Why farmers blame price wars for grocery shortages
Sainsbury’s and Tesco’s obsession with beating Aldi has helped push the food industry into crisis.
‘If growers are not making a profit, they’re not going to do it. This sector is losing money – growers are not idiots’
It began innocuously: a handful of social media users queried why they couldn’t find tomatoes in their local shops. But what started as mild annoyance soon escalated into something much more serious: Tesco, Asda, Aldi and Morrisons began rationing tomatoes, cucumbers and other fruit and vegetables as shortages hit the supermarket sector. Restrictions are still in place almost two weeks later.
Last month’s shortages were blamed on bad weather spells in Morocco and Spain, which damaged crops and delayed harvests.
Yet farmers in Britain say there are more deep-seated problems at work. Many complain that continued pressure from supermarkets to lower prices has brought Britain’s agricultural sector to its knees and left the country vulnerable to shortages.
Farmers blame endless price wars between British supermarkets and German discounters Aldi and Lidl, which have left producers with a raw deal.
Pressure on profit margins has only grown over the last 18 months as the price of feed, fertiliser and energy has surged in the wake of Russia’s invasion of Ukraine.
Faced with soaring costs and squeezed prices for their products, many farmers are cutting back on production or giving up altogether.
“If growers are not making a profit, they’re not going to do it,” says Ali Capper, the owner of 200-year-old Stocks Farm. “This sector is losing money – growers are not idiots.”
Capper, who grows hops and apples in Worcestershire, says Brexit made the UK overly reliant on imported fruit and vegetables from markets such as Morocco. However, she believes aggressive negotiating from the supermarkets is “the number one reason why there are shortages”.
A December survey by Sustain found that some farmers were left with a profit of less than 1pc after supermarkets and intermediaries such as packers and distributors took their cut.
“Why should their children take on debt or sell their businesses to service debt?” says
Capper. “Many are multi-generation family businesses.”
Supermarket price wars are not new. However, the cost of living crisis has supercharged competition in the sector by putting a rocket under the growth of German discounters Aldi and Lidl.
Combined, the two now account for roughly 17pc of the UK grocery market and last year Aldi overtook Morrisons to become Britain’s fourth largest supermarket.
British grocers have responded with lower prices. Tesco became the first supermarket to explicitly price match Aldi in 2020, and currently does so on 600 products. Sainsbury’s price matches 300 of its products against Aldi, expanding the range of linked items in January.
Asda and Morrisons do not match explicitly but have been competing on price.
Often the easiest way to lower prices is to push suppliers to sell at the lowest levels possible.
Retail expert David Sables says: “The reality is [producers] are being hit not just by Tesco and Sainsbury’s but Asda, Morrisons and absolutely everybody for the same reason.”
The scale of the supermarkets means they have a lot of negotiating power, with many farmers often reluctantly accepting deals for fear of losing the major retailers as customers if they say no.
Jack Ward, chief executive of the British Growers Association, says: “[Price wars] have gradually… eroded all of the value out of the fresh produce sector.
“In 2014, carrots were 80p a kilo. By 2017, they were 60p a kilo and at the start of 2022 they were 40p a kilo. Today they’re on sale at 50p a kilo.”
“Four years of general inflation and a year of superinflation and we’re still expected to sell them 10p a kilo cheaper than they were five years ago.”
Supermarkets are not accused of any illegality and all abide by the Groceries Code, which is a set of guidelines meant to ensure that food producers are treated fairly. Aldi tops the Groceries Code Adjudicator’s (GCA) ranking of best behaved supermarkets, with Tesco second.
Sables says: “The truth of the matter is that where Aldi may not squeeze suppliers too hard, it’s because their business model lends itself to keeping the price down.”
Aldi has smaller stores with lower rents than Tesco or Sainsbury’s. The retailer also stocks a smaller range of products on shelves, which keeps costs down. Lower overheads put less pressure on the prices it pays for stock. “Everybody knows if you’re pitching to Aldi you’ve got to come in low, but they don’t have to squeeze or be unreasonable or pressurising,” says Sables.
‘Without urgent action there are real risks that empty shelves may become more common’
“When the other [retailers] – with their range choices and sophistication and bigger stores and higher stockholdings – try to compete on pricing, of course they have to put pressure on the suppliers.”
The National Farmers’ Union (NFU) has repeatedly warned of an escalating crisis in British food, highlighting the failure the failure to give growers a fair deal as a key issue. In December, it said Britain was “sleepwalking” into a food security crisis.
“The consequences of undervaluing growers can be seen on supermarket shelves right now,” says NFU president Minette Batters. “This is a reality we’ve been warning the Government about for many months. Without urgent action there are real risks that empty shelves may become more commonplace.”
The NFU has urged government and industry to intervene and make the supply chain fairer for farmers and growers.
Batters says: “We saw it with eggs, they do not have contractual relationships that are fit for purpose.”
Egg shortages last year were widely attributed to the ongoing outbreak of avian flu in the UK. But some farmers claimed it was because they were not getting a good enough deal from the supermarkets. Suppliers who believe they are being mistreated by retailers can complain officially by lodging a complaint with the GCA. Speaking earlier in 2022, Mark White, the adjudicator himself, said he was “concerned that the pressure has impaired relationships and created wider problems”.
Batters says: “Farmers and growers are extremely reluctant to speak up. There is a fear of being delisted. It is a really challenging environment.”
However, some on the supermarket side say it is just as challenging for retailers. These businesses too are facing major increases in costs, ranging from energy to wages.
Higher costs and elevated levels of customer switching, driven by the cost-of-living crisis, have left major retailers fighting to sustain themselves.
A senior retail industry source says: “If big supermarkets don’t [compete], soon we’re going to find that Aldi and Lidl are the big supermarkets.”
Sables says: “Farmers may very well say this is down to Aldi [but] everybody’s fuel and heating and fertiliser costs have gone up because of the war in Ukraine ... That’s got nothing to do with Aldi.”
A Sainsbury’s spokesman said: “We have always believed in close collaboration with our farmers and in paying them fairly.
“As inflationary pressures rise, we have supported our farmers and producers financially, as well as investing to keep prices low for customers throughout this financial year. We have longstanding partnerships with our suppliers to ensure long-term confidence and investment into the sector.”
Tesco has given millions of pounds of additional support for the pig, egg and milk sectors over the last year and raised the price it pays for potatoes and chilled vegetables.
Andrew Opie, director of sustainability at the British Retail Consortium (BRC), says: “Retailers have long-established relationships with the farmers in the UK and beyond, and they understand they need to pay a sustainable price for these goods.”
However, Ward, of the British Growers Association, says the
UK’s current problems with food production require a much broader rethink of the way the nation eats.
“We need to find a more sustainable way of trading fresh produce,” he says. “When I say sustainable, that’s got to be sustainable in terms of viability for small producers, in terms of the social impact, food prices, and sustainable in terms of not imposing a negative impact on the environment.”