4 December 1998

Producer co-operation aids price making goal

By Robert Harris

LIVESTOCK producers must co-operate to achieve fair market prices. Only by boosting selling power will they become price makers rather than price takers.

"The UK livestock industry must redress the balance between retail and farmgate prices," said John Crossan of farm business consultants Brown & Co.

"Producers must look to take a greater share of the profit from the food chain by securing outlets and by adding value through active participation. This would guarantee a market at a desirable margin."

While farmgate prices had slumped in the past two years due to the strong £, the collapse of demand for meat and hides in Asia and Russia and the beef export ban, retailers had not followed the trend.

Farmgate pork prices fell 59% since September 1996, but retail values only came back 16%. The farmers share of that shop price had halved to 21%.

Over the same period, shoppers had paid virtually the same price for lamb and milk, despite farmgate price falls of a third and 23% respectively – farmer share of retail values slipped to 25% and 34%. "That share continues to fall," said Mr Crossan. It was not a recent phenomenon, he noted – over the past decade, retail prices had risen 40%, but the price paid to producers had climbed just 5%.

Quite where the missing money was going was hard to pin down, Mr Crossan admitted. "Whether it is the retailer, the renderer or the abattoir is virtually impossible to find out. Each one says their costs are up, but there is a huge discrepancy somewhere."

To redress the balance of power, farmers should form marketing groups, said colleague Simon Mountjoy. "They need to be big enough to make the sup-ermarkets sit up and take note."

Such bodies should be owned and run by farmers – but the management should come from outside. "Farmers should employ people to work for them, just as supermarkets employ people to buy for them."

Competent management could even be "poached" from the retailers, he suggested. And the cost need not be prohibitive. If 60 sheep producers united, they could employ someone for about £35,000, equating to a cost of about 3.5p/kg of lamb sold, said Mr Mountjoy.

Nigel Garbutt, of Safeway, agreed that farmers needed to combine with like-minded partners to become strong sellers. "The fragmented state of farming greatly weakens its position. Talk to potential partners, talk to trade organisations and talk to a supermarket."

Groups could enjoy economies of scale to push marketing, promotion and research and development, he added. &#42

Price change % –

Sep 1996-98

Farmgate Retail

Pork -59% -16%

Lamb -33% +4%

Milk -23% -6%

Beef -22% -3%