Economic view: Fair-trade reach must extend beyond developing nations
Published 11/11/2015 | 02:30
Supermarket giants are spending a lot of money trying to convince us that "being big is not so bad after all", but it seems that their message is failing to reach the European Commission.
The President of the Commission declared in September that something must be done "to break the retail oligopolies" whilst Phil Hogan, the Agriculture Commissioner, is on record as saying that he wants 2016 to be the "year of action" for EU institutions in dealing with imbalances of power in the supply chain. The view that something must be done resonates strongly with small suppliers in general and farmers in particular.
However, the obvious questions are where is the evidence that the structure of the retail market is a problem in itself and even if it is, will efforts to "break oligopolies" make things better or actually worse for consumers and suppliers?
In simple terms one of the key issues is that the existence of a few large players in the retail sector may lead to so-called Unfair Trading Practices (UTPs) which are largely defined as contrary to fair trading.
Last year the EU published a comprehensive report on these practices and it did highlight that their existence may lead to real economic costs to society because they can lead to underinvestment by suppliers.
However, analysis in the report also highlights the difficulty of assuming a simple causal relationship between retail concentration and the abuse of power. For example, Italy has a relatively low level of concentration in the food retail sector, some of the most extensive legislation against unfair practices, yet businesses feel among the least protected in the EU by current legislation.
In contrast, Denmark has the highest levels of concentration in the retail sector, relatively little legislation against UTPs, yet a much greater proportion of business felt that they were protected; however, a lot of supermarkets in Denmark are co-operatively owned.
If there is firm evidence of the existence of UTPs in our food supply chains, and these are shown to lead to economic costs, two main options to address the imbalances in power are often proposed. Either we intervene to physicially change the structure of the market or we accept that the structure exists and regulate the relationships within the supply chain.