EU plans to regulate trade won't improve producers’ incomes, meat retailers claim

By Diana Yordanova

- Last updated on GMT

Phil Hogan called the EU Supply Chain Initiative 'toothless'
Phil Hogan called the EU Supply Chain Initiative 'toothless'
Meat and livestock producers in the European Union (EU), especially smaller farmers, will be watching Brussels closely early next year, now that EU agriculture and rural development commissioner Phil Hogan has promised to protect them against the market power of major retailers.

In a speech in Dublin, in his native Ireland, on 6 October, on ‘Safeguarding the food chain’, Hogan eschewed the fence-sitting on this vexed issue that has characterised European Commission statements until now. “Supermarkets in particular now enjoy ‘super-power’ ​[status] due to the twin effect of increased globalisation and a high level of concentration in Europe. […] The imbalance of bargaining power between price-setters and price-takers is stark, leading to situation where there is a ‘fear factor’ for farmers of commercial retaliation, late payments and other headaches,”​ Hogan said. 

As a result, real policy and maybe regulatory proposals would be made by the Commission in the first half of next year (2018), said Hogan. And while he avoided saying exactly what those proposals would be, he gave clear indications that the Commission is considering measures to increase market transparency, enhance cooperation among farmers, facilitate farmers’ access to finance and improve the take-up of risk management tools by producers.

‘Imbalance of power’

He also was critical of the existing EU Supply Chain Initiative, which has been promoted by European industry associations. Its commitments, he argued, “are not perceived by farmers to have any real teeth as they are voluntary, and lack serious consequences for retailers engaging in unfair trading practices”.

As for what will actually be proposed, the European Commission’s agriculture spokesperson told GlobalMeatNews: “It is too early at this stage to speculate on what the proposals could entail.” However, food producers and the voice for the retail and wholesale trade in Europe are already thinking of what the new rules should be, or at least should not be.

Speaking to GlobalMeatNews​, Pekka Pesonen, secretary general of EU food producers’ association Copa-Cogeca said: “The huge imbalance of power in the food supply chain has left us with no choice but to call for legislation to be introduced to improve farmers’ positioning and to stop unfair trading practices. It is unacceptable that farmers get, for example, only 20% of the price of a piece of steak when they are the ones who do the majority of the work in producing it.”

Falling meat consumption

Retailers agree that farmers are in a relatively weak position,​ but consider it to be due to a high degree of fragmentation at farm level – which is out of their control – as well as the pressures of competing within a global commodity market. Kinga Timaru-Kast, head of communications and marketing for retail and wholesale body Eurocommerce, said: “Furthermore, farmers, in particular in the meat and dairy sector, are faced with structurally declining consumption, resulting from changing diets and growing competition from non-animal substitutes. As a result of the ​[financial] crisis in the past years, budget-constrained consumers have reduced meat consumption and focused on lower-priced cuts.”

Hogan’s freedom of manoeuvre has partly been strengthened by preparations to reform the Common Agriculture Policy​ (CAP), which is undergoing one of its regular reviews. In November 2016, the European Commission’s Agricultural Markets Task Force, made up of 12 independent experts, released several key recommendations, which the Commission said it would consider and to which it would give “an appropriate policy response”.

The expert’s report had called for new legislation covering the food supply chain, new rules at European level tackling unfair trading practices (UTPs) by using an adjudicator and having mandatory written contracts for supplies of food to wholesalers and retailers. The recommendations also included improving market transparency by introducing mandatory price reporting and creating “clear and workable”​ competition law to increase cooperation between farmers. This sparked an EU-wide consultation on the issues held by the Commission, which closes on 17 November, examining how to achieve a fairer food supply chain.

“Market transparency needs to be increased. Improved information will enable all operators in the food supply chain to make more informed decisions. In addition, we need to have derogations from competition law to enable agri-cooperatives and other types of producer organisations to grow in size and scale,”​ argued Copa-Cogeca’s Pesonen. 

Retailers unconvinced

Retailers, however, are not convinced that tougher rules on how they buy meat will boost profits for producers. “Regulating trading practices will make it more difficult to negotiate contracts and add more pressure on price negotiations. It will not help improve farmers' incomes, nor protect them from market uncertainty or volatility”,​ said Timaru-Kast.

She added that only a small share of retailers’ transactions happened directly with farmers and that it is processors who purchased on average 70% of the EU’s agriculture production – so their role needed to be carefully considered.

“In Belgium, less than 7% of the domestic pigmeat production ends up on retailers' shelves as fresh meat,”​ she said.

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