Caught in a vice

 

In a market where prices are squeezed to the absolute and in order to protect margins suspect practices and questionable ethics will inevitably come to the fore.

 

The current economic reality will continue to underpin the demand for cheap food but in satisfying this demand there is a price to pay.

 

The latest example was the furore caused by Premier Foods attempt to receive cash-payments from their suppliers the so called “pay to stay” policy. Such was the widespread criticism that Premier was forced to make a “u turn” but this was not the first company to implement a levy on its suppliers or else threaten to withdraw the business.

 

The combined effect of the recession, the growth in online retailing and the increased market share of discounters such as LIDL and ALDI has shaken the likes of Tesco, Sainsbury and Morrison’s.

 

For supermarkets focussing on market share food prices must be kept down, at all costs. But in the case of farming it is such a long cycle and there is little account taken of retrospective costs for the producer.

 

Looking back 25 years ago, British people probably spent about 22% of their disposable income on food. Now the average household spend on food is between 4 and 8%, so it has actually become cheaper.

 

The reality is that the 'bog-offs' - the buy-one-get-one-free deals are not actually sponsored by supermarkets. They are paid for by the producer who has to agree to them under tight terms and conditions.

 

Producers are under no illusion that in the desperate fight for market share they will be faced with ever squeezed margins in the months ahead.