Gap between farmgate and retail price widens

4 December 1998

Gap between farmgate and retail price widens

By Jonathan Riley

MULTIPLE retailers have not shared any of the decline in overall industry returns at a time when producer prices have fallen substantially, according to the Meat and Livestock Commission.

The statement formed part of the MLCs report to the ongoing Office of Fair Trading review on supermarket profitability. The report showed that there had been a significant widening of the gap between farmgate and retail prices.

In the past, this growing gap has been used to accuse retailers of profiteering. They have countered by saying that additional health safeguards imposed during production added costs and explained away any apparent profit-making.

But the latest MLC figures show the difference between the price paid by retailers to the processor for cuts and the selling price in their stores had also increased.

According to the report, since 1995 these retailer margins have increased for beef from £159/head to £308/head. For lamb the increase has been from £13 to £29/head and pork has increased from £20 to £35/head.

During the MLCs groundwork for the submission, researchers also found that there was a wide variation in prices charged by different supermarkets.

But even though the report said not all of this variation could be explained by product quality differences, MLC officials at the launch of the report would not condemn supermarket actions during the livestock industry crisis.

MLC corporate strategy director Bob Bansback said: "We would have liked supermarkets to reduce shelf prices to boost sale volumes. Although supermarkets have argued previously that this would have had only a minor positive impact on sales, every little helps.

The report also showed that there had been some normal "levelling behaviour" in pricing policy which meant the retail price did not follow fluctuations in farmgate prices as closely as might be expected. "This means at times the retailer margins appear to be larger than they actually are," said Mr Bansback.

Despite the MLCs refusal to condemn supermarkets, some major retailers still hit back angrily at the report.

Tesco corporate affairs manager David Sawday said the MLC farmgate prices and retail prices quoted were unrepresentative, carcass yield estimates were wrong and no account was taken of promotional price cuts.

Asdas milk produce manager John Cleland said: "When the BSE crisis hit we stood by the British farmers and banned European meat.

"We have firmly supported British pork, and since August 1998 we have sourced solely British." &#42

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