Unpalatable lessons for food industry to learn

It has been another tumultuous week for the Irish economy and particularly for the Irish food industry.

For Bord Bia, which has responsibility for the promotion of the food industry, the news that a product purporting to be one thing is in fact another, makes their job somewhat more difficult.

How much more difficult remains to be seen, but for an industry so dependent on consumer confidence and reputation, anything that places a question mark over any food product produced in the country will have to be handled very carefully.

It is imperative that the consumers of Irish food both at home and abroad, are re-assured that this is a once-off “accident” or anomaly and is not indicative of a systemic lack of standards in the system.

The “horse burger” controversy should highlight a serious issue in relation to consumer attitudes towards food and how it is regulated. A few years back when the Groceries Order was abolished, the minister for enterprise at the time was convinced by some populist commentary that the order was driving inflation in the economy and that its abolition would bring massive bounty to Irish consumers. In the event the order was abolished, but predictably its abolition has not delivered massive riches to the consumer. In fact, its abolition has really only contributed to the below-cost selling of alcohol. It has also allowed the below-cost selling of some food products, but these are used as loss leaders, and the margins are picked up elsewhere.

However, more fundamentally, the debate around the order and its abolition told us something very fundamental about how some people view food.

It reflected a view that a “cheap food” policy is a desirable objective. I would disagree. There is a price below which food of an acceptable quality simply cannot be produced. For example, the Tesco burgers containing the highest percentage of horse meat (circa 29%) were selling at a retail price, which simply could not be made of beef, unless the producers and/or retailers were operating at a loss. There is little evidence to suggest that the retailer in question is operating at a loss.

By definition, a “cheap food” policy will ensure that the quality of food being sold to the consumer will suffer. To produce high-quality food, a producer needs to use high-quality inputs and operate in a high-quality environment. These requirements are going to be more expensive.

Consequently, if retailers are not prepared to pay producers a fair price, the producer will either suffer losses and eventually go out of business, or will be forced to cut back on the quality of inputs used or the quality of the production process. For a manufacturer of beef burgers, the use of cheaper horse meat would present a possible course of action. In the UK back in the 1980s, the use of cheap bone meal presented an alternative and cheaper course of action. The consequences were not great in either case.

Consumers have got to realise that if they want to have any chance of consuming quality food, they are going to have to pay for it. Likewise, retailers have got to realise that they must pay producers a fair price for what they produce. Of course there are some consumers who through choice or economic necessity, demand cheap food. However, they must realise that they will have to compromise on quality and shocking revelations of the variety we saw this week should not come as a surprise. You get what you pay for.

Hopefully, the events of this week will create a more informed debate about the food we consume. The risks of pursuing a cheap food policy, the growing concentration of the retail grocery sector, and the relationship between food producers and retailers, are all issues that need to be carefully analysed and regulated where deemed appropriate.