Letter from Europe: Curbing the pricing powers of the mighty supermarkets

Tuesday, June 3, 2008

It's high time for an EU-wide organization to keep a close eye on marketing and price agreements for home-grown food and energy, says France. And, for once, nearly everyone in Europe agrees

by NORMAN DUNN

Where national food markets are dominated by just a few giant retail chains, producers of milk, meat and vegetables lose out when the high street price wars start. Now, a European Union (EU) initiative aims to curb the pricing powers of the mighty supermarkets. 

The French traditionally plow their own furrow when it comes to agricultural policies within the EU community. For instance, President Nicolas Sarkozy says that diversity in agriculture will suffer under wholesale acceptance of "decoupling" for EU farm subsidies. Decoupling means a flat rate of support per farm. Sarkozy says he wants to retain "coupled" production-linked support and, in the face of mounting EU opposition, he's doing it, too, with 25 per cent of arable subsidies in France still coupled to tonnage of crops produced and 50 to 100 per cent of livestock grants output-linked.

Other governments feel that this is the road back to overproduction with butter mountains and cool storages full of unwanted carcasses. But there's one aspect of new French farming policy that finds enthusiastic followers throughout the EU. The government in Paris want closer overseeing of marketing powers, particularly by the gigantic trading and retailing elements within the modern food chain.

This March, French ministers called for the creation of producer-processor-marketing organizations to control the process from field to supermarket shelf so as to check that dealings are fair from start to finish – from the wages paid to itinerant fruit and vegetable pickers to the producer prices for meat and milk and the mechanisms of store chain contracts with suppliers.

The move comes at a time when media attention on price pressures of supermarkets for suppliers has seldom been stronger.

In Britain, the "Competition Commission," a body especially created to regulate relationships between the supermarkets and their suppliers, has had to carry out three major investigations into alleged unfair practices in the last seven years. These include payment delays, pressure by one supermarket on producers to stop supplying others and demands by store buyers for "up front" payments before supply contracts are signed.

Before the courts right now, for instance, is the case of a buyer for one of the country's largest chains accused of obtaining up to $6.5 million in cash handouts from a major potato supplier.

Naturally, there are good guys out there, too. In fact, major supermarket chains in most of Europe are distinguishing themselves in these hard times for farmers by introducing campaigns for retailing locally grown foods and by emphasizing perceived quality aspects, such as free-range eggs or organic meat and vegetables from regional producers.

But the power of the huge chains, with the pressure they often put on suppliers to keep prices low, cannot be denied. In the United Kingdom, just four chains supply 75 per cent of the grocery market for 55 million consumers. In Germany, 75 per cent of the market (more than 80 million customers) is supplied by six retail organizations, while in France the first four supermarkets have 52 per cent of the food retail market.

The retail balance of power is even greater in the Netherlands, where a single chain featuring the traditional Albert Heijn stores now has a 30 per cent share in the country's food sales.

Farmers point out that this situation has helped major discounters pressure their suppliers for low prices. They say that there's nearly always a margin of some sort for the retailer, but increasingly often nowadays nothing left for the grass-roots producer.

For instance, sterilized drinking milk was retailing in German supermarkets last year for the equivalent of $1.65 per litre when it was claimed that $2 was needed to cover all production, processing and transport costs. Back on the farm, the price was below $0.50 a litre for milk leaving the farm tank, but production costs there were $0.66 per litre.

It's a fact that this cosy arrangement for the retailers broke down when milk got scarce last summer and winter. But things have settled down now and the supermarkets are again introducing loss-leader milk products on their shelves, products paid for by the farmer's margin.

It's much the same with other home-grown foods. In Britain, ready-to-roast chicken carcasses weighing 1.4 kilograms are retailing this spring for the equivalent of $4.30 in some supermarket selling programs. The farming sector says that these chickens should really cost at least $8.60 per bird if there's to be a decent margin for everyone in the supply chain.

The reality now is that lack of control in these near-monopoly situations is causing serious social consequences in agriculture and the countryside. And things can only get worse because some growers in Europe now have up to 50 per cent of their land growing energy crops.

Guess who organizes processing and marketing in this new sector? That's right, once again a very few extremely large concerns, including the biggest petroleum oil organizations!

High time, therefore, for an EU-wide organization to keep a close eye on marketing and price agreements for home-grown food and energy, say the French politicians. And, for once, nearly everyone in Europe agrees with them. BF

Norman Dunn writes about European agriculture from Germany.