There is no link between farm gate prices and food inflation

It is infuriating to hear so-called experts telling consumers that farm gate prices are, in some way, connected to food inflation levels.

I buy into the idea that governments want to endorse a ‘cheap food’ policy. But what sticks in my craw is this idea that farmers must ‘be kept in their place’ to ensure this becomes reality.

Meanwhile, the real villains of the piece – the food retailers – are allowed to get away with blue murder when it comes to their buying-in and shop pricing strategies.

All of this came into my head, courtesy of a presentation made regarding the logistics of the EU cheese market at a recent dairy conference.

Let’s consider the facts. It takes 5L of milk to produce 1kg of cheese. So, on the basis of current farmer prices, the cost of the raw material required to make the aforementioned quantity of cheese works out at around €1.80.

But once the cheese reaches a retail outlet, it has an average value of €8/kg. So if the farmer price was to be raised by, let’ s say, 5c/L and all other costs along the processing chain kept as is, the new retail price works out at €8.25/kg.  This constitutes a 3% increase in the shop price.

In my opinion, this is a relatively small hike in the price to be paid by consumers. Moreover, it is an increase that can be quite easily absorbed by retailers, such is the scale of the margin that they generate on food sales.

And this is the real nub of the problem, when it comes to delivering a level playing field for farmers.

The EU Commission must act to address the imbalance favouring  the supermarkets within the current farming and food supply chain.

Europe’s Commissioner for Agriculture and Rural Development, Phil Hogan, has been talking about this issue since assuming office.

Let’s hope that he uses the upcoming review of the Common Agricultural Policy (CAP) as a means of getting to grips with this issue.

We all know that EU budgets will be under pressure in the wake of Brexit.

One way of putting real money back into farmers’ pockets is to guarantee them a fair price for the food they produce.

And if this means putting in place a realistic farm gate pricing policy, which the multiple retailers will be expected to fund, so be it.

In any event, consumer research has confirmed that the public would be happy to pay a bit more for food, provided they know this money gets back to the primary producer.

But the time for talking is over. It’s now up to the EU authorities to come up with a transparent mechanism that delivers fair prices for farmers.