Consumers responsible for supplier squeeze - report

- Last updated on GMT

A new report claims that the current financial squeeze on food
suppliers is as much to do with consumer preferences as it is to do
with the might of retailers - a debatable point, writes Anthony
Fletcher.

The current financial squeeze on food suppliers is as much to do with consumer preferences as it is to do with the might of retailers, claims a new UK report.This would suggest that the widespread criticism of supermarkets as greedy entities holding the manufacturing sector to ransom is largely misplaced.

According to the government-commissioned study from London Economics, shoppers' demands for cheap food is more to blame for the decline in farming than is widely supposed, and British food retailers pass on more savings to consumers than in other European Union countries.

Consolidation within the food industry has increased across the EU over the last decade and manufacturing incomes have been largely in decline. But in Britain, price competition between the large supermarkets has been stronger than other parts of the EU, meaning more savings are passed on to the public.

The report looked at basic products such as fruit and vegetables, meat and bread and compared the ratio of prices paid to farmers with those charged to consumers. Overall, the ratio was significantly smaller in Britain than elsewhere.

With apples, the ratio was 1.74 in Britain compared with 3.99 in Austria and 3.44 in Germany. With bread, the ratio was 6.86 in Britain compared with 34.52 in Austria, 30.61 in Germany and 21.42 in France. Only in lamb and eggs were the ratios bigger in the UK than in other EU countries.

UK food retailers have certainly welcomed the conclusions of the report. Kevin Hawkins, director general of the British Retail Consortium, said that the research "proves what we have always known, that falls in farm-gate price are passed on to consumers at retail level just as quickly as increases in farm prices".

"The report also shows that there is no significant relationship between the strength of the UK supermarket sector in UK food retailing and the difference between prices paid to farmers and the price the consumer pays,"​ he said.

But food producers and manufacturers claim that the UK government has been acquiescing to those who want cheap food, at the expense of the supply sector. Speaking to the Lincolnshire Echo​,"​ pig farmer Patrick White said that the London Economics report misses the point about the pressures on food suppliers in the UK.

"Defra (department for environment, food and rural affairs) don't want agriculture at all. They are happy to import cheaply from abroad,"​ he said.

"They are only interested in supporting the 97 per cent of the population that want cheap food at the expense of the three per cent of farmers who provide it."

Andrew Marshall, chief operating officer of equipment supplier SFT, goes even further. He believes that it is the retailers who are partly to blame for the current situation.

If retailers were prepared to work for slightly reduced margins, then billions would be released to create safer products. Farmers, he said, would be able to raise safer livestock and manufacturers would not have to take shortcuts.

"I recently saw an internal memo that some senior buyers for supermarkets had done as part of an exercise,"​ he told FoodProductionDaily.com earlier this year. "It said that if three out often five major multiples (in the UK) got together to delist any one brand name, they could do so.

"In other words, they could break that brand. Over 80 per cent of food sold in the UK is done through the big five [now the big four following Safeway's takeover by Morrisons]. It is essentially a monopolistic situation."

The global squeeze on food suppliers by an increasingly powerful retail sector has been the basis of a number of recent reports. The Wal-Mart business model in which the goal of cutting prices relentlessly is the ultimate objective has been copied extensively in Europe and, from a retail point of view, has been a stunning success.

According to the McKinsey Global Institute, Wal-Mart company was so efficient that four per cent of the growth in the US economy's productivity from 1995 to 1999 was due to Wal-Mart alone. But to achieve all this, suppliers and manufacturers have been squeezed relentlessly to cut wholesale costs.

At a recent industry conference in Arizona, US, makers of foods from cereal to soup discussed the difficulty of raising prices on food products when discounters like Wal-Mart Stores wield such power over the grocery market.

Related topics: Processing & Packaging

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