Brian Gardner's Blog

European farm ministers this week faced up to one of the most insoluble problems in agricultural economics: how do large numbers of small producers sell to a few large buyers without being ripped off? The major item on the agenda of this week’s Agriculture Council was an examination of the European Union’s food delivery chain with a view to its improvement so that farmers might get a better price for their output.

Inevitably, there was general enthusiasm for the legalistic approach of governmental interference in the contracts between farmers, processors and retailers so as to establish minimum price levels.

The extent of the undoubted gap between farmer and consumer prices during the later stages of the recent wild fluctuation in food commodity prices is revealed by a European Commission report studied by the ministers, This reveals the reality of the current power of the monopolistic retail chains which now dominate food marketing in western and central Europe.

The Commission’s data shows quite clearly that after enjoying high prices for their milk, meat and cereals for a very short time, farmers’ prices collapsed and fell even below pre-crisis levels. Retail prices, on the other hand, did not fall by any appreciable amount. Indeed, they are now substantially higher than they were before the 2007-08 price hike.

The problem which food producers – including not only farmers but first-stage processors – face is the monolithic power of the super market chains. In most of western Europe between 60 and 90% of the food retail market is in the hands of often only a couple or at most four major companies. While not openly colluding on the prices they pay and those they charge consumers, they watch each other sufficiently closely that suppliers have to accept the lowest prices and consumers gain little from falling commodity prices.

The only apparent solution, as the Commission and some ministers have suggested, is for farmers and processors to gain countervailing economic power through tighter marketing organisations. Historically this has seldom worked, because sooner rather than later someone breaks ranks and groups loose their bargaining power.

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  1. In the UK we used to have a Milk Marketing Board until lobbying made Thatcher decide to encourage massive abuse of market power.

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