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EC proposes action to improve functioning of food supply chain

09 December 2009

According to an EC press release, ‘the recent sharp decline in agricultural commodity prices alongside persistently high consumer food prices’ has raised concerns over the ‘functioning of the food supply chain in the EU’. Against this background the EC has agreed a communication proposing ‘concrete actions to improve (the) functioning of the food supply chain in the EU’. In part these proposals aim to improve ‘commercial relationships between actors of the chain’ to the ultimate benefit of all concerned.

Commissioner Fischer Boel, in her blog, highlighted three main thrusts of the communication: the importance of the newly launched European food prices monitoring tool; the importance of boosting ‘farmers’ bargaining power in the supply chain’ and the importance of farmers working together. More specifically in the communication the EC identifies:

  • ‘significant tensions in contractual relations between actors of the chain, stemming from their diversity and differences in bargaining power’;
  • a ‘lack of transparency of prices along the food chain’;
  • ‘increased volatility of commodity process’.

It further notes the continue fragmentation of EU food markets.

Specifically the communication notes that the Commission proposes to:

  • ‘promote sustainable and market-based relationships between stakeholder of the food supply chain’, by identifying ‘unfair contractual practices stemming from asymmetries in bargaining power’ and monitoring ‘potential abuses’, by working with national competition authorities to monitor the functioning of the food supply chain and by drafting ‘standard contracts with stakeholders from the different sectors’;
  • ‘increase transparency in the food supply chain’ by establishing a ‘European food prices monitoring tool’, improving ‘oversight of agricultural commodity derivatives market’ so as ‘to contain volatility and speculation’. The Commission is also proposing the establishment at the national level of ‘price comparison services’ to allow consumers to compare prices of different retailers;
  • ‘foster the integration of the internal market for food and the competitiveness of all sectors of the food supply chain’ by removing measures which ‘impede cross-border trade’ and ‘force’ retailers to source locally, looking at ‘how farmers’ bargaining position can be strengthened’.

A report is to be prepared on the effectiveness of these measures by the end of 2010.

The EC has also posted the Commission staff working papers which went into the formulation of the EC communication on the functioning of the food supply chain in the EU (see sources below).

The EC initiative to improve the functioning of the food supply chain has been welcomed by European farmers’ group COPA-COGECA, who however also called for ‘much stronger measures’ to be urgently introduced. In its press release, COPA-COGECA argued that ‘the EU food market is dominated by large retailers, and farmers’ share in retail food prices is continuing to be eroded’. The Secretary-General of COPA-COGECA, Pekka Personen, called for ‘measures to facilitate the concentration of supply to make sure that farmers can have a better position on the market’, as well as measures ‘to address the problems of late payments, market abuses and distortions of competition in the food chain’.

Editorial comment

EU concerns over the functioning of the food supply chain find a strong echo in ACP countries, where inequalities in power relationships can mean that ACP agricultural producers obtain only a tiny percentage of the final sale value of the food-and-agricultural products they grow. EU investigations and policy responses may carry important lessons for ACP countries in their own efforts to strengthen the negotiating position of agricultural producers in both national and international supply chains.

However, it needs to be recognised that ACP governments tend to face severe budgetary restrictions on the types of policy tools they can use in addressing inequalities in power relationships in the various supply chains in which national producers are engaged. This means that often trade-policy tools, such as the use of import licences, are the only means available to address inequalities in power along the supply chain.

A case in point is the use of import licensing in the Namibian horticultural sector, where this tool has been effectively used as part of a wider policy to effectively encourage greater local sourcing of fruit and vegetables by major retailers and traders. This has seen the domestic supply of fruit and vegetables increase from 5% of local consumption to around 25% in only five years. Against this background, more nuanced approaches are needed in dealing with non-tariff barriers to trade.

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