Costs, not rip offs, driving food prices

IT’S the cost of doing business, stupid, and not rip offs by the retail sector that’s driving up the cost of food.

So concludes a detailed study into the independent retail sector involving Musgraves and BWG.

Carried out by consultants Tansey, Webster, Stewart, the report found increasing wage costs, insurance, transport, local authority costs, more expensive regulation and other factors have led to costs to industry rising by more than 50% over the period 1999 to 2002.

IBEC’s Food and Drink Industry Ireland, the Retail, Grocery, Dairy and Allied Trades Association (RGDATA) and the Irish Association of Distributive Trades (IADT) paid for the report.

In the report, Paul Tansey of the consultancy group concluded there was “no evidence of excessive margins in food production or the independent grocery trade”. To carry out their research the consultants got access to the accounts of Musgraves and BWG as well as to the accounts of 50 independent retailers in Ireland.

In its summary, the report argued that, far from being perpetrators of high costs, the food industry has absorbed huge costs over the five-year period.

Arguing their case the consultants note that the results from the three largest food wholesalers to the independent sector between 1997 and 2002 showed net profit increased from 1.6% to 1.7% over the period, while business operating costs increased by 116%.

Making their case further tThe consultants also noted that, since 1999, the increase in Irish food prices have been less than the rise in general inflation. General inflation is running at 2.3% against inflation in food products, which is at a modest 0.6%, the consultants argued.

Expanding on the findings, Mr Tansey said the weakness of the euro has played a major role in the hike in food prices. As of now 56% of the food, drink and tobacco consumed here is imported from the UK and the weakness of the euro against sterling since 1999 has been a key factor in the rise in food retail prices, he said. RGDATA director genera Ailish Forde welcomed the findings of the report, saying it “nailed the lie that the independent retail grocery sector is involved in profiteering and shows that net margins for the wholesale trade are at 1.7%, while margins for the independent retail sector have decreased to 2.65%. IFA president John Dillon took exception to the self-congratulatory tone of the report.

Since 1995, farm incomes have fallen 25% in real terms, he said. No other part of the food chain has suffered in that way.

All of them, have been able to recover their costs “and it is not Irish farmers that have been driving up the cost of food to the consumer,” he said.