Tesco must divert some of the business acumen it has used to accumulate its impressive annual profits into building effective, long term, supply systems for core UK agricultural products, the National Beef Association said today.

Speaking on the eve of formal confirmation that the UK's principal retailer has topped the £2 billion profit mark NBA chief executive, Robert Forster, warned that Tesco's apparent commercial success presents a false picture because the supermarket's procurement structures for home produced food are deeply flawed and could soon fracture.

"Its stock exchange driven emphasis on profit generated through aggressive discount pricing is dangerously one sided because it is not balanced against the establishment of a secure supply base," Mr Forster explained.

"Price wars are no longer a temporary tool in profit making plans and have become so embedded in routine management strategy that they threaten the future delivery of every day domestic products like table potatoes, beef and milk."

"Everyone in the UK agricultural food supply sector recognises that the gap between retail profit and supply chain loss is so wide that the link between farm and supermarket cannot be maintained."

"At some stage, hopefully very soon, Tesco will accept this and develop fresh retail strategies that reinforce its commercial connection with suppliers and build in long term securities."

According to the NBA every one of the UK's mainstream beef farmers is turning out cattle for significantly less than total cost but processors cannot help because they too are caught in the retail price squeeze.

"But instead of being frightened at the long term implications retailers like Tesco compound the danger by continuing to offer beef at shelf prices that only just generate a gross margin and in net terms deliver nothing at all," said Mr Forster.

"The fact they recover this loss from volume sales of other high margin, added value, grocery or non-food items is irrelevant because it cannot hide the appalling truth that the retail price for beef, and other basic domestic agricultural products, is so unrealistic that no one in the beef chain, retailer, processor or producer is making money."

"One solution for Tesco would be to seek imported alternatives but this is neither easy, nor sensible, because European beef supplies are tight and high volume delivery arrangements from elsewhere are notoriously fragile."

"The other would be to commit to developing a sustainable domestic supply chain in which margins were achievable for all producers and processors so long as they are efficient."

"It is bizarre to think that management policies capable of generating a massive £2 billion annual profit are so lopsided that a gaping hole in Tesco's supply chain is growing daily but the down side of this one eyed approach appears to be ignored."