Farmer frustration at low returns from supermarkets
© fascinadora/Adobe Stock Food and farming groups have expressed their dismay at the wafer-thin margins being left for primary producers once everyone else in the food chain has taken their share of the cash.
The apparent lack of fairness in the supply chain is laid bare in a new report from food and farming alliance Sustain, Unpicking Food Prices, which considers a range of products commonly found on supermarket shelves and examines where the available profit goes.
See also: Food prices – why farmers get the smallest share
It is clear from the report that margins across the whole food chain are tight.
For example, a pack of four beefburgers with a retail value of £3.50 only returns a net profit of 8.7p, the researchers estimate, while a block of Cheddar cheese, worth £2.50, generates just 3.5p in profit.
But the allocation of this slim margin between supermarkets, processors and farmers confirms that the lion’s share is kept by the retailer, with farmers left to pick up the crumbs – just 0.1p from the burgers and 0.05p from the Cheddar cheese.
Apple margins squeezed
The impact of tight producer margins has been highlighted by one south-east apple grower, who has asked to remain nameless for fear of recriminations from his retail customers.
Figures compiled by the grower, who describes himself as one of the more productive and efficient in the sector, show that, while average retail prices have risen from £2.05/kg in 2017 to £2.20/kg in 2022, farmgate returns have slumped from 60p/kg to 40p/kg over the same five-year period.
This had occurred at a time when top fruit growers were facing 23% cost inflation.
“If we stand to lose money at these rates, then the industry as a whole has no future in the very short term,” said the grower.
“Supermarkets should not be able to protect their own margins as they knowingly destroy UK horticulture.
“This year we have seen an influx of cheap European fruit. The supermarkets have been quick to stock this and use it as an opportunity to drive down prices below a sustainable return.”
The implications for national food security were a real concern.
“We have seen what happens when a country has next to no energy security and now it seems we are hell bent on destroying what is left of our food security when we should be rebuilding it,” said the grower.
“If there was ever a time for the nation to be concerned about food security it ought to be now.”
According to head of sustainable farming at Sustain, Vicki Hird, this demonstrates the imbalance in the food supply chain
“Farmers hold a disproportionately high amount of the risk when it comes to producing food, but receive a disproportionately low amount of the reward, reflecting their relative weakness in the supply chain,” she said.
“The Agriculture Act 2020 is supposed to address this – for example with new codes of conduct and a strengthening the Groceries Code Adjudicator, but none of this seems to be happening.”
Production costs
The Sustain report echoes the findings of a recent NFU report (compiled by Promar International) for the horticulture sector, which found that production costs for growers across the sector had increased by 27% year-on-year.
Apples, tomatoes, onions, broccoli and lettuce were the hardest hit, with the majority of growers unable to pass on much or any of this increase to retailers since the spring.
NFU horticulture and potatoes board chair Martin Emmett said many businesses, especially those with high energy and labour costs, were on a knife edge.
“We have been in contact with the Groceries Code Adjudicator to ensure that he is aware of the pressures growers are under and alert him to the unfair buying tactics many of our members face during discussions with retailers,” he said.
Sensitive
But retailers are adamant that they are sensitive to producer needs and recognise the importance of maintaining good relations with suppliers.
“Supermarkets source the vast majority of their food from the UK and know they need to pay a sustainable price to farmers,” said Andrew Opie, director of food and sustainability at the British Retail Consortium.
“However, they are also facing additional costs and are working incredibly hard to limit price increases for consumers during a cost-of-living crisis where many people are struggling to afford the essentials.”
Mr Opie also pointed to recent moves by retailers to cut their margins, “to try and keep food prices as affordable as possible and invest in British farmers as much as possible”.
Is greater transparency needed?
The discrepancy between what retailers charge consumers and what farmers receive is spelled out monthly in the US by the country’s own National Farmers Union.
The Farmers Share provides a regular update on 16 different food products – from beer to beef to bagels – to compare the retail price and the farmgate equivalent.
In the UK, the AHDB used to do something similar, with its dairy supply chain margins report and price spreads analysis for red meat, though these were dropped some time ago.
Should they be introduced, to help illustrate the disparity between farmgate and shop shelf?
David Swales, head of strategic insight at the AHDB, says such price reporting could be introduced, if there is levy-payer demand to do so.
“We are open to hearing from farmers about what they need that might help,” he said.
The AHDB had stopped running the series for two main reasons, he explained – and some of the data needed from further up the supply chain was no longer available due to issues with transparency.
Mr Swales said it would help if there were more transparency, as the Agriculture Bill 2020 intended.
“But we also have to ask to what extent it actually helps farmers,” he added. “It tends to imply that farmers should receive a certain percentage of the retail price, but markets do not work like that.
“Farmers work in an environment where price volatility is the norm, with prices swinging up and down in response to supply and demand.
“But retailers aim to provide a more stable price, affected by other influences.”
Trying to identify the correct value for the farmer was far from straightforward.