Food prices: Why farmers get the smallest share and how to change it
© AdobeStock/jk daylight With food cost inflation rampant, yet supermarket shelves still void of certain products or reliant on imports, campaigners have called for farmers and growers to receive a larger share of the retail food price.
Research carried out by Portsmouth University and the University of London, in association with food and farming alliance Sustain, has revealed unsustainably low returns at farm level.
See also: NFU demands urgent probe into egg supply chain crisis
The report, Unpicking Food Prices, shows that farmers enjoy little or even zero share of any profit – typically just 0.03% of the retail price (see “Farmer profit share for five British staples”).
By comparison, processors were found to be receiving 10 times the profit for some of the products investigated.
Farmer profit share for five British staples |
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| The report highlights five key products and the proportion of the retail price received by farmers or growers. | ||
| Food staple | Costs | Profit |
| Pack of mild cheddar (480g) – priced at £2.50 | Dairy farmer shoulders the largest slice of the production costs, averaging £1.48/pack | Farmer profit was just 0.02% of the pack price |
|
Four-pack of beefburgers (350g) – priced at £3.50 |
Beef farmers’ average costs were 90p/pack | Farmer profit equated to 0.03% of the pack price |
|
Loaf of bread (800g) – priced at £1.14 |
Cereal growers’ costs averaged 9.03p/loaf | Grower profit was so low it was regarded as negligible |
|
Apples (1kg) – priced at £2.20 |
Grower costs averaged 76p/pack | Profit for the grower was 1% of the pack price |
|
Carrots (1kg) – approximately 45p |
Grower costs were 14p/pack | Profit levels for the grower were negligible |
| Source: Unpicking Food Prices report, Sustain | ||
Farmers shoulder risks
Sustain’s head of sustainable farming, Vicki Hird says the results reveal a hugely problematic supply chain in terms of costs, complexity and extracting value.
“Farms carry a large proportion of production risks and work within unpredictable natural systems over long timeframes,” says Ms Hird.
“Yet, they are tiny players in the face of huge food industry buyers who hold all the cards in terms of bargaining power.
“They are squeezed ever more tightly, both financially and contractually, and have too little power to demand better prices and fair treatment,” she adds.
With margins so low, Ms Hird points to the difficulty faced by farmers and growers in achieving the government’s environmental targets
The lack of financial stability limits a farm businesses’ capacity to invest in resilient, climate-adaptive systems.
“It is incredibly difficult for farmers to change practices, grow different crops, build soil carbon and reduce the impact on nature,” Ms Hird says.
“Our supply chains are, therefore, a contributing factor in driving environmentally damaging farming.”
Yet debates on farm policy, which put environmental aims at the forefront of targets, largely ignore how the money is divvied up in supply chains.
While discussions are rightly focused on what the government could regulate and pay for in terms of environmental outcomes, the market must work too, Ms Hird insists.
Recommendations to government – a four-pronged attack
Sustain has made a raft of recommendations to tackle the issues by creating a fairer food production system that supports farmers, ultimately benefiting the environment.
These are broken down into four key areas: higher returns for farmers, better regulation, new routes to market and greater transparency.
1. Higher returns
Farmers should receive more for their produce, says the report, which identifies supermarket fears about rising inflation as the main block to raising farmgate prices.
But the research shows that, because the farmgate value is such a small proportion of the retail price, paying more to farmers would have little effect on retail prices.
Even doubling farmer profits from the retail price would not have a huge impact on the cost to consumers, the report says.
Yet this could really bolster a farmer’s ability to thrive and invest in resilient, climate adaptive systems.
The report also calls for better management of costs beyond the farmgate. While farming overheads have already been pared back to the bare minimum, there is still scope to contain costs further up the supply chain.
Excessive food wastage is a major factor, while lower processing costs would allow scope to offer a more sustainable price to farmers and growers.
2. Better regulation
Tougher regulation is needed to help redress the imbalance of power between small-scale farmers, processors and the supermarkets.
The report makes four recommendations for an overhaul of regulations to ensure fair play between all parties:
- A stronger Groceries Code Adjudicator is needed, with greater powers to act when any unfairness between large-scale buyers and individual farm business is found. The adjudicator should be backed by new supply chain rules on fair deals, with codes for each sector and an enforcement body, as provided for in the Agriculture Act 2020
- Further rules should be introduced to improve transparency in supply chains to ensure farmers have greater bargaining power when negotiating prices. Provision for this is, again, set out in the Agriculture Act
- Clear food labelling would provide greater clarity across the whole cycle of food production
- Stronger planning rules would curb the dominance of supermarkets in food retail, helping to spread market share more appropriately.
3. New routes to market
The report urges the government to create policy that would allow localised supply chains to flourish and provide greater returns for local businesses that feed into them. In particular:
- The government should create an action plan to identify barriers and deliver innovative approaches, to increase the market share of shorter, farmer-focused supply chains to 25% by 2030
- Up to £500m should be provided via the Shared Prosperity and Levelling Up Community Ownership Fund to create a local food investment fund to support agri-food infrastructure and enterprise
- Additional finances are needed to fund innovation, enterprise, technology and added value products
- Public procurement models should be established to secure more produce from a large range of farmers and growers, allowing small businesses to feed into public sector food contracts for schools, hospitals, and other institutions.
4. Greater transparency
A lack of transparency throughout the food supply chain means that the poor returns received by individual farm businesses is being overlooked by policymakers. This could be remedied by three key recommendations:
- The percentage of the retail price received by farmers has been removed from Defra’s annual report Agriculture in the UK. Reinstating the percentage would help shed light on how small businesses are being excluded from potential profit
- The reporting requirements of larger businesses should be reviewed to ensure enough detail is being provided on where money flows within the food system
- Marketing and advertising spend on food is a costly part of the food supply chain. Far greater clarity is required to see how much of this cost is necessary and how it affects profitability across the chain, particularly in high-spend areas such as processed foods, confectionery, soft drinks and alcohol.
Case study: Free-range egg producer blames supermarkets for losses
Returns have fallen well below production costs for one free-range egg producer who blames discount retailers for undermining prices.
Returns at Alex Woollam’s 94,000-bird free-range unit in Shropshire amount to a little over £1 for a dozen eggs, yet costs have increased to about £1.38/doz.
Rising feed prices have been a major factor, having climbed from £300/t to £400/t since wheat supplies were disrupted by the Covid-19 pandemic and Russia’s invasion of Ukraine.
But it is not just feed costs – all input prices have soared, Mr Woollam says.
Pullet prices
Bird replacements have gone from £3.80 to £5.30 a pullet. This means restocking the unit would require an outlay of £500,000. Mr Woollam is concerned about financing that level of borrowing.
Quoted electricity prices have also risen. The Shropshire farm currently pays 18p/kWh, but has been quoted new rates of 70-80p/kWh when the current deal comes to an end.
Insurance prices have also doubled, due in major part to the heightened avian influenza risks, but also because the cost of replacing a building has pushed up shed values.
The post-Brexit labour shortage has added further pressure, with difficulties in finding and retaining staff for an appropriate wage.
Lack of margin
But Mr Woollam says these costs could have been covered if retail prices had created a margin that could be passed down, from packer to producer.
For this, he blames the big discount retailers that have forced supermarkets to cut prices over the past decade.
“We started egg production 14 years ago when eggs retailed for £3-£3.80/doz,” he says. “Last year, they were selling for £1.80/doz.
“With that downward pressure on the retail price, there is no room to absorb costs and pay producers a fair rate. The sums just don’t add up.”
Imports
As producers hold back on replacing flocks and leave sheds empty, the response by some retailers has been to import eggs from Italy to make up any shortfall.
But Mr Woollam says that flies in the face of the industry’s environmental and food security objectives.
The UK produces only about 60% of the food it needs. “If producers like me go out of business, then that figure will slide further,” Mr Woollam says.
“There is certainly no money available to invest in environmental measures that we are told by the government and the public is a priority,” he concludes.
About the report
Lisa Jack of Portsmouth University was lead researcher with Harriet Hammans, research officer at University of London’s Food Research Collaboration.
Analysis and recommendations were carried out by Sustain’s James Woodward and Vicki Hird.
You can read the full report on the Sustain website.