Supermarket price war destroying food producers

The fierce supermarket price war in the UK is killing off food producers, as accountancy firm Moore Stephens reported on Monday that so far in 2014, a total of 146 food producers have gone bust, compared to 114 in the whole of last year.

In order to reduce their prices, maintain market share and boost profits, supermarkets are squeezing food producers, Moore Stephens explained.

The number of food producers going bankrupt contrasts with the 8% decline in company liquidations nationally, the report pointed out.

The British Retail Consortium said, however, that it is not just a simple case of supermarkets being solely to blame for the rising number of producer insolvencies.

Moore Stephens partner Duncan Swift said:

“The supermarkets are going through the bloodiest price war in nearly two decades and are using food producers as the cannon fodder. Supermarkets have engaged in questionable buying practices for years, but it’s getting worse and clearly wreaking havoc on the UK food production sector.”

As discounters such as Aldi and Lidle gain market share, competition in the UK retail grocery sector has intensified.

Even though food producers are going bust in alarmingly rising numbers, they are not keen to speak out, Mr. Swift added. “The fear of losing business from supermarkets means that food producers rarely – if ever – complain about clear breaches of agreed industry standards. That means there is no check on the highly aggressive buying practices of the supermarkets,” he said

Christine Tacon, Groceries Code Adjudicator

Christine Tacon, the Groceries Code Adjudicator, has limited powers to protect food producers. (Photo: GOV.UK)

A spokesperson for the British Retail Consortium said:

“All major supermarkets know the only way to deliver consistent quality and value in a competitive market is by building long term sustainable relationships with their suppliers. That’s why so many suppliers have worked with the same retailer for so long.”

“It is far too simplistic to blame retailers for this. Firstly there may be a number of reasons for failure and we don’t know if they supply retailers, and even if they do they are likely to have other customers. Secondly retailers operate in a highly regulated supply chain with a strict code of practice governing contracts and an adjudicator appointed by Parliament specifically to ensure fair dealing.”

Government-appointed adjudicator

In 2013, the Government appointed a groceries code adjudicator, Christina Tacon, in a bid to protect food producers. The adjudicator has the power to impose financial penalties on the country’s largest retailers to the tune of millions of pounds if they are found to be abusing their power.

However, Ms. Tacon can only determine whether supermarkets have broken the terms of the contracts, and cannot become involved in the original prices that were negotiated.

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