Despite retailer’s bold welcoming statements for the Defra commissioned Investigation of the Determinants of Farm-Retail Price Spreads report just published, producer groups are complaining it asked the wrong question and is ambivalent in its conclusions on the pressing problem of price spreads.
"The question the report should have asked was not ‘do retailers screw down prices to primary producers to increase their own margins?’ but ‘Are retailers putting pressure on prices to primary producers in order to maintain lower prices for their customers?’" said Derrick Wilkinson, National Farmers Union head economist. "What it finds is that there is no abusive power in terms of price transmission, but that does not get supermarkets off the hook."
The study, carried out by London Economics for Defra looked at the spread between farm-gate and retail prices from 1990-2002 in the UK and a number of other EU member states.
It covered a range of agricultural products including potatoes as well as carrots, cabbage, tomatoes and apples in the fruit and vegetables sector. The results showed that the supermarkets have the ability to exercise market power over their suppliers under conditions where the multiples compete aggressively with one another in selling to consumers. Price reductions that can be extracted from suppliers are then passed on to consumers. The report also found: "the crucial determinant of buying power actually being exercised is the elasticity of supply faced by the buyer…Perishable food products with little alternative outlets are more likely to be subject to buying power than products that can be stored or easily diverted to a wide range of uses and outlets."
It also found that food retailer concentration is only one of many factors affecting the size of the spread between farm gate and retail prices and that the situation for fresh produce is exceptional. "Fruit and vegetables get from field to plate with very little intermediation compared to other sectors such as dairy or cereals so the relationship with buyers is much more open," said Wilkinson. "It is difficult to say from this report why that might be as it is only a partial analysis, but because the relationship is so much more direct, suppliers are much more beholden to buyers."
Independent farming pressure group Farm was scathing of the report. "Unusually, Defra has not chosen to publish its release, and as a report it is typically academic, sitting on the fence without drawing any real conclusions," said the group’s Robert Alderson.
The report had earlier been welcomed by British Retail Consortium director general Kevin Hawkins. "The report 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,’ said Hawkins. "This independent research provides hard evidence that explodes the myth once and for all the supermarkets have farmers in an armlock."
However, Defra itself was unable to make such a bold statement. "At this stage Defra takes a neutral position on the London Economics report’s findings," the department said in a statement. "…It would be useful for the research to be the subject of further deliberation…it is intended to arrange a seminar under the auspices of Defra at which the report and related issues can be discussed by representatives from the farming and food industries and other stakeholder organisations."
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