Commission takes aim at retailers in food supply probe

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The European Commission yesterday (28 October) launched an inquiry into the food supply chain for unfair contractual practices imposed on small farmers by major retail chains and other buyers, in a drive to curb future food price increases and ensure farmers get a fair share of the price of end products.

The Commission report, published on 28 October, represents the conclusions of a year-long inquiry into the food supply chain.

The paper notes that “significant imbalances” in contractual relations between actors in the food supply chain have been identified. Tensions stem from differences in bargaining power and may lead to unfair trading practices, the paper says.

Therefore, the EU executive plans to investigate how farmers’ bargaining position can be strengthened vis-à-vis larger buyers “be they producers, wholesalers, retailers” or large multinational food producers.

It said small food producers’ market position could be strengthened by creating producer organisations, in the context of EU rural development policy and the post-2013 Common Agricultural Policy (CAP), for example.

Earlier this week, French President Nicolas Sarkozy said a new farm bill to be finalised by the end of the year would include the development of state-regulated contractual agreements between farmers and food industry clients for each farm sector (EURACTIV 28/10/09).

“As recent developments in the dairy market show, there is too often a disconnection between the price the farmer gets and what the consumer pays in the shops,” agreed EU Agriculture Commissioner Mariann Fischer Boel, adding that the EU needs to ensure that producers of farm products can make “a decent living”.

European food prices monitoring tool

The Commission communication also highlights “the lack of transparency of prices along the food chain” and the increased volatility of commodity prices.

To increase transparency, EU statistical office Eurostat published a first version of a European food price monitoring tool alongside the Commission communication.

The tool brings together the available data collected by Eurostat and national statistical offices on price developments in the different stages of the supply chain, and compares price developments for various agricultural commodities, food industries and chosen consumer goods.

Food supply chain forum

The Commission also plans to expand the membership, status and mandate of the current High-Level Group on the competitiveness of the agro-food industry to turn it into a forum for discussing the food supply chain.

EuroCommerce, an association representing retail, wholesale and international trade interests, stressed that bargaining power is "an intrinsic part of any market economy and in practice both large and small players exert market power," adding that there is no evidence that imbalances in bargaining power are a common occurrence in the EU.

Regarding the Commission's proposed price monitoring tool, EuroCommerce calls for "commercial realities" to be taken into account and warns against making "simple comparisons".

As "basic foodstuffs are in general produced and consumed locally, a simple comparison of retail prices across member states will be misleading. Local prices depend on many factors, including the cost levels of raw goods, salaries, transport, VAT, waste levels, fluctuations of currencies and territorial supply constraints. This final aspect prevents retailers from purchasing branded products abroad, so precluding the single market benefits consumers should expect," it stated.

The European Retail Round Table  (ERRT) said that any food price monitoring tool should promote price transparency both at retail level and "back through all other supply chain actors" to provide accurate information.

It said the challenge is "to collect all the other price data along the supply chain. While the farm gate prices and the final retailer prices are both clear and obvious, the manufacturer, processor, transport, packaging and refrigeration costs that come between the farm and the retailer are much more difficult to gather and assess".

The ERRT also asks the Commission to address "the barriers that member states themselves erect, which either prevent or deter large retailers from entering their markets, which clearly has a significant impact on prices".

Copa-Cogeca, which represents EU farmers and co-operatives, described the Commission's plans as "a step in the right direction," but warned that "much stronger measures are urgently required" to strengthen producers' and cooperatives' position in the food chain.

The lobby argues that "the EU food market is dominated by large retailers" and that the growing disparity between producer and consumer prices "has reached such a point that it is vital for the EU institutions to take tangible action".

Copa-Cogeca Secretary-General Pekka Pesonen said farmers are urgently asking for measures to facilitate and promote concentration of supply, and to address problems of late payments, market abuses and distortions of competition in the food chain.

With food prices hitting exceptional highs in 2008, the European Commission decided in May that year to open an investigation into the causes of such sharp increases. The EU executive decided to better monitor developments in agricultural commodity prices, analyse the impact of speculation on prices and investigate the functioning of the food supply chain.

In December 2008, it published an interim report on food prices in Europe, including a roadmap identifying the key directions for policy actions. It also called on national authorities to keep an eye out for potential unfair commercial practices in the food sector which may be holding back competition and consumer protection.

  • By Nov. 2010: Commission to report on progress made on the recommendations.

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