Elephant in the room in Coveney’s 2025 strategy

There are no prizes for guessing what farmers will put in the responses invited from the industry by Agriculture Minister Simon Coveney, when he launched this week’s preparation of a national strategy for the agri-food sector up to 2025.

He said Ireland primarily competes on the international food market, and maintaining our competitive advantage, based on low cost, grass-based production, is paramount.

There was lots about competitiveness, but nothing about competition, even though competition, or lack of competition, at processor and retail level, is the elephant in the room, as far as farmers are concerned.

In their responses to the Minister, IFA will, no doubt, repeat their recent questions, such as, why is there inequity in the food chain, and a widening gap between the price the consumer is paying and the price the farmer is getting?

Why do Irish farmers get up to €350 per head less for their cattle than UK farmers?

Why weren’t retailers investigated after they forced a collapse of vegetable retail prices last December?

Why are farmers paying at least 50% more for fuel and fertilisers since 2005?

IFA won’t be happy there was no mention of competition policy in the plans for a new agri-food strategy up to 2025 — even though there has been reference at the highest level (by EU Agriculture Commissioner Phil Hogan) to concerns about over-concentration of beef processing in Ireland and the UK.

He hinted at the danger of anti-competitive practices in beef processing — but came straight out in favour of new competition rules for retailers, to help food producers such as farmers get a fair return from the market.

Meanwhile, from the UK comes new information indicating that fairer competition rules must be part of any new agri-food strategy.

Accountancy firm Moore Stephens revealed that the number of UK companies in food production entering insolvency has increased by 28% in 2014, in stark contrast to the 8% fall in company liquidations in the economy as a whole.

The accountants blame a supermarket price war, alleging the retailers are squeezing food producers in order to cut checkout prices and prop up their profits. They believe that supermarkets are trying to compete on price with Aldi and Lidl, but with profit margins that are far higher than in the discount chains. And it’s food producers that suffer.

In a strong statement, Duncan Swift, a partner at the global accountancy firm, said UK supermarkets are going through the bloodiest price war in 20 years and are using producers as cannon fodder.

He said financial failure in the food industry is even greater than the figures indicate, because most farmers and many horticulturalists operate as sole traders or in simple partnerships, and their financial difficulties go unrecorded. He said supermarkets have banker-style trading floors and bonus schemes for their buyers, contingent on securing cash contributions from suppliers, which typically leads to delisting threats, short-notice cancellation of orders and spurious deductions from monies owed.

According to Moore Stephens, UK supermarkets’ tough treatment of suppliers was exposed recently by the accounting scandal at Tesco, which cast light on how supermarket buyers rely on supplier contributions to meet profit targets that trigger big bonuses for the buyers.

Summing up, Duncan Swift said food producers need the supermarkets to reach the public, but can’t afford the terms of business the supermarkets foist on them.

The question is, are things any better in Ireland, or is business done much the same way as in the UK?

Either way, the difficulties of dealing with ruthless processors and retailers now completely overshadow the outlook for farmers, positioned as they are at the bottom of the food chain, and it is clear that competition policy must be considered in the agri-food strategy which Minister Coveney hopes to publish in July, 2015.

Hopefully, that will be taken on board by the newly appointed food strategy committee chairman, John Moloney, who had plenty experience of dealing with the big retailers in his previous job as Glanbia managing director.


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