Tactics of multiple chains need to be watched

SOARING commodity prices raise serious questions about the direction of food prices.

But just how Irish food processors will fare in this more hostile environment is another critical concern.

For example the cost of pig feed has gone up 40% this year. The implications of that are serious for pig producers, the consumer and for those Irish food processors active in that end of the market.

With more than 60% of the Irish retail market controlled by Tesco, Dunnes and the Musgrave Group through its symbol franchises, the ability of processors to make up those higher costs is getting harder.

On top of that, competition is strong between manufacturers for shelf space as the number of “buy one — get one free” offers, demonstrate.

That situation begs the question as to how the Irish food processors here will continue to survive in an environment where the big players are becoming more dominant.

What they propose to do about that remains to be seen, but so far the level of co-operation among the various groups has been pretty slim.

Recently Dairygold and Glanbia swapped processing functions enhancing efficiencies for both.

We need more of that, but it is not easy for those who compete with each other to resolve those issues, and perhaps further mergers down the line may be the solution.

Competition in the market cannot be judged solely on the price paid to the consumer, which seems to be the only focus ever given to the subject here.

Competition is also about the ability of manufacturers to compete — getting enough out of the multiples to justify their continuing presence.

That may become a bigger issue than we imagine as the multiples tighten their grip in Britain as well as Ireland.

Some time back Enterprise Ireland proposed a rationalisation programme to cut beef processing capacity by one third.

The Competition Authority rejected the move.

Cutting the number of plants was bad for beef farmers in Ireland, it decided. It had a point.

But it is easy to confuse price competition with long-term survival issues.

The idea was to create a more efficient processing sector, a move that ultimately should have been good for both the farmer and the processor.

But that logic did not win through.

At this point a real tension exists between protecting the consumer and the processor, but the tradition here has always been to come down on the side of the consumer.

It’s ironic because food price inflation has been absent for years, relative to the rise in inflation.

One of the reasons for that is because the processors here are being squeezed in order to keep the foot falls into the various multiple chains on the increase.

Recently a new report in Britain carried out by the All-Party Parliamentary Small Shops Group dealt with the tactics of big multiple chains and how they behave in the market.

They highlighted one case involving a big multiple that moved into a local market and knocked £8 off a £20 basket of groceries, which turned the individual player into a shadow of its former self. Tesco was the multiple in question, but other cases could have been cited if the committee spread its net wider.

In Britain the multiples control 80% of the retail grocery market.

If competition was the real core of the argument, then the return to a totally disparate market driven by independently owned retailers would make sense.

Big multiple chains may be good for the consumer at this stage, but there is a bigger picture that we have failed to grasp.