The recent hiatus over the fall in the price of liquid milk illustrates again the confusion and prejudice there is around food pricing and its impact on the Irish agri/dairy sector.
On the one hand we get one of the discounters announcing (because of its concern for the poor people of Ireland we are told), a move to reduce milk prices last weekend, while today (Wednesday, May 3), other supermarkets have announced cuts to butter prices.
“Hurrah” says mainstream media and consumer champions. The Labour Party jumps in to say they should never have been higher in the first place.
How hard is it to look at the Central Statistics (CSO) website and view the dramatic upward movement in input costs in the agricultural sector over the last two years as the chart below shows?
While the recent declines in March and April are not captured, the obvious disconnect between ever increasing input prices and falling output prices is well illustrated.
We need only to recollect the online debates a year ago about the impact of the war in Ukraine on a range of input prices from grain to fertiliser, to remember how the cost of producing food has been rising dramatically over the last 15-20 months.
The supplier will pay
How does this ‘hip hip hurrah’ for the consumer sit with the fact that our retail friends are using somebody else’s (dairy farmer) product to construct a price war to secure increased footfall.
The aim being more business and profit across a range of goods for the retailer, but results in a severe price and income squeeze for the dairy farmer who had no say in this extravagant gesture by the dominant retailer in the first instance.
This core problem of the supplier subsidising the retailer was not discussed. Instead we get free advertising for the discounter as first mover.
Surely food producers deserve a more informed assessment of reality.
Across the very noisy and deeply confusing narrative around sustainable food production and the cost of living squeeze, where is the questioning of the price of dairy substitutes in all of this?
It is one of the great hypocrisies surely of the local, sustainable, low climate impact lobby that the fact that dairy substitutes are 4-5 times the price of milk and are never sold below cost or loss led.
Some can even be highly processed products full of added vitamins and are mostly imported and of questionable nutritional content and yet this seems never part of any price or cost of living debate.
Below cost sale of milk
The big takeaway yet again, from the milk price fiasco, I would suggest, is that the current retail dominant food pricing reality is totally out of sync with any notion of sustainable food production and sustainable food pricing.
The harsh reality for food producers over the last 20 years, and in the present, is that food pricing will be kept at, or below, cost because that is how retailers want it.
It is how they make their profit – using fresh food as a loss leader to create footfall.
So any notion, as we hear in the media or the political airwaves, that the modern consumer wants, and will pay for, sustainability is usurped in the current food pricing structure.
This also applies to the intent in the EU Green Deal to ban or restrict certain inputs and to make EU food production more costly, based on the notion that the EU consumer wants it this way and most importantly will pay.
The reality is that the retail dominant buying power infrastructure accounts for 90% of grocery food consumption in Ireland. Similar concentration levels apply across the UK and EU markets.
No food business of any scale can survive economically if it does not do business with one or more of the big three retailers or the discounters in Ireland.
Indeed, the announcement during the week that one of the discounters has just opened a new distribution centre equivalent in size to six Aviva stadia, demonstrates emphatically that this is the real food pricing business model.
Until governments and the EU ban below cost selling and loss leading through regulation, all of the aspirations around sustainable food pricing will be given lip service only.
The long-term outcome being that EU food production will be more expensive and ultimately unsustainable.