.
In April 2013, Coles announced it had entered into long-term agreements with Australian-owned farmer cooperatives Murray Goulburn and Norco to supply Coles brand milk in NSW, Victoria and south east Queensland from mid-2014. As a result of these long-term contracts, Murray Goulburn and Norco will invest significantly in existing and new processing facilities. The new contracts benefit the cooperatives’ member farmers and remove a layer within the relationship with the farmer and processor now combined, ensuring the price Coles pays is market competitive and will see more profits passed on to farmers. As part of the new agreement with Murray Goulburn, Coles has also added the cooperative’s relaunched Devondale brand to its range of fresh milks.
Over the past year, Coles has proactively engaged with the Australian Food and Grocery Council working towards developing a voluntary code of conduct covering the relationships between the major supermarket chains and their suppliers. We hope this will be finalised in the coming year. It has also cooperated with the Australian Competition and Consumer Commission in its investigations into the conduct of major supermarket chains.
More than 90 per cent of Coles brand food and drink products are Australian grown or manufactured
Wesfarmers has a responsibility to ensure that the products sourced by its businesses are made in a way that is consistent with the ethical standards expected by our customers and our employees.
Our businesses source from countries including China, Bangladesh, European Union and the United Kingdom, Brazil, New Zealand and Thailand. Each of these countries has its own legal framework and standards, as well as related risks.
To ensure our businesses continue to provide good value to customers but never at the expense of human rights, each business has a detailed policy that governs the ethics of their sourcing activities in other countries. These policies are supported by audit and review systems.
All of these policies include a range of critical breaches, which are not tolerated by the business. During the year, we identified 59 such incidents in total, from 4,087 suppliers. These included issues relating to bribery, underage workers, forced labour and unauthorised subcontracting.
The majority of these incidents occurred in factories supplying to Kmart and Target, which is indicative of the higher risk profile of the garment industry for issues such as child and forced labour and the fact that these businesses are much larger garment importers than our other business units. For all these incidents, our businesses either worked with the relevant suppliers to resolve the issue in a timely manner and prevent future recurrence or removed their approved supplier status. Details of the incidents were shared across the Group through the ethical sourcing forum.
Fires that occurred in factories in Bangladesh in late 2012 alerted our businesses to the increased risk of fire safety in certain locations. Although the factories in question were not supplying to any of our businesses, Kmart and Target are now in the process of exiting factories in Bangladesh that are located above markets and in multi-storey buildings with shared ownership, due to the potential fire risk.
The horrendous loss of life from the collapse of the Rana Plaza factory in Bangladesh in April 2013 drew global attention to additional building safety risks. Wesfarmers did not source any product from the factories involved, but following the event, Kmart and Target became the first Australian retailers to sign the Accord on Fire and Building Safety in Bangladesh.
The Accord is a five-year legally binding agreement between international labour organisations, non-government organisations and retailers engaged in the textile industry to maintain minimum safety standards in the Bangladesh textile industry. Coles did not sign the Accord as it has placed no new orders in Bangladesh.
Kmart also became the first Australian retailer to pledge to publish the addresses of factories used by its suppliers.
Our businesses are committed to not only ensuring the human rights of workers producing goods, but improving standards and living conditions for the communities from which we source products. Further details of the ethical sourcing programs of our divisions can be found on their websites.
Kmart and Target became the first Australian retailers to sign the Accord on Fire and Building Safety in Bangladesh
Room to Read aims to create a world in which all children have access to a quality education, reach their potential and ultimately contribute to their community and the world. Since Room to Read’s arrival in 2008, it has established 275 libraries in Bangladesh. Kmart supports Room to Read through donations to programs which strive to improve literacy and remove gender inequality throughout Bangladesh.
This is one of Kmart’s three major partnerships with charity organisations where it sources products, the others being Half the Sky Foundation (China) and Salaam Baalak Trust (India).
Half the Sky Foundation cares for orphaned children in China. In 2012, Kmart became the official partner of Half the Sky Foundation’s children’s centre in Changzhou and it also supports the Foundation through volunteer work and raising funds.
The Salaam Baalak Trust cares for and protects neglected street children in Delhi, India. Its aim is to provide a safe place for children to stay, while working to repatriate them with families where possible. Kmart provides funds to enable the Trust to continue providing residential accommodation, education, health and emergency programs for all children.
As well as supporting these international charity partners, Kmart also support workers through the Kmart Ethical Sourcing Code. The code sets out minimum requirements and expectations governing issues such as child labour, wages, benefits, working hours, harassment and health and safety. It aims to ensure all workers are treated fairly and suppliers must demonstrate continuous improvement in order to do business with Kmart.
The company regularly audits the factories used to produce the goods it sells. This year, Kmart has engaged 100 per cent of its suppliers in its ethical sourcing program and has made strong progress towards approving all factories, either through undertaking independent audits or through our mutual recognition program. The remaining factories will be audited over the next year.