It is notoriously difficult to determine what margins supermarkets make on foodstuffs, writes Ronan McGreevy
SEÁN IS AN angry man. He supplies carrots, potatoes, cabbages and iceberg lettuces to some of Ireland's biggest retailers.
In an ideal world, he would be paid a margin of 10 per cent which would allow him a livelihood and give him the capital to reinvest. He says is getting nothing like that.
"We're basically indentured slaves to the supermarkets," he says, of the multiple retailers.
All those nice photographs of suppliers in a field of turnips or with smiles on their faces behind a herd of cows are a public relations exercise to give the lie that supermarket multiples really care about their suppliers, he says.
"If I could get hold of the top brass in supermarkets, I'd ask them when did they last meet with their producers. I'd say never.
"Do they know what it costs to grow quality in terms of fresh food? Do they know what good standards are? If they are talking about Irish food, he's usually talking through his arse," he said.
Seán doesn't want to reveal his identity because, he says, multiples are an unforgiving lot which have all the power and wield it ruthlessly.
"Once I harvest something it is starting to die. It takes nine months to grow a vegetable and two days to sell it. You have to sell it or let it rot. The supermarkets know that."
Vegetable growers are at the vanguard of the recent price wars in supermarkets.
Tesco, which has been stung by the price differential between itself and Lidl and Aldi, is highlighting offers such as three peppers for €1.99 and a cucumber for 49c as part of its drive to win back customers.
According to PJ Jones, the Irish Farmers Association's fresh produce co-ordinator, the problem is that those promotions are below the cost price of the vegetables involved.
He estimates that it costs 80c to grow a pepper and 60c to grow a cucumber. That means somebody has to pay for it. "Ultimately that's us."
He says growers, particularly in north Co Dublin, have been living off overdrafts which banks have given them based on the development potential of their land. The recession has left them without that fallback. "Where's the development potential now? It was a false security," says Jones.
"Most of our growers are in negative equity. It is better that we rotovate the product back into the ground rather than take next to nothing for it. There is a race to bottom. If they want to go and discount these products, they should go ahead and do it, but not at our expense."
Since the National Consumer Agency published a report in February that Tesco and Dunnes Stores had near-identical prices, nearly a third higher than those of Lidl and Aldi, the public has been moving steadily to these low-price retailers.
It is notoriously difficult to determine what margins supermarkets make on foodstuffs. Whenever they are asked, supermarkets use the mantra that such information is commercially sensitive and could give a lead to their rivals.
The problem is particularly acute in Ireland because neither Tesco, Dunnes Stores, Lidl nor Aldi publish their profit margins in this country. Tesco boasts that its turnover in the Republic is now almost €3 billion, but is silent about its profit margins.
Research carried out by University College Cork's department of food business and development three years ago found that there were "substantial and in many cases insurmountable difficulties" in establishing just who makes what from farm to fork.
"You can look at the farm level and the retail price. We exhausted every avenue in finding the middle line, but it is very difficult. No business is going to tell you their margin," said report co-ordinator Dr Alan Collins.
However, the report concluded that the share of the retail price being appropriated by retailers had increased dramatically and accounts for almost 60 per cent of the combined price of dairy products such as cheese and butter.
In the case of beef farmers, the share of the retail price received had declined to under a third and sheep farmers were getting a similar share of the retail price.
Margins remain about the same for beef farmers, says IFA national livestock chairman Michael Doran. "The farmer is getting between 35 per cent and 37 per cent of the consumer price for beef. For the farmer to be only getting that is too low.
"The power of the supermarkets is affecting everybody across the board. We feel they have way too much power," he says.
Each year Teagasc carries out a survey of farm incomes. Last year was a good one for cereal and dairy farmers in particular.
However, survey head Liam Connolly says farmers overall are now getting about 15 and 20 per cent of the cost to the consumer of food, a percentage figure which has declined dramatically in the last 15 years when the price paid to farmers was about a third of that charged to consumers.
The price being paid for milk - at about 32c to 34c a litre - is only returning to the level it was at in 1995 while farmers are only getting the same price for beef and lamb as they were in the early to mid-1980s and substantially less in real terms, he says.
"It is the nature of the food business now that the people in the processing and distribution chain are in a better position for the final consumer's euro then the original producer who is in a very weak bargaining position.
"I can say in relation to the consumer spend that farmers' prices have been static. Any increase in the cost of beef, lamb which has doubled or tripled over the counter has gone to the processor and the retailer."
However, Prof Alan Matthews, the Jean Monnet professor of European agricultural policy in Trinity College Dublin says the issue is not as clear-cut as some farmers make out. "The UK government has investigated the major supermarkets there three times in the last 15 years," he says, "and they have found no evidence of unreasonable profit-taking.
He concedes the absence of profit figures for Tesco Ireland or any of the other major retailers is a major handicap in determining whether excessive profiteering is going on - but, he says, other factors may be at play.
"The general trend across the developed world is for the share to the farmer in the final consumer price to fall for two reasons.
"One is that we are tending to shift our focus towards processed foods and secondly, the costs of marketing or bringing goods to market have increased. That includes the cost of labour, property and transport."
He says recent food rises must be seen in a historical context. Two years ago food prices reached their lowest point ever relative to household income. Just 11.4 per cent of income was spent on food groceries, a third of what it was 40 years ago.
"We have the highest per capita food prices after Denmark in Europe. On the other hand, we also have one of the highest per capita incomes," he notes.
Farmers like Seán believe that ultimately it will be consumers who decide whether they want to join in the chase to the bottom line - as he sees it - or if they are prepared to pay more to guarantee farmers a livelihood.
"On the one hand Lidl sells cheaper to the consumer and so the consumer benefits. On the other hand, the grower gets less," he says.
"The grower can't invest in better standards because he is not getting enough to survive and the nutritional value will be less. The consumer might think that he is getting a bargain, but he's actually getting what he paid for and that means poorer standards and poorer nutrition in the long run."