Thursday, 21 August 2008

Cheap Food vs Food Security

It has taken a lot of hard graft by farmers and their unions to push up the price of milk at the farm gate over the last year. The price had previously been forced downwards by supermarkets in a price war, and the suggestion that the supermarkets may be about to start another price war over milk is of concern to many in rural areas.

There's nothing wrong, of course, with the supermarkets competing for customers by selecting certain products and cutting their prices. Few consumers will complain about getting the foodstuffs at a lower price. 'Loss leaders' have long been a staple weapon in the competition between retailers. But 'loss leaders' should be exactly that; and supermarkets should expect to take a loss on them.

What is unacceptable is for the retailers to arbitrarily drop their prices of staple products and then use their buying power to force producers' prices down, beyond even the point at which producers make any money at all. When they do this, the retailers protect their own profits and margins, so they lose little or nothing by introducing price cuts - and the winners of the price war may even increase their overall profits by drawing in more customers. The real losers in such a price war are the producers.

Ideological supporters of the free market might argue that it doesn't matter – there's plenty of milk around, and the retailers can simply buy it from elsewhere if the farmers won't match the prices which they are willing to pay. That may make ideological sense, and it may make economic sense to the supermarkets who look only at their own profit and loss; but it does not make sense in social or environmental terms.

'Food miles' is already a significant issue, and food security will soon be another. Food production is not something that can simply be turned on and off like a tap – capacity lost now will take many years to restore later. It is in all our interests to ensure that we have a viable agricultural sector in Wales, and that short-term game-playing by the major retailers is not allowed to destroy our production capacity.


Anonymous said...

I am an urbanite (or rather, I live in a rural area, but have no connection with the agricultural sector) so I'm largely ignorant about this, but what I'd like to know is why the farmers don't co-ordinate their sales far more effectively than they appear to do.

It seems as if there is some co-operative action going on (and to which you refer) but if you suggest that the supermarkets can still pit suppliers against one another then it would seem much more is needed.

It strikes me that this is a legitimate market response to the very strong buying power of the big four supermarkets. If we baulk at the idea of one singe farmer's co-op on competition grounds, why not simply set up three or four? That would represent as much competition as the authorities seem content with in the retail sector, and farmers would still be free not to join any if they wished.

Farmers shouldn't hide behind arguments of social or environmental detriment. If they are being outbid in the marketplace they need to change the terms of trade in their favour. The bottom line of any co-op should always be: no milk sold at below gate prices.

John Dixon said...


All milk used to be sold through a national organisation, the Milk Marketing Board, which set more or less standard prices. It was abolished as being too much of a monopoly, and since then, the power has passed into the hands of the large supermarkets.

The farmers are all small players, and they are in competition not just with each other, but with cheap supplies from abroad. It makes apparent economic sense for the supermarkets to buy from the cheapest source, even if the result is a reduction in capacity in the UK. But I believe this to be a very short term viewpoint.

Worldwide demand for foodstuffs is increasing, and over a period, the market prices will therefore increase. We need home production, but short sighted economics are in danger of losing us that capacity, and making it difficult and costly to recover when needed.