Retailers’ abusive practices are hastening the decline of the agro-food sector. A distorted market affects consumers as well as suppliers. On 13 February, the European Economic and Social Committee (EESC) endorsed an opinion to put an end to these dramatic shifts which are exacerbated by the economic crisis.
The EESC notes that large retailers constitute an oligopoly in every country. According to statistics on market share, a handful of retailers control most of the market everywhere. The EESC believes that this oligopolistic position gives its member companies an enormous amount of bargaining power over their suppliers. As a result, they are able to impose trading terms on their suppliers which are far from balanced.
The EESC points out that the companies that form this oligopoly are only in competition with one another in relation to their customers. They compete with one another to win over new customers yet competition with regard to their suppliers is scarcely apparent. Competition between large retailers over customers, however, focuses primarily on retail prices and does not take sufficient account of the various social and environmental aspects comprised by all‑round quality.
The EESC is convinced that if a contractual party can impose its own terms on its business partners there is no contractual freedom. The abusive and anti-competition practices which large retailers impose on their food suppliers demonstrate a lack of any real contractual freedom. Abusive practices inflict damage not only on suppliers but on consumers too (especially over the long term). The extent of abusive practice is currently such that it is damaging to the public interest in general and to the economic interests of the Member States in particular.
According to the EESC, particularly worrying abusive practices only occur in relations between large retailers and their food suppliers. They are not applied by the food industry towards farmers or by the large retail sector towards suppliers of non-food products.
The EESC notes that the efforts of farmers and processing companies in certain Member States to set up groups of producers have been penalised by national competition authorities who have assessed the importance of these groups based on national production alone. It also notes the failure of the market as the situation continues to deteriorate in a system that is insufficiently regulated.
In the EESC’s opinion, self-regulation does not provide a sufficient antidote to the distortions observed. “Codes of practice” will not re-introduce any balance into the commercial relations in question. The very nature of such abusive practices both requires and justifies a law to prohibit them.
The EESC calls on the European Commission to begin addressing the issue of oligopolies, to examine their real power and influence, identify to what extent their impact is comparable to that of monopolies and, consequently, modify the principles underlying the rules on competition appropriately.
It can well be that there is the lack of contractual freedom in relations between the large retail sector and food suppliers which should be recognised and placed in a more transparent system . Ideally, this would involve placing the “supplier rebates” applied by the large retail sector “upstream” – i.e. forcing large retailers to include the cost of the various services invoiced to suppliers in the final price of the product. This would make it possible to see how much suppliers actually receive for their products.
The EESC calls on the European Commission to provide national competition authorities with clear instructions to ensure that they take full account of the relevant market when assessing the negotiating power of groups of producers. This should cover all food products from the same category which are available on the market of the country in question not only those food products that are manufactured in the given Member State.
The EESC urges the European Commission to abandon the principle of self-regulation and to propose a binding legal text to improve the situation in the agro-food chain by encouraging undistorted competition. The concept of regulation should not be based on the protection of competition but should allow the State whose economic interest is at stake to intervene as a plaintiff.
Lastly, the EESC believes that there is a need to legislate towards a societal choice that looks beyond market forces, in order to curb the tendency for concentration within an increasingly powerful large retail sector and promote other forms of commerce such as small independent shops, local markets and direct sales from producer to consumer. In this context, the EESC calls on the Commission to place a particular emphasis on shorter supply chains in the documents under preparation on the fight against food waste.
“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 (Employers’ Group, Slovakia), rapporteur of the EESC opinion on the Large retail sector.
Even though the 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. Self-regulation has not worked at either EU or national level. The EESC therefore 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 oligopolies.
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, now no longer enjoy food security.
According to market share statistics, 84% of European suppliers to the large retail sector were victims of a breach of contract in 2009, 77% were threatened with product delisting unless they gave the supermarkets unjustified benefits, 63% saw a reduction in their invoice price for no valid commercial reason, and 60% were forced to make payments for which they received nothing in return.
- Consumer Collective Redress: Comments of EESC (eulaw.typepad.com)
The European Economic and Social Committee has published an interesting opinion on the Commission’s Green Paper on Consumer Collective Redress (or class actions, to call it by another name).
- Time to build the supply-chain society (theraconteur.co.uk)
Horsemeat in burgers, child labour used to make our favourite electronic gadgets, workers beaten and abused in a factory making trendy footwear – just a few recent examples of the risks to corporate social responsibility (CSR) that major corporations run as they try to manage extended supply chains.
The role of suppliers is also critical when it comes to climate change, which is increasingly being seen as a threat to supply chains. A survey, Reducing Risk And Driving Business Value, by the Carbon Disclosure Project (CDP) and Accenture, published in January, found that 70 per cent of companies believed climate change has the potential to affect their revenue significantly.
- EU experts endorse horse meat tests (news.smh.com.au)
The European Union is immediately launching tests for horse DNA in meat products, seeking to reassure nervous consumers that their food is safe and to end the horsemeat scandal spreading across Europe.
The test programme will also look for the presence of phenylbutazone, an anti-inflammatory treatment for horses which is harmful to humans and by law supposed to be kept out of the food chain.
- Burger firm probing horsemeat find (bbc.co.uk)
150 samples will be taken as part of a European Commission survey and checked for horse DNA. This phase will include products – yet to be decided by the FSA – labelled as containing beef as a major ingredient.
Mary Creagh MP, Labour’s Shadow Environment Secretary, welcomed the move, saying: “Labour has been calling for the FSA to get faster results and test more products for weeks.
“With cubed steak, kebabs, stock cubes and gelatine among those new products to be tested there are indications that the horsemeat scandal could go even wider than previously thought.
“These new tests need to be done quickly – people want answers now.”
The UK’s National Beef Association has blamed what it called the “bullying culture” retail buyers have used for decades for the presence of horsemeat in beef products.
National director Chris Mallon said the public and retailers were paying the price for “short-sighted, price-led purchasing tactics”.
He said buyers had “adopted a bullying culture aimed exclusively at securing as much farm food as possible for as little cost as possible”.
“The result is tortured supply chains that add so much unnecessary cost that short cuts on quality and traceability, and even cheating by some suppliers, (is) inevitable”.
- Large Retailers Creaming Ireland’s Farmers (theepochtimes.com)
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.
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.