Rising costs strain farmer and retailer relations on pricing

Surging inflation is souring relations between supermarket retailers and their farmer suppliers, whose requests for price increases are often refused, according to the grocery regulator.

The Groceries Code Adjudicator’s (GCA) 2022 sector survey found that one in four suppliers (26%) experienced an “unreasonable delay” from the retailer in their request for a cost price increase, or a refusal.

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Overall, 80% of suppliers had asked for at least one price increase in the past 12 months, the survey run by YouGov found.

Many stated that rising input, fuel and energy costs had hit their profit margins.

Meanwhile, 12% of suppliers raised concerns about delays in or not receiving payments, and 18% highlighted discrepancies with invoices.

One large-scale vegetable producer based in northern England, who did not want to be named, said it was a “worrying situation”.

Status quo

“It is not about us asking retailers for price rises to increase our profit margins,” the farmer said. “It’s about getting price rises to maintain us in the same difficult place we were before.”

Prices agreed with retailers were based on key indicators, he said, such as the cost of fuel and labour. If these increased, it should be recognised in the farmgate price.

“My concern is that if things don’t improve, more farmers will just pack up. We’re not expanding or taking on extra people. We can’t get the labour.”

GCA ombudsman executive Mark White said that following two years of the Covid pandemic, when retailers and suppliers had worked closely together and improved their relationships, the pressure from rising prices had created new strains.

Issues related to the code of practice had also risen.

“Inflation has affected the entire groceries sector, as witnessed by the sheer scale of requests from suppliers to increase prices,” said Mr White.

“I am concerned that the pressure has impaired relationships and created wider problems.

“My priority is to work with all the retailers to ensure they treat their suppliers fairly as they navigate the cost price process during this difficult time.”

Aldi topped the table in terms of “overall assessment of compliance” with the Groceries Supply Code of Practice.

It scored 98%, followed closely by Tesco and M&S, on 97%. But Lidl slipped from seventh place in 2021 to bottom, scoring 84%.

‘Unprecedented rises’ 

Commenting on the survey results, the NFU said farmers had experienced “unprecedented rises” in input costs over the past 12 months.

Relations between suppliers and retailers had “gone backwards”, with disputes over cost price increases and subsequent delists.

NFU chief food business relationships adviser Amy Fry said: “The NFU has met with multiple retailers in the past six months, and we will continue to build on these conversations as the supply chain continues to face unprecedented challenges.”

There were 2,544 responses from direct and indirect suppliers and trade bodies to the 2022 Groceries Sector Survey – the ninth conducted by the GCA – which was carried out between 17 January and 27 February.

The GCA has urged suppliers to report any issues in confidence, so they can be taken up swiftly with the retailers.