Power and powerlessness in the supply of food

30 April 2018

Power and powerlessness in the supply of food

We've all seen it from time to time in the supermarket: food so cheap we ask ourselves how anyone can make money from it. How can a chicken or a bag of onions cost so little? Of course as consumers we're glad, especially if we're on a low income, but at the same time we have the feeling that somewhere along the way there must be losers. Who are the losers in the food supply chain? And what can we do about it?

By Dennis de Jong and Femke Reudler Talsma

Our food goes through a lot of links in that supply chain before it reaches our plates. This food supply chain involves a lot of major interests. Across Europe, some 47 million people work in the sector and the total value of the EU retail food market has been estimated at €1.05 billion. Inhabitants of the European Union spend an average of 14% of their household expenditure on food, so it's extremely important that the food supply chain functions efficiently and fairly and that there are no unfair trade practices.

Concentration of power

In recent years we have seen throughout Europe an ever greater concentration of power in the hands of major corporations in the food production sector, as well as in the food processing industry and the food retail market. The official Dutch Central Bureau for the Living Environment produced a report in 2012 which showed that concentration at a specific point in the Dutch supply chain meant that just 5% of sourcing offices were responsible for delivering food to 25 supermarket chains. While these sourcing agents buy food from 6,500 foodstuff producers, these in their turn do business with some 65,000 farmers and market gardeners. These supermarket chains encompass 4,400 branches serving 7 million households – almost the whole population. These sourcing agents and supermarket chains have, therefore, a great deal of power.

Where you find massive power, abuse of that power is never far away. Unfair trade practices may be found at every stage of the trade relation, such as contract negotiations, within the resulting contracts themselves, or in unfair and unannounced changes made after the contract has been agreed. A number of examples of such practices were listed recently by the European Parliament. They include late payments; unilateral changes to the conditions of an agreement, with retrospective application; failure to supply sufficiently detailed and unambiguous information pertaining to the conditions of an agreement; unfair transfer of commercial risk; demand for payment for goods or services which are worthless to one of the parties to the contract; inclusion of costs for fictive services; forced cooperation on advertising and inclusion of charges for putting goods in a favourable location within the shop; pressure to reduce prices.

Such unfair practices rear their heads whenever the negotiating positions of the parties are unequal as a result of the growing market power of a handful of multinationals. The five major sourcing agents can tell suppliers that there are ten others who would gladly take their place, but the reverse is never the case. The weakest link in the chain is often the small farmer, and the result of unfair trade practices can be that such businesses, through lowering incomes and lack of security are forced to cut costs when it comes to investing in innovation, for example in relation to environmental protection, working conditions or animal welfare. Unfair trade practices therefore not only damage these firms themselves, but also humanity, animals and the environment.

Rules of the game needed

How can we eliminate such practices? On the one hand it would be good if the power that gives rise to them could be broken. This is already happening here and there, where farmers sell their products directly to the consumer on farmers' markets, avoiding all of the middle men. The direct supply of food from organic farmer to consumer via regular food boxes is another fine example of this. Such initiatives aren't possible everywhere or appropriate for everyone, however. In the short term market relations in the supply chains are not going to be in essence improved. This is why we need some rules to be applied to this game, along with ensuring serious consequences for anyone who doesn't respect them. Opinions differ on the question of how this can be approached. Via stringent European legislation, perhaps?

SP Euro-MP Dennis de Jong has followed the issue for several years in his capacity as a member of the European Parliament Internal Market Committee. His attitude is pragmatic: it's important always to keep an eye out for the practical effects which proposals would have, above all for small farmers and small businesses. Would a really tough law improve things for them? That remains the question. At a time when power is so concentrated, a small business owner must think very carefully before hauling a supermarket into court. Such a court case can of course last years, and any chance of further cooperation with the supermarket will be thrown away. This fear factor is a serious problem. Small businesses would benefit more therefore from other, cheaper and more accommodating possibilities, such as an independent arbitration board. It would be of great importance that all of the players in the food supply chain were covered by such a system. It must also be possible for victims of unfair practices to present complaints confidentially, so that fear of reprisals doesn't prevent them from taking action. In 2013 Dennis de Jong wrote a parliamentary report on this which included recommendations which won the support of a majority of MEPs and became therefore the official position of the European Parliament. In addition, the EP supported the call to make it possible for small suppliers to establish producers' groups, thus strengthening their negotiating position, without immediately being hauled over the coals by the national competition authorities.

Own Initiative

In 2011 a list was created from within the sector itself of fair and unfair trade practices in the food supply chain. All who participated in this initiative promised, in doing so, that they would avoid those in the 'unfair' column. In 2013 this was developed into a complete mechanism aimed at addressing such practices, the Supply Chain Initiative (SCI). Unfortunately it quickly emerged that the Copa-Cogeca, the European umbrella group for organisations representing the interests of farmers, though it had supported the principles behind it, would not sign up to the initiative. Their reasoning was that confidentiality for those lodging complaints was not well administered, as was also the case when it came to possible sanctions in the event of transgressions of the rules. As a result, the farmers lost interest in taking part. Although since then in various countries attempts have been made to tackle unfair practices via this model, the SCI appears inadequate to the task.

The pressure for more legislation has grown so far because rules continue to be broken and the fear factor still prevents the weakest links in the chain from standing up for their interests. In 2016 the European Parliament adopted a fresh resolution calling on all EU member states to create state institutions or specialised organs at the national level, bodies with the power to act against unfair trade practices in the food supply chain. Such bodies should also be given the power to open and pursue investigations on their own initiative and on the basis of informal information which would be dealt with confidentially, in order to counter the fear factor.

What does the Agriculture Commissioner want?

The voluntary SCI remains in development and is starting to feel pressure from the European Commission. The European Commissioner for Agriculture, Phil Hogan, is planning to present legislative proposals designed to improve the position of farmers in the food supply chain. The supermarkets immediately began intensive lobbying against any possible EU legislation. They warn that offering the farmers additional protection would push up costs, eventually feeding through into higher food prices for the consumer.

Hogan hopes to come up with a proposal during April, but how it will look is uncertain. The frantic reaction of the supermarkets, in which they also claimed that accusations of unfair trade practices are anecdotal in nature, does admit that relations are indeed far from in balance. Perhaps rules enforceable by the courts, then, are the best solution, not as something to be grasped immediately, but as a last resort to be turned to when the friendly method of arbitration falls short. It's possible that the introduction of a law would in itself persuade players in the food supply chain to sign up to initiatives such as the SCI, making this form of arbitration more effective and resort to the courts unnecessary.

The time has come to break the power of the multinationals. The SP would, for preference, address this in such a way that it becomes a simple thing to denounce unfair trade practices and to find a solution to them. It's a matter now of waiting to see what the European Commissioner will propose, something which we will certainly be pursuing.

This article appeared -in the original Dutch language- in the SP editorial "Spanning"

You are here