I find it extremely worrying that you can now buy a chicken cheaper than a pint of beer - Jim Power Economist

Eating is an agricultural act - Wendell Berry

We’re importing spuds from Cyprus and strawberries from Spain while you can get perfectly good varieties of both in Wexford. The war of words between the suppliers and supermarkets is escalating but this is no phoney war. There is a fully fledged supermarket price war underway and this time it’s different from any other. This is not just a regular spat between the multiples scrapping for market share. This is a three sided conflict between the suppliers, the supermarkets and piggy-in-the-middle, the shoppers. This is not a matter of life and death, it’s probably more serious than that as the conflict rages to win the hearts, minds and money of the hard pressed consumer.

Make no mistake this is serious business with millions of euros and thousands of jobs at stake. This week IBEC estimated that 2,000 jobs have already been lost with many more on the line this year depending on what the supermarkets stocked on their shelves.

Jim Power - Chief Economist

But this tally was rubbished by leading economist Jim Power when he told a Dail committee that the stakes were much higher and as many as 100,000 jobs could be lost in the Irish food industry over the next two years. Many well known Irish brands like Tayto, Miwadi and Cidona could become extinct he warned. He has now called for urgent legislation to tackle the anti-competitive and coercive tactics of some of the leading supermarkets such as Hello Money, the auctioning of shelf space and pressure on producers to fund discounts. With 70% of the Irish groceries market in the hands of three main players Jim Power maintains legislative intervention is imperative “or it’s game over for the Irish agri-food sector and our tastes and choices will be dictated from the UK, more importantly so will the future of the Irish food sector. This cannot be allowed to happen.”

The battle lines have been drawn and farmers are furious. The problem is that farmers always seem to be complaining, bitching with Brussels and belly-aching about something. This time though it appears that the most subsidised sector of our economy really does have a genuine gripe. This year 141,000 Irish farmers received a massive €2.63 billion in subsidy and support payments. This tends to colour consumer sympathy for the sector which is coining it from the Common Agricultural Policy (CAP). The problem is that rich farmers are collecting hefty six figure sums and the current system where cash payments are made to farmers unrelated to productions is due to run until 2013. Currently 20% of farmers receive 80% of the subsidies and efforts to curb the large scale cash handouts to the likes Ireland’s Larry Goodman and even the Queen of England have been thwarted. Beef baron, Mr Goodman receives more than €10,000 each week in respect of his 1,600 acre estate even though he has no requirements to produce any output on it. Queen Elizabeth received £465,000 in European handouts in 2005. Behind the headlines, Irish farmers receive on average an annual payment of €18,690 in EU subsidies.

The Irish food and drinks sector accounts for €8 billion worth of exports to 120 countries worldwide, invests heavily in research and development and accounts for a positive trade balance as we import €5 billion in similar goods. But with oversupply in much of the staple commodities on the world market, (China is now the world’s biggest producer of potatoes),recessionary pressures fuelling deflation and with such a level of exports heavily exposed to currency fluctuations, jobs in the sector are under serious pressure and struggling to maintain competitiveness. (The Eurozone accounts for only 30% of the sector’s exports with 43% to the UK sterling area and the 27% balance to non-European countries in many instances denominated in dollars against a strong Euro).

All this may be academic though as unemployment soars, credit and cash flow are curtailed and the cost conscious consumer searches for value. Shopping around is now the norm a National Dairy Council conference was told this week.

Alan Purcell - head of marketing with Neilson Ireland

Alan Purcell, head of marketing with Neilson Ireland, said its latest research showed 72% of shoppers indicated they had switched to “cheaper” grocery products. The survey, Shopper Trends, found 55% of consumers were checking out four different chains in pursuit of prices and they continued to travel North in their droves. Own-brand products now account for 18.7% of grocery purchases, reaching 37% for fixed-weight cheese.

None of this is news to Tesco’s Dermot Breen. He makes no bones about it, there is a full scale price war underway and they are taking no prisoners. Only one thing matters it seems, price. “The key point in all of this is the consumer here has being paying the highest prices for food in Europe for the last five to seven years and they are no longer prepared to tolerate that and they are voting with their shopping baskets and their cars. The price of food is determined by everybody in the supply chain and farmers, processors and retailers are all going to have to respond with renewed focus as the consumer has started to act. There are now regular busloads running from Mayo and Galway to do the weekly shop up North and tens of thousands are taking the M50 out of Dublin to do so, it’s no longer a novelty, it’s a weekly occurrence.”

So far farmers seem incapable of responding to the price pressures with any creativity. They know that consumers are putting price first and have been for some time. Since Ireland joined the EU in 1973, the average household expenditure on food has fallen from 17% to just 7% of disposable income. The farmers’ response has been predictable and this week once again they flocked to Luxembourg to bite the hand that feeds them as they pelted officials with eggs, caused lengthy traffic jams brandishing placards proclaiming, ‘Farmers in torment.’ This particular protest was over deteriorating milk prices.

Outside of their well organised and highly agitated representative bodies farmers have other champions who insist the issue has to be broadened beyond just price, to things like public health, Irish jobs, and consumer choice.

“Farmers and producers are unquestionably not being paid enough and it’s a very serious issue. When will the penny drop that if we want good food farmers are entitled to a decent and honest living. Every single one of us can make a difference and I feel we should buy Irish. When the chips are down we need to look after our own. Irish shoppers can vote with their feet, we have a duty to look at what’s in our basket. We should examine our conscience, people are all the time giving out about losing Irish jobs, but what’s in our fridge, we have to practice what we preach and we must be prepared to pay a fair price so that farmers can make a living. I don’t go to supermarkets, the likes of Tesco will take food from anywhere as long as it’s cheaper,” maintains Darina Allen of Ballymaloe fame, who has no trouble nailing her colours to the mast.

Economist Jim Power is in agreement and on Wednesday told the Oireachtas agriculture committee that the future for Irish farming and food processing was bleak if the decision by Tesco to source its products directly from the UK and elsewhere was copied by other chains. The catastrophic consequences could be the loss of up to 115,000 jobs over the next two years he predicted. Mr Power said that the National Consumer Agency was like a “toothless hen”, its food price surveys redundant as they solely focussed on price with total disregard for quality or origin of the food. He had no doubts whatsoever that Irish suppliers are being squeezed by the supermarkets.

SuperValu said it had rolled out a further €86 million worth of fresh price reductions, bringing to €200m, the number of price cuts its stores implemented since the beginning of the year. SuperValu says that almost 2,000 product lines have now fallen in price and that the cost of an average weekly trolley of goods has fallen 23 per cent or €30, from €129.96 to €98.56 in 2009. The chain, which is owned by the Musgrave Group, maintained the long-term price cuts were being “delivered without sacrificing SuperValu’s commitment to Irish suppliers and Irish jobs”.

Superquinn has 23 stores and a market share of 7.2%. They have a policy of stocking Irish products wherever possible and over 80% of the products available in their shops are produced in Ireland. A supplier conference was held on June 18th  to reaffirm their commitment to Irish suppliers. In relation to price promotions, Superquinn say they are “working with suppliers to continue to provide consumers with great value for money in a competitive retail environment; this includes promotions that are jointly funded by Superquinn and our suppliers.”

Aldi indicated that they wished to issue a statement singing the praises of just how much they supported Irish produce, however, they eventually declined to comment. Not so bashful is Tesco’s Dermot Breen.

“We have 117 stores that employee 12,500 Irish staff. We have reduced the price of thousands of products by an average of 22% because we have changed the way in which international branded products are delivered into our stores by taking out the middlemen and distributors and hence the reduced prices for our customers. There is no discrimination against Irish produce and we carry a full range or Irish products in our shops. But Irish suppliers do feel the pressure when there are international products which are cheaper on the shelves and that’s called competition, ultimately it’s the consumer that makes the decision. There is a great deal of emotion and exaggeration surrounding this debate. In time we’ll all realise it’s all about the consumer and all our futures depend on that. Incomes are under pressure and people are looking for more affordable food. The consumer is calling the shots and is now far more careful how and where they are spending.”

This week IBEC and the IFA forged an unusual alliance of producers and processors. In a pincer movement to try stem the dominance of the retail giants they called for the appointment of an Ombudsman and a Code of Practice to regulate the retail sector.  A complete waste of time according to Jim Power.

“An Ombudsman and a code of practice would be about as useful as…forget about it, legislation is what’s required asap and I don’t mean next year, otherwise the game is over for the Irish agri-food sector, it’s as serious as that. I get extremely worried when you can buy a chicken cheaper than a pint of beer and a litre of water is more expensive than a litre of milk. If we go down the route of a cheap food policy we are going down the wrong road and rural communities will be totally decimated. It can be argued that the cheap food policy in Britain in the 80’s is what led to the BSE crises. This is one of the most expensive countries in the world to do business and if you really want to address the price of food that’s the angle you approach if from. Food prices never drove inflation in this country, that’s rubbish.”

Food for thought, indeed.