Farmers suffering under 'asymmetric power balance' with buyers

There is an “asymmetric power dynamic” between supermarket buyers and farmers in the UK that is leaving them with “disproportionately small” profit margins, according to a report.

The report, produced by Forum for the Future for the Oxford Farming Conference (OFC), said the highly-consolidated nature of supermarket purchasing has left farmers receiving almost no profit from their produce.

The vast majority of profit was created at the processing, manufacturing and retail stages, which limited productivity, threatened farmers, and harmed the environment.

The report said: “Procurement teams are rewarded for meeting sales, cost and volume metrics and are at the forefront of delivering cost savings and profit margins. Relationships between procurement teams and producers are often short-term and do not reflect ongoing interdependencies. There is little opportunity for sustainability to make an impact when it is not yet valued, commercialised, or included in the corporate value proposition.”

This “asymmetric power dynamic” has left farmers “squeezed on all sides” because the consolidated power of buyers leaves them with nowhere else to go. Food producers must absorb the rising costs of fertiliser, fuel, feed and energy, as well as investment in meeting new sustainability standards. 

The report said continuing with current system would “risk embedding food poverty and poor nutrition, slow our climate leadership, perpetuate extractive supply chain practices of past generations, and hamper our ability to grow to meet the demands of the UK’s future resilience and renewal”.

Emily Norton, 2023 chair for the OFC, said: “The impacts of a long history of supply chain practices that have driven efficiencies over values is now coming home to roost as a consequence of the energy and food shocks triggered by the conflict in Ukraine.”

To ensure a resilient and climate-responsible food supply chain, the report found three key themes needed to be addressed.

1. Rethinking supply chain relationships

Current negotiation practices are fraught with unpredictable contracts, failure to cover costs of production, burdensome costs of supply and unjust notice agreements, the report said. Farmers needed relationships built on reciprocity and shared negotiation, predictability, stability, confidence, and sufficient resourcing to invest and innovate.

For example, the report stated Nestlé’s support for its milk suppliers with a ‘sustainability contribution’ for delivering milk with a lower emissions footprint was an example of how to incentivise action and develop improved relationships. 

2. Sharing transition costs

Moving to a low-carbon food supply chain would be difficult for farmers, the report found, as farm production accounts for the majority of scope three food greenhouse gas (GHG) emissions, which are 90-95% of the UK’s food GHG emissions. Farmers were also disproportionately absorbing the risks and costs of GHG mitigation infrastructure and practices. 

Buyers in the food supply chain therefore needed to share the cost of investing in new equipment, adopting new practices, meeting new standards, reporting and verification.

3. Long-term supply chain reconfiguring

Participants in food supply chains need to look at how value is determined, and ensure new value propositions reflected the true costs of production, environmental and social costs. To complement this, farmers would need fairness, transparency and traceability embedded into supply chains, as well as harmonisation of carbon standards.

Kate Norgrove, executive director of advocacy and campaigns at WWF, added: “Farmers cannot fix our food system on their own and we urgently need coordinated action from government, suppliers, supermarkets and consumers to reduce the environmental footprint of what we eat. To bring our world back to life, we can no longer tinker around the edges; we all need to act now.”

The report said national and local government procurement standards were key to driving positive environmental and social outcomes, and ambitious policy changes were required to support supply chain governance.

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