KEY CHALLENGES

Food and fuel prices are rising around the world, mainly due to increased global prices of key commodities like grain, oil and metals combined with the effects of drought and severe weather events increasing demand for food products from the growing economies of China and India and diversion of food to fuel production. These factors affect food prices in Australia because we operate in a global market.

We are trying to make it easier for our customers to make informed decisions about the groceries they buy so they can get the best value for money. That's why we now publish our weekly store catalogues online at www.woolworths.com.au. This way our customers can access pricing information at home and then decide where they will shop with us and what they will buy.

We have invested significantly in efficiency measures in order to reduce costs associated with transport, energy and water.

We have also been working towards introducing unit pricing so that customers can easily compare value for money between different packaging sizes. For each item on sale, the shelf label will state the price of the item as well as the cost per unit.

We have had limited unit pricing in New Zealand for some time now and are currently trialling unit pricing in our Baulkham Hills store in New South Wales. Our plan is to have the scheme rolled out nationally and aligned with any national framework subsequently set by the federal government.

In 2007, concerns were raised regarding substantiation of environmental claims on Select Tissue products. The packaging carried a logo with the statement "sustainable forest fibre", which was questioned by various interest groups.

Following our response to ACCC information requests, the ACCC concluded that no further action would be taken. Global and local forestry management and certification methodology for claim substantiation were considered complex. Woolworths voluntarily removed the environmental claims.

Truth in advertising has always formed a core principle in our Code of Conduct but with an increasing number of suppliers wanting to market their products as green and with numerous environmental certification programs, our buying staff needed to have a set of clear guidelines to help them make decisions about environmental claims displayed on our Private Label products.

In line with our commitment to continuous improvement, we have reviewed our buying practices, and the methodology and information required from suppliers making environmental claims on their products. We have now implemented system improvements where claims are referred by the buyer to a "subject matter expert" for verification to close the gap and lessen the chance of confusing claims making it to our shelves.

In our Sustainability Strategy 2007-15 we committed to meeting sustainable design guidelines in all new stores opening after September 2008.

These guidelines include the estimated greenhouse gas savings based on installation of carbon dioxide (CO2 ) cascade refrigeration systems. However, with around 25 new supermarkets opening each year, the local maintenance industry does not yet have sufficient capacity to maintain this number of CO2 cascade units, particularly in regional areas.

In response to this we have started to use a hybrid system that is more energy efficient and can be more readily sourced and maintained, however it uses synthetic refrigerants. We have commenced discussions with TAFE NSW to investigate ways of addressing the skills shortage and increasing availability of training on CO2 cascade systems for service providers. We will also continue to research, investigate and pilot new refrigeration technologies in our stores to minimise the emissions and maximise the energy efficiency.

The public debate about biofuels and food security has intensified in the past year as global warming and escalating oil prices have created an urgent need to find alternative solutions to the fuel problem.

Biofuels such as ethanol from maize and sugarcane have been put forward as a solution to our fuel problems, however recent years have seen growing local and international concerns over the impact of biofuel production on food security. In our Sustainability Strategy 2007-15 we committed to a reduction of 25% of CO2-e emissions per carton delivered associated with trucks owned by Woolworths through a number of measures, including the use of alternative fuels such as biofuel (with 10% of this reduction from use of biofuels). In light of concerns over food security, we have reconsidered our adoption of biofuels and hope to achieve the reductions through conversion to compressed natural gas and greater efficiencies from transport planning, vehicle design and driver behaviour.

We are supportive of second generation biofuels (produced from materials other than food crops) that have the potential to contribute significantly in reducing our dependency on fossil fuels. We are concerned about promotion of biofuels that are generated from food crops, divert arable land from food crops to fuel crops or result in other adverse ecological impacts.