A Monthly Publication

WHAT YOUR FOOD REALLY COSTS.....

By Joe Parker, agricultural ‘expert’

To provide customers with the huge variety of inexpensive food that they offer, supermarkets are ruthlessly exploiting their effective monopoly as the biggest buyers of food. They can dictate how, where, when, and for how much, their food is produced, packaged, stored and delivered. This is monitored by a sophisticated system of specifications and tight managerial control, including direct contracts with selected farmers rather than traditional competitive markets, and the use of preferred slaughterhouses, processing and packing companies.

Supermarkets employ researchers to discover precisely what the average cost of production is for a particular crop worldwide, then conduct blind auctions over the internet, buying only when the price has reached the lowest level. Farmers do not know what price has been tendered by other producers and this forces them to offer their produce at a low price to ensure a sale. Producers of perishable foods are especially vulnerable. Only multinational food corporations and companies with successful brands have any leverage with the big suppliers.

The recent Competition Commission Report on Supermarkets cited 30 alleged exploitative supermarket practices used on suppliers, including not paying them on time; changing specifications at the last minute on quality, quantity and packaging, and charging suppliers for supermarket errors. At the heart of this is the supermarkets' refusal to enter into binding contractual agreements with suppliers, thus leaving them with no redress against exploitation.

All of the supermarkets admitted to the Competition Commission that they requested suppliers to make a payment for better positioning of products in stores, and demanding 'non-cost related payments', i.e. payments to ensure the continuation of business. These are sometimes charged retrospectively. They admitted to imposing charges and making changes to agreements without adequate notice; and unreasonably transferring risks to the supplier.

Farmers are forced to invest a huge amount into meeting supermarket needs, and then can be dropped at a whim, wiping out their entire business and the businesses and rural communities that rely on them. It's the same story across the globe as farmers around the world are forced to compete with each other to produce a better quality product, more efficiently at the price the supermarket demands.

One farmer selling cauliflowers to the supermarkets had his entire crop rejected due to excessive quality standards. He had initially asked the supermarket in question whether he could use a pesticide to eliminate caterpillars, and they had refused. He successfully eliminated them using a biological pest control - the Encarsia wasp. This caused no damage to the cauliflower, although it left the occasional dead wasp that could easily be washed off by the consumer. The supermarket in question refused the cauliflowers anyway.

The Commission report is full of testimonies from farmers and other suppliers about their treatment by the supermarkets. You may wonder why you hadn't heard about this shocking exploitation before; most are too afraid to raise their voices as they are at risk of being blacklisted by supermarket buyers. These buyers are regularly switched between product ranges making it hard for suppliers to build up a personal relationship.

One of the most shocking forms of exploitation is that farmers are frequently paid less than the cost of production for their goods. The UK dairy industry, for example, has been heavily hit by supermarkets who have used the oversupply of milk to their own advantage. It costs a small dairy farmer anything from 18p to 22p to produce a litre of milk. Until the Milk Marketing Board was abolished in 1994, they were being paid 24p per litre. Farmers are currently being paid 19p per litre, for what sells in the supermarket for 78p.

In some sectors such as arable, sheep and beef, the difference is made up by the taxpayer through subsidies. While farmers are often blamed in the media for being 'subsidy junkies' the truth is that in some cases the farm-gate price is so low, that even with the subsidy, farmers cannot cover their costs. The supermarkets and big processors are increasing their share of the profit margin by squeezing the whole supply chain, and the farmers at the end of the chain are in the weakest position. Agricultural subsidies essentially go straight into supermarket profits.

These are clear examples of the supermarkets exploiting their monopoly position. Farmers and even the bigger food manufacturers and processors are reliant on selling to a few retailers and thus vulnerable to exploitation. The Competition Commission found that as a result, suppliers were not able to innovate and develop new markets and were living in fear of being arbitrarily de-listed.

When confronted over this blatant exploitation, supermarkets cast the blame elsewhere. Either: “It's the free market and we can import milk more cheaply from Eastern Europe or New Zealand”; or, “We'd like to pay you properly, but the WTO will clamp down on us for price-fixing” (i.e. paying a fair price); or, “It's the middlemen creaming off all the profits not us”; or, “The quality of UK milk isn't up to it.” The truth is that our global economic system may well be at fault, but it is the supermarkets, through lobbying governments and the WTO, who have manipulated the system to suit themselves, with total disregard for the little guy.

Farmers as primary producers are in an extremely weak negotiating position. They used to have some bargaining power on the basis of seasonality, but imports and glasshouses have destroyed this advantage. Now farmers are squeezed by a limited number of buyers, big suppliers and global oversupply. To make a living, farmers have adopted more intensive methods to produce more to sell, and have invested their savings. This may make sense on an individual level, but ultimately works against their interests, creating over-production and a further decrease in prices.

Farmers on the Continent have formed co-operatives so that with more to sell they can demand a better price. It is ironic that the Competition Commission broke up the large UK dairy farmers co-operative, Milk Marque, in 1999 whilst allowing supermarkets to continue with their monopoly.

Processors may cut costs through mass production and using waste products from the food industry such as maize starch, sugar beet fibre and whey powder, but their cost is hugely increased through packaging, transportation and presentation. For example, Northern Foods' Dalepak lamb grills cost £8.45 a kilo; almost twice the price of genuine lamb chops from a local butcher. It seems that consumers are happy to believe the hype - that they are getting the best deal with the 'convenience' of processed foods and shopping in supermarkets.

Further liberalisation of markets through the Agreement on Agriculture, part of the World Trade Organisation, will mean that our cheap food will continue to be subsidised by environmental and social destruction as well as animal exploitation in poorer countries and the UK. Opening up markets to 'developing countries' will not benefit poor plantation workers, rather the multinational corporations who own the infrastructure by which food is transported around the world, such as international grain traders, Cargill and ADM who control 80% of the world's grain trade.  

The current pattern of supermarket consolidation will not help matters. At a seminar held by the Grocer, ex-CEO of Somerfield, David Simon, claimed that the takeover of Safeway had been a 'killing ground' for weak brand and private-label suppliers, and hence the farmers who supplied them. They have faced crippling reductions in margins and the possibility of losing their entire businesses. Perhaps the free-market dream is one day going to be seen as too high a price to pay for the one global commodity none of us can do without….