21 Apr 2015
IFA CALLS FOR REGULATION TO PREVENT BELOW COST SELLING OF FRUIT AND VEGETABLESHorticulture, Retail
Speaking during a presentation to the Joint Oireachtas Committee on Agriculture today, IFA Vegetable Chairman Matt Foley said the current imbalance of power in the food supply chain is unsustainable for the vegetable and fruit family enterprises in Ireland. He said the vulnerable vegetable sector is under particular pressure from the retailers and will not survive the price war if the Government does not address this issue.
Read the full presentation below.
Presentation by IFA Vegetable & Protected Crops Chairman, Matt Foley to the Joint Oireachtas Committee on Agriculture, Food & the Marine on Below-Cost Selling of Fruit and Vegetables
Chairman and Members of the Committee,
I would like to thank you for the invitation to address the Committee today on the below cost selling of fruit and vegetables.
By way of background information I would like to introduce myself. My brother and I operate a protected crops enterprise in Rush, North Dublin growing tomatoes under glass for eight months of the year supplying the retail sector.
As Chairman of the IFA Vegetable and Protected Crops Committee, I represent growers nationally in dealing with the Government and all the retailers.
I am joined here today by Paul Brophy who has an extensive broccoli and cabbage production enterprise in Co. Kildare, Colm Grimes who is farming in Skerries, Co Dublin and producing Cauliflower, Leeks, Scallions and Rhubarb and Eddie Doyle from Mooncoin, Co Kilkenny who runs a potato, vegetable and dairy enterprise.
All four of us supply the large retail multiples both directly and indirectly through merchants and facilitators.
Value of Horticulture Sector
The Horticulture Sector has a farmgate output of €395m of which edible horticulture accounts for 85% and the remaining 15% is amenity horticulture .
While a relatively smaller sector within agricultural, Horticulture makes a hugely important contribution to our economy and rural society with an estimated 6,000 employed full time in primary production, with a further 10,000 employed in downstream businesses .
In 2013, the retail fresh produce market in Ireland was worth €1.2b with vegetables accounting for €500m, Fruit €550m and Potatoes €150m.
Fruit and Vegetables combined represent 14.5% of the average grocery shopping basket and are purchased in 51% of all visits to grocery shops .
In general terms, production levels from the edible horticulture sector have been maintained albeit the number of producers have fallen and continue to fall, as these family businesses are constantly challenged by their weak bargaining position in the food supply chain.
Dominance of Five Retailers
The single biggest threat to our industry is the dominant position of the large retail groups in Ireland who are forcing down the prices paid to food suppliers, in many cases to below the cost of production.
The retail market in Ireland is characterised by the concentration of 95% of buying power in the hands of five retail groups – almost 80% market share controlled by Tesco, Supervalu / Centra and Dunnes, and a further 15% by Aldi and Lidl.
Imbalance of power in the Food Supply Chain
Both in Ireland and at EU level, it is widely recognised and accepted that there is a major imbalance of power in the food supply chain between retailers as price setters at the top of the chain and primary producers as price takers at the bottom.
This imbalance of power in the food supply chain has resulted in a situation where farmers are sometimes compelled to accept unreasonable conditions and prices that do not cover their costs or provide an economic return.
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.
An example of this is the ‘Super Six’ weekly promotion in Aldi at which fruit and vegetables are sold between 39c and 49c. Similar promotions are replicated in the other multiple retailers.
For the average grower, the cost of producing carrots is 55c/kg, swedes 53c/unit and cabbage 52c/unit.
Below-cost selling is the main threat to the sustainability of Irish Horticulture. 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 our sector.
Supermarkets use below cost selling to encourage footfall into their stores.
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 lost to imported produce.
Such promotions also greatly affect the sales for other competing fresh products (i.e. 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.
Products that do not fall within the supermarket specification are normally sold to the catering sector. However, during these promotion periods large volumes of this Class 2 product can remain unsold.
The volatility in demand caused by these promotions is unstainable.
Growers were the victims in a vicious battle over market share when retailers savagely discounted Irish potatoes and vegetables in the run-up to Christmas 2013, when some items were sold at one tenth of their production cost. Such action by retailers had a very negative effect on the wholesale sector and farmers have saw this avenue of sales vanish.
It would be naive to think that growers are not making a substantial contribution to these promotions. The majority of growers specialise in a small number of products and do not have many product lines over which to spread the costs across.
The long-term outcome of below cost promotions is a lower price for their products.
The Competition and Consumer Protection Act 2014 is a first attempt by Government to improve the functioning of the food supply chain. While IFA believes that the legislation does not go far enough, the new Grocery Regulations currently under consultation and due to be commenced this year, will be judged by suppliers and farmers on their effectiveness in rebalancing power in the food supply chain.
While the legislation fails to address a number of issues necessary to restore equity to the food supply chain and curb the dominance of the retail multiples, the biggest of these issues is the failure by Government to prohibit ‘below cost selling’ in the legislation and to appoint an Independent Ombudsman to to oversee and implement the regulations.
It is critical that the new Competition and Consumer Protection Commission (CCPC) takes a proactive role in ensuring full compliance by retailers with their obligations under the new Regulations.
The CCPC will need to demonstrate its willingness to take on board complaints made by suppliers and primary producers in confidence, and initiate its own investigations into retail behaviour.
The CCPC must set the tone for rigorous implementation of the Regulations by issuing contravention notices and naming and shaming retailers found in breach of the Regulations, as well as taking legal proceedings when necessary.
Growers are fed up with the quality product from their investment and hard work becoming a weapon in the war of attrition between the major multiples. The fresh produce sector is in ongoing decline and we will not allow the industry to be decimated by crude price-cutting tactics, which give the illusion of value to the consumer.
Supermarkets are quick to wave the Irish flag and use individual growers for promotion, but that belies the real situation. Farmers can’t continue to produce food at rock bottom prices which put their businesses at risk.
The area of unfair trading practices has been a topic of much debate and serious concern within the EU for many years now and is being addressed in other EU Member States such as the appointment in the UK of a Groceries Code Adjudicator and the German restrictions on below cost selling.
IFA welcomes EU Agriculture Commissioner Phil Hogan’s stance on the supply chain initiative at EU level and his recent call that “all players in the food chain should realise that it is imperative that producers get a decent return for their raw material”.
IFA has called for the EU Commission to address, with urgency, equity for producers in the food supply chain by implementing EU Statutory legislation that will prevent the below cost selling by retailers of produce. The voluntary initiative undertaken in the EU over recent years is simply not working.
In an effort to find solutions to the major challenges being faced by fresh produce growers a Horticulture Stakeholders Forum comprising of representatives of five sectors (Vegetables, Mushrooms, Soft Fruit, Top Fruit and Protected Crops) along with IFA, Teagasc, Bord Bia has been convened and which is Chaired by myself.
The Forum is working towards the development of an action plan in a number of key areas.
An immediate priority is to resolve and rationalise issues concerning Producer Organisations (POs) to facilitate greater participation and of fruit and vegetable growers.
POs are the cornerstone of the EU support regime for fruit and vegetables.
The objective of the scheme is to strengthen the position of producers in the face of concentrated demand. The benefits of the scheme are significant, with annual funding of 50% of qualifying costs up to a limit of 4.1% of turnover.
This opportunity must not be missed by Irish growers and the Department of Agriculture must strike a balance between compliance with EU regulations and the ability of growers to access PO funding.
In conclusion, Chairman, I am calling on this Committee here today to support IFA’s position on the urgent need to regulate for below-cost selling.
The current imbalance of power in the food supply chain is unsustainable for the vegetable and fruit family enterprises in Ireland.
Further reductions in the number of growers may undermine the capacity of the sector to supply certain products, as the output supplied would fall below a critical mass.
Our vulnerable sector is under particular pressure from the retailers and will not survive the price war if the Government does not address this issue.