Five Ways Below Cost Selling Hits Vegetable Producers
While promotions have always been a part of retail sales, the practice of below cost sales has brought a new and potentially terminal threat to the Irish fruit and vegetable sector.
Vegetable growers cannot continue in an environment where their produce is constantly being used by retailers as ‘loss leaders’ and being offered to consumers for way below the cost of production.
For the average grower, the cost of producing carrots is 55c/kg, swedes 53c/unit and cabbage 52c/unit. Meanwhile, retail promotions see these vegetables on sale for between 39-49c.
- Often the timing of the promotions takes no account of available supply. At these times, sales volumes can increase to a multiple of normal demand and in many cases growers cannot meet the orders and sales are then lost to imported produce.
- Promotions greatly affect the sales for other competing fresh products such as broccoli and cauliflower, whose highly perishable nature means they cannot be held over until the promotion finishes. This distorts the market for everyone, regardless of whether your product is on promotion or not.
- Below-cost selling has led to a reduction in the critical mass of certain product lines. For example, there is now only have one major grower in both the iceberg lettuce and spring onion lines in Ireland.
- Below-cost selling has resulted in a drop in the farm gate price of some Irish grown fresh produce lines of 10% to 20% over the past four years. This is directly linked to below cost of production promotions by the retailers.
- Below cost selling contributes to food waste and puts smaller players in the market out of business.