Food retailers too strong

Cape Town - There is sufficient evidence that retailers' purchasing power is being used at the expense of their suppliers, and in the long run this can have negative consequences leading to food shortages. And farmers will be worst hit.

This is one of the issues highlighted by Professor Johann Kirsten of the University of Pretoria during the past week at an agri-economist conference on the Competition Commission's proposed investigation into retailers.

Kirsten says that a scientific analysis of the food chain indicates that market forces to some extent play a role in the chain, but their true scope becomes evident only from confidential discussions held with retailers' suppliers to get an indication of how the retailers use - and often abuse - their power when negotiating supply contracts.

He says it is difficult to describe the negative consequences of such actions if the real facts are not put on the table. But it's not easy to establish the whole truth, since the suppliers fear retribution if they talk.

"The retailers are meanwhile regarded as consumer champions because they allegedly keep food prices low and affordable," Kirsten declared.

"This can be ascribed mainly to the political sensitivity of food prices and the fact that chain store groups generally compete on prices."

He points out that retailers have the ability to hold back price increases by using various techniques in their relations with suppliers.

The techniques they use to twist their suppliers' arms for lower prices include the negotiating of confidential rebates, returning unsold goods, or carrying the costs for breakages, and taking long to settle accounts.

Kirsten reckons the strong-arming is, however, not limited to retailers' relations with their suppliers, but also major suppliers' relations with primary producers of agricultural commodities.

- Sake24.com

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