Science - September 27, 2012

'A 2 percent cut means a big loss for livestock farmers'

The Albert Heijn supermarket chain announced to its suppliers that it would be cutting their purchasing prices by 2 percent.

Protests led to the plan being suspended but not necessarily abandoned in the long term. Is it acceptable for a big company to behave like this? 'The extraordinary thing about this,' says Willy Baltussen of the Agricultural Economics Institute LEI, 'is that it was a unilateral move by Albert Heijn. It's as though you have sold a car and then at the last minute the buyer says, 'I don't want to pay that much.'
Is it allowed?
'That is not for me to say; that is up to the Dutch Competition Authority (NMa).'
Two percent is not much.
'Two percent is not much for the consumer, but for Dutch farmers it is a lot. Pig farmers are happy if they get margins of 5 percent. If 2 percent is taken off that through this cut, the pig farmers only retain 60 percent of their income. So for them this cut is massive. The margins in agriculture and horticulture are small.'
Do the supermarkets swallow up all the profits?
'There is an imbalance of power between the parties in the food chain. The buyers for the supermarkets can pick the seller offering the lowest prices. The real question is whether this is an abuse of power. We have done research on this and found no hard evidence. The market for pork appears to be very transparent. There is a kind of rule in the meat chain that the price goes up by a factor of 5 between the farm and the shop. If the pigs cost 1.50 euros per kilo at the farm, then the average pork chop will cost 7.50 euros in the shop.'
That makes the margin at the supermarket five times as high, doesn't it?
'No, the selling price is five times as high but we don't know what costs the supermarket incurs. It might have to throw out some of the meat because it goes past its use-by date. So the price mark-up doesn't tell us everything about how much the supermarket makes on fresh food. We don't know all the secrets of the market.'

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