Wednesday, July 18, 2018

Supermarket sweep

June 29, 2018 by  
Filed under Fen Tiger

Farmers are likely to be the losers when big food retailers merge, says Fen Tiger.

It looks like the phrase big is beautiful is really true after all. An increasing number of smaller family farms are calling it a day – deciding their lifestyle way of life is really not that profitable after all.

Many have simply had enough. Larger roll-over farmers with windfall profits alongside investment buyers are taking over. The large investment firms are slowly gaining a foothold and renting out land to the bigger farmers. And so the process gains momentum.

Grain prices too are going up. And with farmers benefiting from currency fluctuations, it should be better news for the agricultural industry. But two issues have reared their ugly heads recently – and they have dire implications for the sector.

The first issue is the mega-merger of Sainsbury’s and Asda. It promises to create a powerful new force that will even outrank Tesco as Britain’s biggest grocer. It will have immense buying power – making it a nervous times for farmers who are supermarket suppliers.

Stark choice

A pledged 10% cut in food prices for shoppers will mean only one thing: these cuts will be passed back to suppliers. Yet many farmers cannot reduce their production costs anymore. They face a stark choice: quit now or face being driven out of business.

What is almost equally concerning is that any impact this merger may have on small suppliers may not be fully considered as the competition authorities focus on the effect it will have on consumers rather than food producers.

Farmers are already in a difficult position with any merger. It unsettles market balance and while supermarkets may be able to streamline their businesses, farmers may not. As one local supplier recently told me, his belt is already on the last notch and cannot be tightened any more.

As smaller players, farmers struggle to negotiate new pricing. This often makes any worthwhile profit difficult – and without a sustainable contract going forward, the viability and success of any business is uncertain.

Any business needs consistency and a clear path forward. The merger of these two giants will seek to maintain or increase profits but it will come at the suppliers’ expense.

The second issue of concern is the seeming inability of our leaders to negotiate a successful passage out of the European Union. With brexit looming fast, it looks increasingly likely that the USA has its sights set on the UK as a market for its food exports.

Britain’s small size and bargaining position mean farmers are vulnerable at best. America wants access to our market. And while this may result in cheaper prices for consumers, it is important to look at the cost involved.

First, imported food may be produced to lower health and environmental standards. Despite pledges from our government that standards will be maintained, the USA has a real punch when it comes to demanding that regulations are relaxed.

Remain resilient

If imports of GM food are allowed in, farmers may well ask the questions again why GM crops cannot be grown here. I do not believe the public want lower standards but are they prepared to accept the possible threat of more hard earned pounds coming out of their pockets?

The best thing for farmers would be for the UK to increase domestic standards – and insist that food imports must match those standards before they are allowed in. That way prices will rise. Whatever the outcome, our farmers must remain resilient.

I was reminded on a recent visit to a large vegetable grower of the fine balance between success and failure. Despite suppling several large well known supermarkets, margins were tight and profits were only possible due to the sheer large scale of production.

Despite all the modern technology – the monitoring of soil indices, temperature controlled stores and constant data – the success or failure of the business relied 100% on manual labour. Everything was hand picked, sprayed and hand-weeded.

Everything relied on labour from outside Britain. It struck me as ironic that we voted for independence from the very people who we need to harvest our food. Without them – and with tight margins in the face of cut-price imports, it will be a tough road ahead for producers.

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