This week, EU ministers will discuss the European Commission’s communication on a better functioning food supply chain. Food prices are a highly sensitive issue especially at a time of economic crisis and low consumer confidence. Over the past years, the commerce sector has been variously accused of charging high prices, squeezing their suppliers and making undue profits. We believe that these allegations are false and merit further examination.

1. Commerce is only the last link in a complex supply chain

Contrary to popular belief, retailers do not – or very rarely - buy directly from farmers and do not dictate food prices. Retailers are the last link in an increasingly complex food supply chain in which many players intervene between the primary production of agricultural commodities and the sale of end products from the shelf.

The so-called ‘retail margin’ reflects the difference between the cost of goods purchased by the retailer and the final consumer price. This margin covers a number of costs attributable to the retail service– transport, storage, store operation, waste, staff, taxes, etc. This results in relatively small profit margins (2-3% on average) as compared to manufacturers’ margins, which can be much higher.

Therefore, we fear that any effort by ministers to improve the functioning of the food supply chain is doomed to failure if it does not reflect the complexity of the supply chain.

2. Imbalances in market power vs abuse of market power

In practice, both large and small players exert market power and cases of imbalance of market power exist as in any other business activity. However, imbalances of bargaining power do not mean abuse of market power.

A deeper analysis per product category would show that retailers, big or small, have little negotiating power with manufacturers of ‘must have’ products, be they large or small companies. Moreover, as for any other economic sector, the basic principle of freedom of contract must be maintained. Any potential EU or national initiative in this area should therefore be carefully assessed in advance and clearly based on evidence of need. All parties in the food supply chain should be involved and the principles of the single market and of non-discrimination should be respected.

3. Competition is the best guarantee that consumers will get the best deal

Every day, consumers exert their power of choice, since on average, they tend to visit three different stores on any shopping trip. The frequent price wars in commerce indicate the fierce competition among retailers to win the attention of consumers.

We fear that the price monitoring tool proposed by the Commission will remain limited to comparing farm-gate with final retail prices. This would lead to a name and shame exercise, which would totally overlook the fact that basic foodstuffs are in general produced and consumed locally and that prices depend on many factors. This tool would also fail to address practices of dominant manufacturers, who force retailers to buy from their national representation offices, making it impossible for retailers to negotiate on identical products on a cross-border basis. Price differences can be as high as 50% for the same product sold in two (sometimes neighbouring) countries!

A price monitoring tool or the planned web-based price observatories would be an overly simplistic response and would only create more red tape, the last thing we want to see, especially in a difficult economic climate.

4. Own brands meet consumer demand for alternatives to branded products

According to a Nielsen report, over 80% of consumers in ten European countries regard own brand products as a good alternative to other brands. With own brands, retailers have introduced innovation, including fair trade and greener products. On top of that, they are often produced by SMEs and give their producers access to markets abroad. Own brands therefore do bring added choice and value to the market!

5. Developing a holistic perspective

The Commission’s communication is a positive step towards a better understanding of the functioning of the food chain. We therefore urge EU ministers to maintain the current balance achieved in the text. Any follow-up measure should aim to help the chain deliver consumers quality, safe products at the best price and support the competitiveness of all operators along the chain. Any attempt to limit this exercise solely to one link in the chain would lead to an imbalanced outcome - with the risk that commerce becomes once again a easy scapegoat and consumers do not benefit from the whole exercise.

(*) Xavier R. Durieu is EuroCommerce’s secretary-general - www.eurocommerce.be