Does size really matter in the food supply chain?

COMMENT: What have the world’s largest food retailer, the UK’s top five food retailers, the top 20 global dairy companies and the four largest grain-trading companies got in common with the Irish economy? Answer: the combined annual sales of each of these groupings exceeds than annual value of goods and services generated by the Irish economy.

The scale and level of consolidation within the food chain becomes very apparent when you compare the annual sales of some of these companies with the size of the Irish economy. This is illustrated in the following table:

Irish Economy – Gross Domestic Product (GDP)** €158

billion

Companies Annual Sales – € billion Annual Sales – % of Irish GDP
No.1 USA Food Retailer €351 223%
Top-5 UK Food Retailers €159 101%
Top-5 Global Food & Beverage €181 115%
Top-20 Global Dairy Companies €157 100%
Top-10 Global Meat Companies €126 80%
Top-10 Quick Serve Restaurant Chains €132 84%
Top-4 Global Grain Trading Companies €247 157%
Top-7 Global Agri Machinery Sales €59 38%
Top-8 Global Fertiliser Sales €49 31%

** GDP: The monetary value of all the finished goods and services produced within a country’s borders in a specific time period (Source – Investopedia.com)

One noticeable aspect of the table above is the overall consolidation within the supply chain of companies that are both buying and selling the produce of farmers. However, the same trend is also noted on the input side of the farming business. From the table above we see:

Selling Power – US-based supermarket giant Walmart has annual revenues that are over twice as large as the entire Irish economy.

Buying Power – The table above illustrates buying power concentration in the hands of fewer beef, dairy and grain companies globally. Given their economies of scale and global supply chain they work this cost competitive advantage to their benefit over their rivals

Rising Input Costs – Added to this, farmers are also faced with rising input costs. A strong influence on input costs is the price of energy and fuel. As natural gas is the main component in fertiliser production, global energy costs will also naturally impact fertiliser costs.

Over the past decade the world has seen a dramatic rise in energy cost. Information released by the EU in June of this year highlight the growing impact of energy costs on farm efficiency in recent years, highlighting huge increases in energy costs, whilst showing a smaller increase in prices paid to farmers.

Within agricultural circles the argument is often made for greater regulation and curtailing or retailer power. Within the EU we have experienced generations of protected markets and intervention. Strong arguments can justify the need for both. Equally, one could argue that the growth of large companies globally is the result of globalisation and the reduction of trade barriers in recent decades.

Every challenge presents an opportunity. Perhaps as an industry, the Irish agri-food sector needs to further concentrate its efforts towards:

  • Defining and investing in our key differentiators that will give us an advantage in the marketplace. Such differentiators should also provide a return on investment for farmers.
  • Strive for greater on-farm efficiency. Regardless of external market factors, failing to vigilantly work towards enhancing on-farm efficiency will ultimately impact on the future viability of Irish farms. With further trade liberalisation expected globally in the years to come, it is imperative that all industry stakeholders work towards ensuring a culture of business planning, and a strong efficiency and economic focus across all aspects of the agri-food industry.

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