Supermarket Power And Price Wars Damage British Food Supply Chain, Says NFU - UK - The unchecked growth of supermarkets and the ferocious competition between them is damaging the British food supply chain and creating a climate of fear amongst many suppliers, according to farming unions.

In a report submitted to the Office of Fair Trading today in response to a consultation, the NFU, NFU Scotland, Ulster Farmers Union and NFU Cymru make the recommendation that the scope of the OFT retailer referral to the Competition Commission should be extended. The NFU states such a review should include analysis of the impact today’s food retailers have on their suppliers.

Richard Macdonald, director general of the NFU, said: “The Competition Commission has looked at the power of supermarkets before in 2000. They recommended a code of conduct which has failed to make any real difference. Since then the retailers have continued to operate unchecked and are seriously damaging the British supply chain.”

The submission recommends the OFT considers a numbers of areas of concern for farmers and suppliers. The relationship that the major retailers have with their suppliers must be addressed. The NFU has built up a catalogue of complaints about supermarket and other retailer practice which suppliers will not talk publicly about because of an overwhelming climate of fear.

Individual farmers and growers have raised issues including:

• Retailer insists that all printed labels are sourced from list of recognised suppliers. Excellent quality labels can be sourced locally at a fraction of the cost.
  
  

• The change in terms of contract by retailers at short notice and sometimes retrospectively, accompanied by a ‘take it or leave it’ attitude.
  
  

• Suppliers asked to pay the retailer a percentage of turnover, annually, as a gesture of goodwill.

The submission asks for a longer term view to be taken of supermarket price wars. At face value, supermarket price wars have the effect of driving down prices and therefore supplying customers with cheaper products.

However, real damage is being done further down the supply chain where businesses cannot cope with the continued downward pressure on prices, particularly as input costs – like energy and labour - are increasing. Ultimately, the submission warns, this will have an adverse affect on product choice, availability and continued production in the UK.

Mr Macdonald said: “Many farmers and growers are in contracts which supermarkets never put in writing and the terms of which can change overnight. They are often asked to pay supermarkets for the privilege of trading. We are asking the question – how can you run a business in such a climate of fear? Such practises are stripping the suppliers of the ability to compete and grow their businesses.

“The farming unions are not against big business and we do not want to see efficient businesses penalised. However, we are against abuse of power and the lack of regard for the business pressures on others in the supply chain. We therefore urge the OFT to make the referral to the Competition Commission and to ensure that this is a full review with no restrictions or limitations.”

Source: National Farmers Union - 6th April 2006