According to the European Economic and Social Committee (EESC), abusive practices among retailers are hastening the decline of the agro-food sector, with the resulting distorted market affecting consumers as well as suppliers.
“It is a fact that a handful of retailers control most of the market and impose their own terms on suppliers. Contractual freedom is a notion that exists only on paper. This is an illegal oligopoly which is causing a distortion of the market, with a widespread abuse of buyer power. The EESC wants to put a stop to this situation,” says Igor Šarmír from Slovakia, rapporteur of the EESC opinion on the ‘Large retail sector’.
According to an EESC press release, although the European Commission set up a High Level Forum for a Better Functioning Food Supply Chain, the stakeholders in the agro-food chain have been unable to agree on basic principles for combating disloyal practices, and self-regulation has not worked at either EU or national level. The EESC says it calls for a binding legal text to be drafted as a matter of urgency, for fair competition to be encouraged, and for action to be taken against illegal retail oligopolies.
The Irish Farmers’ Association is only too aware of how Irish producers are being squeezed. The IFA’s liquid milk committee chairman, Teddy Cashman, is calling for the producer milk price to increase by 5c per litre. Cashman believes that the country’s 2,500 liquid milk producers need a better return from the retail sector through their processors.
The extraordinarily wet summer of 2012 and the resulting poor silage harvest is being sorely felt as most farmers gear up for spring and summer production. “This winter has seen us hit with elevated costs due to high feed prices and lower volumes of poorer-quality forage, which has also hit milk output levels,” Cashman says.
A handful of retailers control most of the market…with…widespread abuse of buyer power
“We’ve been in contact with retailers in recent weeks, making our case for recognition of the unique pressure on liquid milk production this winter, and the need for the food chain to deliver the necessary producer price increase,” he said.
The situation is worsened by the price-cutting practices of warring retail chains. According to the EESC, the abusive and anti-competitive practices which large retailers impose on their food suppliers reflect a lack of any real contractual freedom. As a consequence, the inability of certain suppliers to meet the requirements of large retailers and the resulting economic difficulties are contributing to the decline of the agro-food sector in several countries. Certain Member States which were once self-sufficient in terms of foodstuffs, according to the EESC, now no longer enjoy food security.
Teddy Cashman claims that at least some profits from retail and processing need to be passed on to farmers. “All dairies are well aware that, to cover costs and pay themselves a modest wage, farmers this year need an annual average price of no less than 40c per litre, and they must pay farmers a higher milk price immediately. In recent months, we have substantiated this situation in detail with all the main retailers,” Mr Cashman said. According to the Irish Creamery Milk Suppliers Association (ICMSA), however, the January price from Glanbia and Kerry co-ops for liquid milk actually rose—but to a mere 33 c per litre.
Price pressure from powerful retailers (which is then passed on by processors) causes substantial negative effects to Irish and other European farmers, directly impacting farm income. Further knock-on effects of squeezed margins in Ireland include farmers being forced to increase stocking rates (which may compromise Irish surface and groundwater quality), and having to produce more saleable product from less inputs, negatively affecting animal welfare and increasing the possibility of quality issues.
In outlining the practices of retailers, the EESC points out that, according to market share statistics, 84 per cent of European suppliers to the large retail sector were victims of a breach of contract in 2009.
Furthermore, 77 per cent were threatened with product delisting unless they gave the supermarkets unjustified benefits; 63 per cent saw a reduction in their invoice price for no valid commercial reason; and 60 per cent were forced to make payments for which they received nothing in return.
Such abusive practices mean lower prices at the farm gate, putting already pressured Irish farmers, their families, and Irish consumers at peril.
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