Sunday 26 October 2014

Beware of 5c veg: cheap food always comes at a cost

The supermarkets' aggressive price promotions on festive produce could put Irish jobs at risk and ultimately reduce consumer choice

An example of vegetables on offer in a supermarket. Photo: Thinkstock

WHEN I have very little work to do in the veg patch I have more time to think, and this is generally a dangerous thing. This year, I spent a large part of Christmas fuming at below-cost selling of vegetables by supermarkets. I'm sure you heard about it -- most of the major chains, including Dunnes, SuperValu, Lidl and Aldi, were running special offers on vegetables, with sprouts, turnips and carrots all selling for as little as 5c per kilo.

Aggressive price promotions are a way for supermarkets to entice people in to the store -- they are so effective that supermarkets are willing to lose money on a particular product, knowing that they will make it up elsewhere in your shopping basket.

This is not the first time that vegetables have been the target of price promotions, but it's certainly the most extreme example we've seen. I remember a few years back being amazed when the prices of some vegetables dropped down to €1 per kilo. Then, at Christmas 2012, prices dropped as low as 22c per kilo. At that time, I spoke to a number of growers who told me that their break-even point on a kilo of these vegetables was about €1.20 and a sustainable living was to be had at €1.80.

If we needed evidence of just how aggressive the price war became this Christmas, it was to be found in the fact that across the water in the UK, the same supermarkets were running similar promotions that seemed quaint by comparison. On December 20, Spar in the UK advertised a bag of Brussels sprouts for £1 stg or €1.20 (reduced from £2).

All of which begs the question -- having gone as low as 5c per kilo in 2013, how will Irish supermarkets meet consumer expectations for deals on their Christmas 2014 vegetables? Will they sell sprouts for 1c per kilo? How about this -- do your Christmas shopping with us, and we'll give you your veg for free. Don't laugh -- it could well happen.

The main commentary in late December focused on whether it was the retailers or the growers who were bearing the brunt of these discounts. This question wasn't really answered to anyone's satisfaction. Lidl and Aldi insisted they were absorbing the costs of the promotion.

Around the same time as they were running TV advertisements promoting 19c-per-kilo Brussels sprouts, SuperValu said that the race to the bottom on price was "a step too far that will ultimately lead to a reduction in food quality and job losses in the farming sector". Surely a great example of having your cake and eating it.

The IFA said it didn't believe that retailers were bearing all of the costs of these price promotions. Outgoing president John Bryan said a potato farmer told him that his payment had fallen from €250 a tonne in mid-December to €120 the week before Christmas.

"Have no doubt, the same retailers will make back this reduction many times over," said incoming IFA president Eddie Downey, "either by upping the price on other lines or by demanding a contribution from others in the food supply chain. Either way, they will not take a hit on their profits."

In some ways, it's a moot point whether the retailers are absorbing these discounts. By running these promotions, supermarkets are establishing ever-lower price expectations among consumers for these most important native crops at a time when the cost of producing them is increasing. Vegetable growers are price takers, and don't have the collective bargaining power of beef and dairy farmers -- at some point, the supermarkets will reduce the price they are offering to growers permanently.

So the bottom line is that this constant supermarket-led downward pressure devalues vegetables and puts Irish jobs at risk. And it's not just the vegetable growers that are at risk -- there are jobs at risk further along the food chain, in packing, distribution and wholesale. Smaller, local veg retailers are also put in jeopardy by discounting, and since vegetables are all they sell, they can't make up the lost revenue by making heavy profits on other items.

It's not moral for supermarkets to use their support for Irish farmers as a cornerstone of their marketing campaigns while at the same time using the produce of those same farmers as loss leaders to get people in to stores.

And what of the consumer? Well, in theory these promotions come at a time when consumers are more willing to pay a fair price for Irish produce. In practice, supermarkets wouldn't run these deals unless consumers supported them in their droves.

In that context it was frustrating to see the National Consumer Agency chief, Karen O'Leary, saying these promotions were "great for consumers". Of course, all consumers are looking for value in these difficult times, but it is short sighted in the extreme to support pricing promotions that put Irish jobs and the Irish food industry at risk.

Grow it yourself diary: week 85

Though 2013 was a year to be celebrated weather-wise, it came with a sting in its tail. December was a horrendous month, and the storms in early January took their toll.

In the run-up to Christmas I had great plans for relaxing days in the veg patch over the Christmas holidays -- these plans were more or less completely scuppered by the weather.

Irish Independent

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