NO EARLY solution can be expected to Ireland’s continuing gap between high food prices in the shops and low prices at the farm gate.
And it is likely to be the EU, rather than our own government, that will eventually solve the problem.
There is an unprecedented focus by the competition authorities in Europe on the food sector, which is being subjected to a root and branch review, with particular attention being paid to retailers, and to large-scale processed food suppliers.
It may take a long time, but the EU Commission usually enforces whatever changes it deems necessary, through legislation, guidelines or compromises from the industry, aided by member state support. This has been the case in the banking, insurance and pharmaceutical sectors.
An EU-level approach rather than a national approach is logical. There is talk of an Irish code of conduct for the grocery trade, but that could simply encourage retailers here to turn to non-Irish suppliers. A level pitch across the EU is important for Ireland’s food industry – because it does most of its business outside of Ireland. There are signs that food markets may be more effectively regulated at a global level, thanks to increasing co-operation between competition authorities around the world. Closer attention is being focused on the food sector by the USA government.
Their Department of Agriculture (USDA) has just proposed new rules to curb unfair practices against livestock and poultry farmers. US poultry farmers have been earning only 34 cent per bird, while the processing company makes $3.23, and the USDA wants sufficient protection for the farmers to enable them recoup 80% of their required capital investments.
It is too early to say if similar proposals will surface in the EU, but more and more official communications from Brussels are referring to market failures in the food sector. Examples given of such failures are a decreasing share of the wealth generated by the sector finding its way to farmers, difficulties for small traders dealing with and reliant on large entities, non-transparent prices, and some existing regulations and rules contributing to market failures.
Just this week, the commission has started the ball rolling in its quest for more efficient and fairer retail services, by opening a public consultation which will help them draw up proposals for a new Single Market Act this autumn.
The pressure on the EU to tackle food retail problems should not be underestimated, because 16% of the average EU household’s budget goes on food and beverages, and unfair pricing could hinder economic recovery.
In September 2007, consumer organisations in Italy staged a national protest at the ever rising price of pasta. The year after, the EU Commission issued a communication entitled Tackling the Challenge of Rising Food Prices – Directions for EU Action. In October 2009, the commission published a report under the title, A Better Functioning Food Supply Chain.
Since January 2008, there have been nearly 40 investigations or industry studies into the food sector by national competition authorities in the EU member states. Of most interest to Ireland, which has the EU’s dairy product prices, is the British Office of Fair Trading’s investigation resulting in fines for major retailers and dairy companies for agreeing to fix the prices of milk, butter and cheese.
How the commission plans to proceed will become clearer in an impact assessment to be published this year.
Officials have indicated they may encourage farmer consolidation, having noted “over-concentration” at the food processing and retail levels, which contrasts with a lack of bargaining power at the farmer level.
Officials are also unhappy with the wide gaps between food prices in member states, despite nearly 20 years of the EU single market. In connection with this, they are likely to tackle multinational suppliers who require retailers to source from their local affiliates, for example.
Suppliers of popular brands who require retailers to purchase a bundle of their products, including less-desired items, are likely to be accused of hindering competition. Own brand retailers may be accused of crowding competitors off the shelves and reducing consumer choice.
It is a huge and complicated field, but the pressure is on the EU officials to act, with the European Parliament’s Agriculture Committee the latest influential group to call for new legislation.
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