Market Power is Undermining Our Food Security

A couple of weeks ago this story about the corrupted relationship between food suppliers and supermarkets caught my eye. The farmer gets $5 a kilo. You pay $69
KEL SHARMAN, a Tasmanian beef farmer, was astonished to find out that meat from a beast he sold for about $5 a kilogram last month was on sale at a Surry Hills butchery this week for $69.
This is pretty much the WalMart model which offers significant, large orders provided the supplier cuts the prices to the bone. The trap is that, having committed to serious expansion, the supplier is then unable to find alternative suppliers and is slowly ground out of business by the buyer regularly cranking down the price.

Even if its not deliberate, the net effect is to undermine the food security of the community. And its happening in NZ as well. Lobbyists urge action on shop prices
"Our survey suggests that unfair pricing practices on the part of some supermarkets are decimating many fruit and vegetable growers and putting their industry at risk," Ms Kedgley said.
Over-priced produce meant many people couldn't afford to buy enough. "The Government must address the huge power imbalance between two giant supermarket chains and the small-to-medium size growers that are the backbone of our horticultural industry.

[...] Consumer Affairs Minister and Act MP Heather Roy said the survey was unscientific and the sample too small to reach statistical significance.

She said consumers had a wide range of choice to buy produce other than at supermarkets.

"The Government isn't about to start dictating to retailers what their profit margins should be."

Horticulture New Zealand chief executive Peter Silcock said: "There is real concern about the power of buyers generally and what impact that is having on grower returns."
My concern is that this behaviour is about as widespread as any market-based process. At first it succeeds well for the first movers, others follow suit and eventually, now, across the board, the margins for producers are so slim that any disruption, whether economic, political, climatic or social (such as an increasing percentage of our food being produced in our own gardens) could drive a significant number of producers out of business, leaving us generally with a serious food shortage.

It looks like the PM has jumped on the bandwagon as well, PM warns against Kiwis becoming 'tenants' Prime Minister John Key says he doesn't want New Zealanders to become tenants in their own country as foreign companies seek to buy up farms, and the Government may look at law changes.


At last, some good sense. Food security is different from practically everything else we obtain from markets. Never mind that foreign firms buy up property and enterprises with huge levels of debt which ensure that there are no profits to tax locally, as owners of the produce they can decide where it goes and there are plenty of people starving to death in countries where foreign-owned food producers export the food (and with it the water and nutrients) that are needed to feed the indigenous population.

On a wider scale, high levels of debt are used to enable foreign corporations the ability to demand that the debts are paid in whatever valuable commodity the debtor country has. In our case that would be food.

Excluding food from that calculation would be a first step towards governance that starts from a proposition that it exists to provide for the health and welfare of the community that elects it. In these days of neo-liberal economics that is a radical idea, but its one we need at the top level.

Meanwhile, at smaller scales, programmes like Ooooby are enabling communities to co-ordinate and distribute surplus food production.

The next step might be to invite local producers to deal more or less directly with their end-consumers. Producers like Market gardener Ray Goddard has been growing carrots at Sawyers Bay near Dunedin all his life, but says he is through supplying the supermarkets.
Goddard says he is happy to cut production and sell to Otago Farmers Market rather than help fill supermarket vegetable bins.
"The main reason is that they weren't paying enough to cover our cost of production. We were just losing money hand over fist. We just couldn't keep doing that."

Not a bad start but we are also going to have to find a way to bridge the gap between uneconomic production for mass markets and reduced, more economic production for local markets that might not meet demand.

And we need better mechanisms than simple market economics as we say farewell to two words that have been with us all my life. "Discretionary spending". Cameron Brewer details the problem: Winter of discontent for retailers
Over the past two years people have reduced their debt but nonetheless Kiwis mostly still spend every dollar they have.
With essentials such as petrol, electricity and car registrations going up in price, it means only one thing for the country's retailers - people have less money in their pockets to spend on more discretionary items.

It doesn't mean people will be saving less because as we know we're not a country of savers. Since July 1, people's pay packets are now running out quicker.

While Brewer takes the retailers' view, the other side of the transaction is that more and more of the essentials will be traded down. Colder, more crowded houses, fewer journeys and lower quality food or less of it.

Most of these stories are in today's papers; looks to me as if there is a convergence going on, and its not a happy one.

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Comment by steve william on July 14, 2010 at 2:01am
yep busy ness as usual
Comment by Earl Mardle on July 13, 2010 at 9:57pm
Another interesting point in the papers today. The headline yells about a 2% fall in food prices as the biggest in 50 years blah blah blah.

But read the story and you see that in the preceding 2 years prices had risen 17%, without great blaring headlines. Apparently constantly, even seriously rising prices are "normal" while a fall, however small, is something troubling and strange.

Or could it be that the media continues to reflect, possibly unconsciously, the preferences of its owners?
Comment by steve william on July 13, 2010 at 8:59pm
Consumer Affairs Minister and Act MP Heather Roy's comments are typical of someone who has been bought
Comment by Earl Mardle on July 6, 2010 at 5:07pm
Thanks Bridge.

The paradox is that good (ie fresh, local, organic etc) food is more expensive than it needs to be, undermining the producers, while rubbish food packed with corn syrup, fillers and the lowest possible quality is the only food that many can afford. The difference between Chinese garlic produced under god knows what conditions for the landscape, the farmers and the food itself and NZ grown bulbs is palpable.

But when we take the bigger step to producing our own the impact is even more marked.

The point about responsibility is not just about purchase; its about shifting from being consumers to being producers of our own resources.

That includes food but covers other things like clothes. There's a reason that we can buy imported goods for ridiculously low prices. That reason is slavery and the current unrest in china over criminally low wages is one step back from that. Another reason is that, by providing goods at predatorily low prices, the big, irresponsible producers can drive the rest out of the market and then they enslave their customers as well.

Perfect plan. Has to be stopped; Ooooby.
Comment by Bridge Scully on July 6, 2010 at 12:40pm
I think its great that Ray Goddard has cut out the middle man, people are becoming more consious of why food is so cheap (and the true cost) and hopefully the trend towards more locally produced and direct buying off the grower will increase. That said we still have along way to go in educating the public to take more responsilbility for their purchases and being aware of its impact.....if its cheap then unfortunately that is the main reason of purchase for a large majority of consumers, even more so in the lower socio-economic parts of the country.
Interesting points to note Earl...it sure is going to be one bumpy ride.

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