EU concerned by “margin gap” between farm-gate and retail prices

Posted by Daniel Palmer on 27th March 2009

The European Parliament is set to take a closer look at the food supply chain, which will ensure price trends are monitored over time.

Correcting the market inequalities, and improving direct relations between consumers and producers, in order to guarantee reasonable prices for the former and profits for the latter, are at the centre of a report adopted by the European Parliament on the difference in price between production and consumption in the food chain.

High food price volatility, which has caused “significant prices rises”, had a major impact globally last year. In Europe, consumer prices are now on average up to five times more than the farm gate price, the report noted. MEPs are consequently calling on the Commission to launch a report, as soon as possible, to investigate the “margin share in the production and distribution chains.”

“This price gap is a major problem which is causing concern for the two extremities of the food chain,” Katerina Batzeli, Member of the European Parliament (MEP), said. “Producers and consumers are suffering from the effects of the drive for profits, which is at the origin of the failing food market. It is time to put in place a long-term plan and to adopt interventions at a European level so as to face the financial crisis, which is weighing heavily on households and farmers.”

Market dominance and anti-competitive practices

According to MEPs, the price transmission mechanism and the gap between consumer and producer prices increase in concentration across the food supply chain. They are particularly concerned by the increase in market share of a number of processors and manufacturers, who are abusing their dominant position to force down “prices paid to suppliers to unsustainable levels.”

The report notes that a survey by the Commission on Food Prices in Europe “fails to include the abuse of the dominant position observed at the retail stage”, and MEPs are particularly concerned by anti-competitive practices which include the selling of goods below cost. In the long-run, pricing below cost benefits neither the consumers nor the food market as a whole and, consequently, MEPs are calling for European-level action to be taken.

European monitoring

The report endorses the Commission’s proposal to establish an “efficient European market monitoring system”, which will allow price trends and input costs to be monitored across the whole food supply chain. This should allow a more transparent system and will allow for a cross-border comparison system on similar products.

MEPs believe that this measure should be supported by an investigation and evaluation by competition authorities at national and European level to ensure competition rules are respected and that price drops are passed on to consumers. Similarly, they are calling for any price increases to be passed on to producers much more quickly than is happening at present.

Increasing transparency

MEPs are also calling on the Commission to establish a Europe-wide database, easily accessible to European citizens, which will give greater transparency regarding the cost structure of product prices. This should be carried out in cooperation with the Food and Agriculture Organisation who, in turn, can monitor this data at an international level.

Enforcing the power of producer organisations and the idea of local produce

The report believes that in order to shift the balance of power within the food chain, producers’ organisations should be encouraged, as this would help to increase farmers’ negotiating powers. In turn, this would help to shorten the marketing channels to consumers and would offer greater added value to their products.

The concept of local foods was also emphasised, with local retail shops to help bridge the gap between producers and consumers.