I welcome Mr. Jim Power, Mr. Ciarán Fitzgerald and Ms Suzanne Campbell to the meeting. The joint committee invited the delegation to obtain an outside view of issues related to the production and distribution of farm produce, including profit margins and the effects of distribution on consumers. Before calling on the witnesses to commence the presentation, I draw their attention to the fact that while members of the committee have absolute privilege, the same privilege does not apply to witnesses appearing before it. Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the House or an official by name or in such a way as to make him or her identifiable. I ask Mr. Power to commence.
Production and Distribution of Farm Produce: Discussion.
Mr. Jim Power
I thank the joint committee for the opportunity to make a presentation this morning. I do not have any financial vested interest in the topic under discussion. While I am a board member of Agri-Aware, the food awareness body, my involvement in the organisation is voluntary and driven by my passion and interest in farming and the agrifood industry. I also believe mainstream economists have not paid attention to the contribution of the agrifood industry to the economy and the future potential of the sector.
The economy is in the midst of very challenging economic and financial circumstances. In recent years, economic momentum has weakened significantly and the economy's key driver, construction, has effectively disappeared from the landscape. It will be difficult to emerge from the deep economic hole in which we find ourselves. The nature and rapidity of the economic slowdown have been dramatic and have come as a serious shock to the country's economic and political life. In a period when many sectors of the economy are under considerable pressure and the inordinate contribution of the construction sector has been dramatically reduced, it is vital that policymakers take a more strategic approach to economic development. In that context, it will be important to identify the sectors which form a key part of the future economy. The agrifood industry, from primary to secondary production, is one such sector.
The statistics are clear. They show, for example, that roughly 230,000 people are employed in the Irish food and drink industry at the primary and secondary production levels. In addition, for every job in food manufacturing, there are four related jobs in the wider economy. The food and drink sector buys 80% of its raw materials and services — worth €8 billion in 2007 — in the Irish economy. The gross value added to the economy is significant in the sense that the majority of the inputs the sector uses and most of the employment it creates are indigenous to the economy. Clearly, therefore, the agrifood sector makes a substantial contribution to the indigenous economy. It is a major employer, sources most of its raw material domestically, is dominated by indigenous companies and, most important, plays a key role in the economic and social life of regional and rural economies.
In recent times, the debate on the food industry and food prices has been seriously distorted. For instance, during the deliberations preceding the decision to abolish the groceries order, much of the debate on the food industry and food price inflation was extremely misguided. Although we were convinced by a number of bodies that consumers were being ripped off in the area of food prices, developments since the removal of the groceries order demonstrate that many of the arguments made in support of its abolition were misguided. Between January 2000 and May 2009, overall inflation in the economy increased by 33.7%, whereas food prices increased by 24.2% over the same period. The relativity between these figures has not changed since the abolition of the groceries order. In other words, its abolition did not deliver lower food prices, as promised by those who supported the removal of the order.
During the same period, prices for non-alcoholic beverages, another key part of the food and drinks industry, increased by 19.2%, while water and refuse charges increased by 257.5%, electricity by 70.2%, gas by 90.7%, health services by 76.3% and education services by 78.6%. These figures demonstrate that food price inflation has been significantly lower than inflation in most other categories since the beginning of 2000. In other words, the food industry and food prices were not a significant contributor to the high cost of living we have experienced in Ireland over the past decade.
In this connection, I argue that it is much more important to examine the costs of doing business in Ireland. This argument was completely overlooked during the debate on the abolition of the groceries order. Costs such as wages, energy, communications, commercial rates, rents and professional fees are all significantly higher here than in most of our trading partners. The cost of doing business in Ireland is the major contributor to inflation and the lack of economic competitiveness, not food prices as many have suggested. It is incumbent on policymakers to target the more appropriate issue of the cost of doing business rather than picking on the easy target in the food sector. The cheap food policy pursued in the UK in the 1970s and 1980s made a major contribution to the development of BSE in the late 1980s. A cheap food policy will only undermine the quality of food. The key to unlocking the obvious potential of the food industry is through new products and strong brands. Without new products, Ireland will be condemned to be a simple producer of commodities. The food sector should become a major driver of the economy.
The consumer foods industry is, however, under serious threat. Retail giant Tesco is seeking to source groceries from the UK to replace product sourced in Ireland. The company claims it is planning only to replace international brands which it now sources in Ireland with their equivalents sourced in the UK. However, the evidence does not support this. Many Irish products are being gradually pushed out by Tesco own-brand products, and the shelf space available to Irish produce is becoming smaller and more expensive. Many Irish suppliers correctly believe the Tesco move is the thin edge of the wedge and they will be increasingly pressurised and ultimately forced out of business.
The Tesco move will have an immediate impact on Irish jobs in the food and grocery sectors, in logistics and distribution, in marketing and advertising. Irish suppliers correctly fear the real impact could be even greater. Tesco's announcement could well mark the first step in turning the Irish market into an offshore version of Inverness. Irish brands like Tayto, Miwadi and Cidona will come under increasing pressure and, in some cases may disappear from our shelves altogether. Our tastes will be dictated from the UK and more importantly the future of the Irish food sector. This cannot be allowed happen.
If Irish brands are locked out of a major retailer in Ireland, their ability to survive let alone launch new products will be severely threatened. Without a home market, Irish food companies will not have a market to launch new products on and test before targeting export markets. Irish food producers should now be deeply concerned as their future, and with it thousands of jobs, will be lost as the entire grocery supply chain in Ireland is reconfigured.
Given this threat, one would expect the Government to do all in its power to save the industry. So far there would appear to be little evidence that the Government has even woken up to the threat, let alone taken action to address the situation. The Government's silence has been deafening. This must change.
In the short term, the Government needs to use its influence with Tesco to reverse its move. It needs to put in place Fair Trade legislation that protects Irish suppliers from the dominant market power of the major multiple retailers such as Tesco. In the long term, the Government needs to get serious about the food sector and allow it realise its undoubted potential as a high-value added component of the economy.
I have spoken to many food producers and suppliers who are afraid to talk on the record because they will be punished by multiple retailers such as Tesco. This cannot be allowed happen. It threatens to destroy one of the most important indigenous industries here. In turn it would threaten the viability and sustainability of many rural local and regional economies. The stakes for Ireland, particularly rural Ireland, are extremely high and this matter needs to be addressed.
Mr. Ciarán Fitzgerald
I am the managing director of my own company CFC Consulting and have worked in the food and agribusiness sector since 1981. I have served as an expert on the EU milk, beef and veterinary advisory committees and on several food industry expert groups nominated by Governments since the early 1990s, including the anti-inflation group set up by social partnership in 2000. I was a director of the food and drink sector in IBEC for 15 years.
The food and drink sector, in conjunction with farming, is the largest industrial sector in the economy. It is up to four times larger than some of the modern economy sectors, a fact often missed in our national accounts. The national accounts do not consider transfer pricing or the value of output sourced in the economy. For example, the sector buys up to €9 billion worth of products and services in the economy when the modern economy sectors, including pharmaceuticals and ICT, buy only €1.5 billion. The key driver of economic wealth in this economy is still the food and drink sector. This sector has not been properly prized and we are in danger, given the competitive threats that face the industry, of losing it without realising its importance. I point to the exclusion of specific support measures for the food industry in the 2006 national development plan as one example of this.
The decision to deregulate the sector by abolishing the groceries order in 2006 was a huge mistake. It resulted in benefitting only the retailer in the food supply chain. The food manufacturing sector, in conjunction with farming, produces €24 billion while €7 billion is spent on food in the groceries sector. Our economic interest is with the manufacturing and farming sector, yet the only actor making a margin since deregulation is the retailer. That is not good for our economic interests and has not delivered value to consumers. Food inflation in the last year before the groceries order was abolished was negative and food prices fell by 1.5%. There has been increased food price inflation since the abolition.
One must examine how food prices are set. Between 50% and 80% of the price paid in retail is marked up by the retailer. If one pays €5 in a supermarket for a product, €2.50 of that is marked up by the retail sector. It must be remembered when it comes to competitiveness and cost, the larger element of the distortion comes at the retail and supermarket mark-up stage. That is a fundamental point that needs to be looked at in the context of competitive issues and why our prices are different and so on. Again, the great promise of deregulation was that if we freed up the food retail sector, we would see lower prices. The lack of pass through in 2008 of sterling price decreases to Irish consumers blows away the notion that when a benefit is to be passed on, this model of deregulated food retailing will achieve this. The reality is that retail margins were increased, especially for products imported from the UK. When that was exposed, the actions of a particular retailer, Tesco, were interesting in the sense that yet another culprit could be blamed for the high cost of food in Ireland. Between 1998 and 2006 the groceries order was blamed. The argument was that this was effectively a straitjacket, but since the abolition of the order, when they were allowed to give stuff away, so to speak, they did not do it. Not only that, they failed to pass on the very measurable reductions that were available from the sterling price increase.
Now there is a move to source products outside this economy because Tesco believes, as does this committee, that the real difficulty with Irish food prices is the fact that food is being sourced in Ireland and that if it is sourced outside, consumers will be better off. That is nonsense, however. This is about retail margin. The essence of what is happening is that a decision is being made to protect Tesco's retail margin and sourcing a product outside Ireland and into the system, as they say, is about the protection of the margin. That prize is being put in front of this committee, which represents the Oireachtas as well as the plain people of Ireland, to give the impression that Tesco cares about Irish consumers. What it cares about is the margin. With the abolition of the groceries order and the deregulation of the market, the Oireachtas has given enormous buying power to particular retailers and it has been abused. Not only have we not seen a pass through to consumers in terms of lower prices, we also have a situation where manufacturers and suppliers are having to fund enormous amounts of discounts.
As there is a division in the Dáil, I must stop Mr. Fitzgerald at this point because we must suspend the meeting until the vote has taken place.
I apologise to our guests, particularly Mr. Fitzgerald, who was in full flight. Unfortunately, there were two votes. You can proceed now.
Mr. Ciarán Fitzgerald
There are two issues in the overall scene. The first is the understanding of the true economic value of the industry. On that basis, it is something we need to support. Looking at the current recession and the sectors that have been damaged by it, the reality in the food sector is that underlying demand for food has been reduced slightly. We have a huge problem with the demand for food in the sterling area, because we have a competitiveness issue. However, if this industry is properly nurtured, it can deliver value and jobs in Ireland.
There has been much confusion about the piece on retail pricing, but the most important realisation is that the person who puts the largest mark-up on a product on the supermarket shelf is the supermarket. If one is looking for distortions and overpricing, one should look there. The issue is that buying power has been positioned by economists and politicians as being the great white hope for the consumer on the simplistic basis that, if the person most directly selling to the consumer has all of the power, he or she will automatically give value. The reality is that when one has buying power of the level to be found in this marketplace, there is an increase in retailer margins. It is not in the interests of consumers because they are paying more for products than they should be. Nor is it in the interests of the economy because the food producing and manufacturing sectors, which provide significant value, are not getting a return.
A perversion of this matter is that, as well as being told that energy prices and other economic costs cannot be recovered in this marketplace, the food industry has recently been asked by some retailers to support the retail sector in the short term in terms of promotions, advertising and discounting. A considerable portion of what is sold at a discount level in supermarkets is paid for and funded by suppliers. When retailers get that big and have that much buying power, they do not compete with their own resources. Rather, they use other people's money to bring consumers in. This is not efficiency; it is abuse. Buying power must be examined realistically in this context. It does not deliver for the consumer or the country's economic interests.
The retail space must be independently monitored. We must outlaw business abuses like getting others to pay for one's discounts, the opening of one's store, one's shelf space, one's special offers or anywhere one discounts. These practices must be banned and margins must be properly monitored. There is detailed information at the farming level concerning what farmers are making. There is detailed information at the manufacturing level, where margins range from 1% to 4% depending on which industry is being considered. What we do not have and did not have when the Government made a decision to abolish the groceries order was an understanding of the reality of retail margins. Retailers, especially international retailers, do not declare them and the Government has no proper measure of it. Abolishing the order was a shot in the dark, a hope that if such people were allowed to increase their margins, they would pass it on to the consumer. It has failed.
We need to understand the economic interest in our largest industry. We must examine properly the best ways to maximise the sector's potential. This will involve a degree of planning, a focus on competitiveness and an understanding of reality. We also need to wake up and consider in a mature fashion what is occurring in terms of the ways in which supermarkets add margins and abuse buying power.
I thank Mr. Fitzgerald for his presentation.
Ms Suzanne Campbell
I thank the Chairman and members for this opportunity to address the committee. With my husband, Philip Boucher-Hayes, I am completing research on a book to be published in September about food, farming and the future of rural Ireland. Seismic shifts are occurring in the Irish food chain. During the course of our research, we canvassed opinion across the food and agricultural sector, from farm to fork as it were, and formed the opinion that the pressures being placed on food producers in addition to shifts in the retail landscape will irrevocably change what we eat and how much we pay for it.
We come to the committee with no vested interests. Our livelihoods are not under threat so our assessment is one made without fear or favour. I am a former producer of RTE's farming and food programme "Ear to the Ground" with a family background in Northern Ireland. My co-author, Philip, has been a journalist for 20 years. Our sole reason for writing the book is to make a contribution to a critical debate at this time.
Why is this matter so important? The committee does not need to hear from us how retailers have gradually assumed more and more influence in not just the Irish but the global food market. Their power is immense. Of all the parties engaged in the Irish food sector – farmers, processors, niche producers, the Government and the EU – it is the retailers, particularly supermarkets, that set the agenda and control the market. They do this in a number of ways, apparently passing changes that are negative to their interests on to others. When customers demand price reductions, producers claim that retailers pass those price cuts directly on to them. Where growers and producers should have choice in to whom they sell, they are often handcuffed by the supermarkets to exclusivity deals. This makes them vulnerable and afraid to speak out. Where producers need shelf space to sell to the public, they claim retailers make them pay for the privilege.
The supermarkets should be congratulated on their business acumen. Through a combination of tight contracts, exacting product specifications, reduced handling time, tough management techniques, "just in time" logistics and undeniably brilliant marketing, they have achieved domination. Supermarkets have made life easy for us by taking much of the labour out of food preparation and charging a premium for it, releasing us to pursue other activities. Thirty years ago, the average amount of time devoted to meal preparation in most houses was one hour. Today, it is 15 minutes. Some project that by 2020 it will be five minutes.
We are at a tipping point. For years, a healthy tension existed between retailer and food processor over cost. Most producers were always able to find places where savings could be made and retailers could only push so hard because they knew there were alternative markets for producers. Those alternatives have almost completely disappeared as the grocery sector has consolidated to the point where it is basically run by a handful of companies. Between 2001 and 2006, 50% of Ireland's independent retailers went out of business or were gobbled up by larger competitors. Dunnes Stores, Tesco and SuperValu account for 70% of the retail grocery market in Ireland, one of the highest levels of retail concentration in the EU. To give the committee a picture of the extent of supermarket power, the High Court decided three months ago that Kerry Group's acquisition of several food brands from Dairygold would still not leave Kerry Group so big that it could match the buying and bargaining power of the supermarkets. The High Court deemed the move to be competitive.
In our book, we examine how, in a short space of time, supermarkets and chain stores came to dominate how we buy food. We have investigated how towns are being turned "inside out" with shops boarded up on main streets while large retail units are given planning on greenfield sites on the outskirts, sucking up many types of business in the process. Supermarkets sell us televisions, garden furniture and clothing. The closure of small businesses and how they are completely priced out of the picture is given zero attention. It seems we are happy to reward the large multiples with trading conditions and planning to suit their needs and to ignore smaller businesses.
Producers have become fearful as the food landscape in Ireland has changed beyond recognition. They have been warning for a long time that both they and, in future years, the consumer will no longer have any other options. Many producers have effectively become tied agents with no leverage to negotiate. Supermarkets have cornered them into a take it or leave it position when it comes to agreeing contracts. One supplier has told us that whereas ten years ago he was glad to secure a deal with a major multiple, he now feels that he is in bondage to it. The land he farms may be in his name, but the supermarket in question controls every other aspect of his business.
I apologise that we have needed to protect the identities of the producers and growers to whom we have spoken, but no one on this committee needs to be told about the fear of delisting under which they operate. Those fears have been borne out in recent months. Tesco's price cuts in a handful of its Border stores precipitated a major shift in the Irish food market. Supermarkets across the board followed the same strategy, demanding cuts of their suppliers without apparently being willing to take any of the pain themselves. Suppliers to whom we have spoken on condition of anonymity stated that they have been told by all the major multiples to cut their invoices by up to 20%. Suppliers claim there was little in the way of negotiation about these price cuts. One told us that "resistance is futile". Another significant player in the food sector whom one would believe would not be easily pushed about told us that one simply does not negotiate.
Cuts of 15% to 20% are being demanded by supermarkets across the food production sector of the economy. This presumably is what the Minister for Agriculture, Fisheries and Food, Deputy Smith, noticed when he told the Council of Ministers last month that "the balance of market negotiating power in the food chain" had changed in the supermarkets' favour.
Suppliers know that two options are open to them, those being to cut jobs or quality. Jobs are already being lost. It is an invidious position if the cost of attracting Irish consumers south of the Border again were to be the loss of jobs. Research completed in the UK showed that a 5% decrease in food related jobs occurs within a 15 km radius of a newly opened superstore. Just as worrying, one producer of a well-known household brand told us that, after he cuts jobs, he may also be forced to cut quality to stay in business. He stated that in five years' time, if he is still trading, "the product I make then will bear no nutritional resemblance to what I make now". Another common experience for many suppliers is finding their shelf space cut overnight without being informed. Shelf space equals sales and a drop in sales means eventual delisting.
At a time when all businesses are looking for reductions from their suppliers, the supermarkets are no less entitled to seek the same thing and all of them are doing so. It is the scale of the demands that suppliers claim is excessive and the commanding market position of the retailers that makes the negotiations unequal. Suppliers tell us that some supermarket demands can only be met by cutting payroll. If consumers knew that the cost of a cheaper basket of goods was Irish jobs, fewer Irish products and higher prices in the long term, there would be less to celebrate but that message is not likely to penetrate the enormous advertising campaigns promoting cuts.
We asked all the people in food and farming whom we have spoken to for the book to imagine what the food production and retail landscape would be like in five years' time. The own brand product will dominate the supermarket shelves. Although not necessarily nutritionally inferior, own brand products are rarely better than what they replace. They also leave producers with an even tighter margin. Food will also become less financially significant to the supermarkets. It is likely to become secondary to new growth areas such as financial services and mobile phones. Cheap own brand food could in effect become a loss leader for other goods and services. Surely food, which is the source of life itself, is more important to us than this.
Regardless of what sector we were speaking to, be it dairy, cereal, horticulture or whatever, all felt that there will be significant closures and buy-ups. The more Irish suppliers that close, the greater the impact on the remaining independent retailers who do not have access to international distribution. These independent, non-aligned shop owners know they are a dying breed. In the next few years retail grocery will pass entirely into the hands of the few. Without wishing to sound alarmist, Ireland's food sovereignty is at risk because the companies that remain will have no contractually binding loyalty to Ireland as a food producing nation. Why would they?
There are solutions. The planning guidelines for the location of supermarkets can be revised to ensure no more building in peripheral areas. Members will be well aware that the commercial activity of numerous Irish towns has been devastated by supermarkets being allowed to build too far from the centre. Independent retailers have said they do not mind competing with supermarkets but they can only compete when they are in the town alongside them, not two miles away. There are excellent examples of where this has worked, like Enniscorthy, where Dunnes and SuperValu built on two brownfield sites in the town centre along the banks of the Slaney. There is a dynamic and vibrant feel to shopping in Enniscorthy, with consumers dividing their spend between big and small because they are all within a stone's throw of each other. Tesco sought permission for a site on the Dublin Road on the outskirts of town but was turned down because the site was too far out of town. If only every local authority showed the same foresight.
By far the most unexpected thing our research has revealed to us relates to the German discounter Aldi. Talk to their Irish suppliers and they appear genuinely happy. Deals done are stuck to. The president of the IFA, Padraig Walshe, a man not in the habit of saying too many nice things about any supermarkets, told us that in his experience Irish farmers involved with Aldi were generally happy people. The difference between Aldi and its competitors in Ireland is in its approach to sustainable long-term growth versus short-term maximisation of profit. Key to that approach, as the company has learned in other countries, is selling Irish people identifiably Irish food.
The committee might well ask what role the Government can play in compelling retailers to source produce indigenously, thinking it is something that cannot happen in a free market. However, it did happen in this free market economy in 1997. When Tesco entered Ireland by taking over Quinnsworth and Crazy Prices, the company gave the then Minister with responsibility for enterprise, Deputy Richard Bruton, written undertakings about its commitment to the Irish supply chain. The agreement ran for five years and Forfás found Tesco kept up its end of the deal but the deal ended in 2002 and was not renewed.
This or other committees may decide to question the Competition Authority more closely on its desire to possibly open Ireland up to retailers such as Wal-Mart as the best way of encouraging competition. If ASDA, a Wal-Mart subsidiary, eventually buys Dunnes Stores, as is rumoured, all of the pressures we have described will be accelerated. Mairead McGuinness, MEP, has called this the road to hell.
Farmers' markets, by which we do not mean the city variety run by importers and traders but the real deal operated by Irish growers and producers, are small players and of limited commercial value but if fostered to the same level as elsewhere in Europe, they could be an important alternative outlet for growers and producers as well as an important part of a diversified retail landscape. Consumers need to see well-organised and convenient alternatives to supermarkets before they will split their weekly shop. We encourage the committee to look at how Carlow County Council has supported the farmers' market in the town. It is a good example of a local authority providing just the right amount of support without the dead hand of bureaucracy.
We feel that legislators could have a role to play in setting a standard for supermarkets which dictates how they deal with suppliers and how much Irish food they stock. We have to get beyond the idea that regulation is a negative thing. If Government acts for social good in respect of transport, energy, waste and so on, why is it almost absent from how food is sold, at what price and where it is coming from? Particularly in these times, it is clear what a good servant agriculture has been to this country. Agriculture and the food sector sustain the livelihoods of 230,000 people. We term ourselves the food island, but supermarkets do not deal with nationality, only profit. Private enterprise will always suit itself and it is only through regulation that the consumer gets any protection. We should not have to look at what happened to banking in this country to learn the lessons from wielding too light a regulatory hand.
There is always scope to emulate laws in France, Germany and other EU states that redress the balance between suppliers and retailers in the grocery sector. The UK is developing a new grocery trade code of practice and a supermarkets ombudsman. While the soon to be published voluntary code of practice in Ireland would be welcomed by suppliers, without an ombudsman with the power to initiate investigation or impose fines where abuse is suspected, it would be of limited value. Supermarkets that operate good codes of practice in respect of Irish suppliers can help support and grow our food industry but cheap food is disastrous for both the Irish food sector and for consumers. Ultimately, it will lead us down a road of business closures, job losses and a food environment where our choices are limited. Much of our food will be imported from overseas, where cheap production methods can threaten the safety of what we eat. Ireland is great at producing food. In selling it we have, unfortunately, let big business take over. It might be time to take back a little of that power for ourselves. I thank the committee for listening.
I welcome Mr. Power, Mr. Fitzgerald and Ms Campbell. We have shed some light on a complex area that needs greater scrutiny by the committee. If anything illuminates the concerns, it is the report by Food and Drink Industry Ireland which indicates that 2,000 jobs have been lost in the sector in 2009. The report flags critical issues for this indigenous industry which does not have the option of relocating. This applies to both the primary producer and the processing side. It is rooted in the agricultural and rural economy and it is here for the long haul. It can survive and prosper if we deliver the proper regulatory framework for it.
Profit is not a dirty word. Anyone in the retail sector is entitled to a reasonable profit. The evidence of the report yesterday, evidence from the food and drink industry, evidence from our witnesses and numerous publications and commentary is cause for concern. Unless something is done sooner rather than later, the Tesco blueprint for outsourcing of food production for Tesco supermarket shelves in Ireland will close down small Irish food businesses and will put farmers out of business. That is something we, as legislators, would be poorly thanked for. This is the last chance saloon and we do not have much time to play with.
We need a multi-departmental approach. This issue rests in the Departments of Enterprise, Trade and Employment and Agriculture, Fisheries and Food, the Competition Authority and the National Consumer Agency. There is buck passing and a lack of coherent activity and legislative structures for a sector employing 128,000 at the farm gate and up to 250,000 in the processing sector. In terms of its value and exports the industry as a whole has been quantified at approximately €8 billion. However, it involves real people in real jobs in parts of the country where alternative employment is not readily available and it is not an industry that will relocate.
The committee must embark on far more comprehensive analysis and speak to people such as the agencies I mentioned. Let us also speak to the elephant in the room and bring Tesco and the other multiples before the committee. Let us get a comprehensive picture and then propose the revisions that are necessary in the legislative framework. We should also examine international best practice. In the past, I have made comparisons with the UK where a voluntary code of conduct has been in place. However, it now appears that voluntary code is entirely insufficient and it is ironic that the architect of dismantling the groceries order is now centrally involved in reconstructing a regulatory framework in the UK that will be legislatively based and not a voluntary code.
In speaking about Tesco its scale should be put in context; globally it has a larger turnover than this country has. Its financial power and leverage is enormous. All of the evidence to date has shown that a voluntary code of conduct is meaningless. We need a legislative framework to deal with the issues raised by Mr. Ciarán Fitzgerald; we need independent monitoring, to outlaw practices such as demanding "hello" money and auctions for shelf space and proper monitoring of margins. At present we do not have any of this legislative framework which makes it a paradise for the multiples to extract extraordinary deals from primary producers.
Some of our witnesses referred to a campaign of intimidation and fear against those involved in the food industry. Fortunately this week, Bewley's came before the committee and put its head above the parapet and spoke about the extraordinary difficulties it faces because of the pressures being exerted by Tesco in particular. Considerable credit is due to it notwithstanding the consequences for it individually. I am sure Tesco might be number one but others also have a very dominant position — Dunnes Stores comes to mind. There are rumours that it may be for sale and we hear that Wal-Mart might be a possible entrant into the Irish market.
We should be concerned about all of these matters and ensure that whoever plays in the marketplace plays fairly and that jobs and consumers are protected. It is very much the case that often consumers who are interested in quality and price have more in common with the primary producer and processor in terms of collective interests than they have with the retailers. What we are embarked upon today is but a toe in the water in terms of what needs to be done to analyse it but we do not have much time to do so.
What are the views of the witnesses on the Competition Authority as it operates in this area at present? Do they believe it is blinded by scale, believing that scale alone delivers price to consumers and that we should be prepared to put up with the warts and all that go with scale? I see the National Consumer Agency as the flip-side of the Competition Authority. How effective is it? One sees press releases issued by the National Consumer Agency which emanate from the same stable as press releases from Tesco that almost back-slap each other on successive days. This raises questions in itself. I have very considerable concerns about the capacity of the National Consumer Agency to protect the interests of consumers and I am interested in the witnesses' observations on this.
People referred to the campaign of fear and intimidation on primary producers and processors and we have seen Bewley's raise its head above the parapet. However, it is not only at this sector that the fear and intimidation is directed. I am aware of solicitors' letters being issued to people who dare to criticise publically or print critical stories about Tesco or who probe beneath the press releases to find out whether the claims about price stack up. I very much welcome Suzanne Campbell's presence here this morning.
I am disappointed that Mr. Philip Boucher-Hayes is not here because he has a track record as a campaigning journalist in this area. I would be very disappointed if the capacity of witnesses to appear before the committee was being manipulated by people outside the room by virtue of their terms of employment with RTE or if RTE by virtue of existing contracts or contract negotiations for sponsorship might feel that it cannot afford to offend Tesco or others in that regard. I do not want to make any charges in this area but the committee should query this, take the matter up with RTE and pursue it independently.
Mr. Philip Boucher-Hayes has a track record on this issue and I listened very closely to his recent stories on Tesco's Border and North of Ireland stores. I would hate to think that somebody outside this room is interfering with a committee of elected representatives attempting to get to the bottom of this issue but being thwarted by unseen forces. If it is the case — and I am not stating that it is — we should take it up with Mr. Cathal Goan, the director general of RTE. Mr. Philip Boucher-Hayes's voice should be heard on this issue as it has already been heard in an effective, telling and fearless manner.
We will discuss that issue privately at our next meeting.
We should write to the director general to seek clarification.
Is that agreed? Agreed.
I am delighted the witnesses are here today because this represents a golden opportunity for the committee to have some degree of analysis on what has been going on within the retail food sector in recent months in particular. When I think of what happened at the time of the May bank holiday weekend with regard to Tesco my strong feeling is that it pulled off the greatest stroke that was ever pulled off in the retail food sector. It dressed up a designed plan to extract as many Irish products and goods from the planograms in their stores as a mechanism to reduce prices to the consumer. If one listened to the testimonials of shoppers coming from the stores after that weekend it was branded as a triumph for the consumer in reduced prices and that the consumer was winning as a result.
In a small area.
In a very small area.
However, when one digs a little deeper one realises that Irish household name brands and products were extracted from the shelves. These include Batchelors, Lyons Tea, Barry's Tea, Dubliner cheese and Tayto, which were squeezed out of the space they had held heretofore. I fear that Tesco aims at the creation of what I can only describe as a "tescopoly". It now has 26% of the market and is reaching for more. Rather than carrying more Irish products, its stores will sell a wider array of own brand, imported and arguably inferior goods. This insidious practice needs to be stopped. I am glad the witnesses have come up with a concrete set of proposals. Rational debate is required on food margins because since the introduction of the euro, Irish consumers can easily compare the price of a basket of goods in Spain, for example, with similar products in Ireland. It was easy to argue that Irish producers were adding the margins that created significant price difference, whereas they were determined by the larger multiples which have such control of the market that they are stealthily squeezing out Irish producers. It is a dangerous strategy with serious implications for job creation in the future.
A document launched yesterday by IBEC and the Food and Drink Industry of Ireland notes that the cost inputs of food production in Ireland are significantly higher than in other European countries. Mr. Power made a similar point in his contribution. How do we address the issues of margins? How can we put in place a legislative framework that allows the primary producers and retailers to take their cuts while allowing the consumer to pay a price which is similar to elsewhere in Europe? Reinstating the groceries order or reviewing the role of the Competition Authority may offer ways of achieving that goal. Fair trade legislation is also an option. I would like to hear the witnesses' views on how such legislation could be implemented to ensure a level playing field for retailers, consumers and primary producers.
Regarding Tesco's sourcing of foodstuffs from abroad, and the UK in particular, what would happen if the other multiples followed suit? Ms Campbell referred to Aldi's apparently healthy relationship with Irish producers. Is it possible to estimate the number of potential job losses and what would be the outcome of a supermarket price war on the Irish market?
The grocery sector has been extremely exposed to currency fluctuations between the euro and sterling. I am trying to assess the impact on Tesco's prices if sterling appreciates. In regard to the announcement over the bank holiday weekend on dramatically reduced prices for the UK basket of goods, I believe these prices will increase over the long term and Irish consumers will end up paying more than they have heretofore.
What are the witnesses' views on the relationship between the Departments of Agriculture, Fisheries and Food, and Enterprise, Trade and Employment? The former Department's announcement of €641 million for agri-food research programmes seems disconnected from the latter's policies for job creation in the sector. My impression is that a cross-departmental approach is not being taken. The Department of Agriculture, Fisheries and Food deals with farmers, the co-operative movement and the European Union but it does not appear to have an input into the role of the retail sector in agricultural policy.
My awareness of the potential for growth in the food industry was enhanced by the document Mr. Powers produced for Agri-Aware. If this committee is to influence the retail sector, it will have to develop a concrete set of proposals that can be presented to the Government.
I thank Mr. Power, Mr. Fitzgerald and Ms Campbell for their presentations. They have helped to highlight problems about which we are already aware. It is disappointing that we do not have a good news story but the matter could be very different with a little bit of co-operation.
Producers and processors barely exist because they are being forced to sell their goods below cost. It is not news that retailers are creaming the profits. Business executives are answerable to their shareholders but the current situation is not sustainable for producers.
Ms Campbell referred to retail stores located outside towns. Ideally, any of these people would rather be in the centre of town but it is virtually impossible to get a site big enough to carry out this type of activity in the centre of town. Where it is possible it should be there, but in my constituency of Cork South-West there is a development plan which ties them into setting up within the town boundaries. In some cases where it is virtually impossible and where it was investigated and there were no sites available, they can be accommodated as near as possible to the town. We are all interested in having it in town if possible, but it is not always possible.
Tesco in particular got a fair hammering here this morning and it is only one of the players involved. It creates much employment, and it is very welcome employment in many places where we have no major industry or employers. It is important that we can sustain this type of activity but it will not be possible without the co-operation of the Tescos, Dunnes and SuperValus because the jobs created by the producers and processors in the immediate area are equally as valuable as the jobs created by the stores. Working together has to be the way. Deputy Creed suggested legislation to regulate here and we will have to seriously examine that because an open market has not worked here.
The Taoiseach ruled it out yesterday.
We are talking in the committee and what is said in the committee can be discussed later with the Minister or whoever. There is much work to be done on this and it is causing serious concern for many people. I suggest we bring representatives from Tesco, Dunnes and SuperValu before us and explain how, for example, on the production of a tonne of cheese, which is an example I have brought here before, the processor gets €2,000 per tonne for producing that cheese, the person who produces the milk which goes into it gets between €450 and €500, yet the retailer comes out at the end with approximately €10,000. That is just one example. There are other products in the same line. There is much work to be done here and it is in the interests of everybody involved — retailers, producers, processors and consumers — that it be examined and sorted out sooner rather than later.
What do the witnesses think of FDII's call for an ombudsman and code of practice in the grocery sector? Ms Suzanne Campbell touched on it in her statement when she said:
The UK is developing a new grocery trade code of practice and a supermarkets ombudsman. While the soon to be published voluntary code of practice here would be welcomed by suppliers...
Could I have the witnesses' views on that?
Mr. Jim Power
Looking at some of the points raised by Deputy Creed, my view on the Competition Authority has been growing in my mind for quite some time. The Competition Authority is an ideologically-driven organisation that believes in the mantra of free markets regardless of the consequences. Its attitude during the groceries order debate demonstrated that very clearly. We have all discovered in recent years that unfettered free markets do not work. They lead to economically inefficient outcomes and it is high time pressure is brought to bear on the Competition Authority to steer away from its heavily ideologically-driven belief. The Competition Authority is not and has not been making an effective contribution to many areas of the Irish economy and this needs to be addressed.
I regard the National Consumer Agency as a toothless hen, to bring an agricultural term to the table. I find its price surveys extremely difficult to understand, it is extremely ill-informed and selective and it operates on the basis that price is the only thing that matters, that consumer choice and quality of consumer products is irrelevant. That needs to change because both organisations, separately or in an amalgamated form, which I would find difficult to see working, should have a key and constructive role in ensuring this industry makes the contribution it can. Ireland can become the Silicon Valley of food production, provided it is managed properly and technology is brought to bear on food production, brand awareness, and so on.
On Deputy Sherlock's comments on how one tackles margins, I have no idea what margins supermarkets such as Tesco are earning here. I suspect they are extremely large but there is no transparency. We need information on the margins earned in this market by multiples such as Tesco. Once we get a clear view on the margins being earned we can proceed to try to create a fairer marketplace for all concerned. That would be part of the consumer education process.
Consumers need to be educated about the real implications of what is happening out there. Last December for example, as people were travelling North of the Border to save money on purchasing food, alcohol and so on, my comment was that those people should take these savings, put them in a deposit account and save them up to buy tickets to visit their children who will be forced to emigrate to seek employment. I stand over that comment to this day.
Likewise on the Tesco price move, people need to be extremely aware of the implications of what Tesco is doing. It will cost many jobs in this economy. If the Tesco practice were to become widespread I could see that 230,000 people employed in the agri-food industry being halved within two years. One is talking about almost a Dell situation every month over the next couple of years. That is not acceptable. I agree with Deputy Sherlock on currency fluctuations. There is a serious probability that as sterling appreciates, if it does, that will be passed back to the consumer and the fall in prices we saw on a very selective basis will not be sustained in the long term.
The Department of Agriculture, Fisheries and Food should be renamed the Department of Agri-food because it needs to take in a much broader remit. Having the Departments of Enterprise, Trade and Employment and Agriculture, Fisheries and Food overseeing all aspects of this industry is not efficient. The agri-food industry is about farmers and the secondary producers. They need to work together to create the Silicon Valley of food production.
On Deputy Christy O'Sullivan's comments, Tesco is in the firing line here today because it implemented the changes at the beginning of May. That is the reason we are talking about that organisation. We have seen very clear evidence since then of the impact of Tesco on the landscape, and I have no doubt this will get much worse over the next few years.
Tesco is a major employment creator but one must think of the net effect of what it does in terms of employment. Many of the jobs it creates are being displaced elsewhere in the retail sector and we must also take into account the jobs that will be lost in the agrifood industry because of the dictatorial policies it tries to pursue and which suppliers are terrified to talk about. That position is unacceptable.
As a final point on the Chairman's comments regarding a code of practice, a grocery ombudsman might be useful but it would not be effective. There is only one way to address this and that is through legislation. We must outlaw the sorts of practices in which some multiples are currently engaging. I am unambiguous about that.
Mr. Ciarán Fitzgerald
With regard to the Competition Authority's involvement, at best it has been naive and at worst it has been one-dimensional. Perhaps the issue is not under its remit but it is the remit of economics to look at the broad economic interest. When the authority considers the grocery market it uses a sole estimate of value, namely, the potential for lower consumer prices. It has not been able to measure retail margin so when it advised on the abolition of the groceries order, it was on a wish that things might be better. The authority did not have the information indicating what the margin was nor did it have evidence of behaviour that suggested prices would come down.
There is an issue regarding the Competition Authority's capability in this sector and the authority is probably not the State entity best suited to judge the economic interest. As we have argued substantially, the economic interest of the food and drink sector in Ireland is throughout the economy from producers to consumers and the sole measure is not whether, through buying power, Tesco can force a person to supply below cost. That is the only test applied by the Competition Authority and that is why it did not come up with the holistic approach we are now talking about. The body is entirely inappropriate for the responsibility of examining what is going on in this sector. Economic analysis considers the broad economic interest but in the way the Competition Authority does it, such a process does not come about.
The issue of margins arises repeatedly and as I indicated in my earlier presentation, margins of food manufacturers are in the public domain through the Central Statistics Office and company returns, and margins of producers are also known. The only margin that is not known is that of the retailer. Why is this the case when so much is banked on the issue? The essence of the deregulated market is that a party with all the power will deliver value to the consumer and yet we do not know the margin.
One can only go forward with information and we must have proper reportage of margins. We must consider the mark-up on products and we must also outlaw abuses. It is not a sign of a mature economy when people are compelled in the way that people in the food industry are to support retailers. That is not something we should aspire to and it is not in the economic, corporate or ethical interest of anyone in this country that such a relationship should exist. It is not sensible and there is nothing competitive about abuse. Such a use of buying power is an abuse of economic dependency and it should be outlawed as such. We should be mature about that need.
I agree with the code of practice proposition. The essence of outlawing behaviour is important but the actuality is only as good as the enforcement. The Director of Consumer Affairs in Willie Fagan's time had the power to consider retail margins and look at issues such as terms and conditions. The office knew what was happening and could therefore make decisions. We need an independent enforcer on these matters.
A point has been made of Tesco being an employer. For every job in manufacturing, there are four other jobs in the Irish economy. If that link is removed, at best there is one job in retailing and no job linked to it. We have a prize and there is an economically virtuous relationship in that when companies came into Ireland in the 1970s, they were encouraged to source products locally on the basis that they were not here just to trade independently and would link to the local economy. Tesco had a great opportunity to do this and declared itself willing to do so. It must rediscover the virtue in that.
If that were to happen we could all gain. There would be jobs in Tesco and also jobs in the food producing and manufacturing sectors. We would not be best served where the only person in the chain earning a living is the retailer.
I warn everybody that there is a meeting at 2.30 p.m. in this room so we must be out of here by 2.15 p.m. I ask contributors to be as brief as possible as other members want to ask questions. There will be no supplementary questions until the end because I must give everyone a fair crack of the whip.
Ms Suzanne Campbell
I agree with the other speakers with regard to the National Consumer Agency. Although it congratulates companies on price drops, it does not seem able to take the long-term view, which is that if prices continue to drop and the multiples keep putting pressure on each other, there is a cascade effect and a race to the bottom. One must produce food for less and export it for less. There may be food scares. There may be a scenario like that in the US where there are massive vertically integrated companies and monolith producers. There are only two principal producers of beef in the US and the big retailers dominate so there is very little choice for consumers or farmers.
We are heading towards this vertically integrated model if multiples are left unfettered and there continues to be a cut cascade. Everyone must keep up with each other and if one multiple acts in this way, the others will follow. I agree that all of the multiples, including those from Ireland, are involved.
If we were to enact something similar to the UK Competition Commission's code of practice, it would need a strong legislative arm as there is no way the process would work voluntarily. It did not work in the UK and we could make the same mistake of bringing in a code of practice and expecting people to follow it. They would not do so as there is no reason for them to do so if they have not followed good practice until then. Those involved will not just suddenly change their minds. There should be an ombudsman with powers to inflict fines for a lack of enforcement. It should be given some teeth. A code of practice without a powerful ombudsman would not be worth the paper it is written on.
Deputy O'Sullivan mentioned town centres and I appreciate that premises are not always available for multiples to come into. It is a chicken and egg process. If they demand a massive square foot facility, why should they be given conditions that suit their trading needs? They should be forced to come into smaller units and town centres. The local authorities are largely at fault here because they do not provide parking facilities for people to be able to move about and shop in Irish town centres.
Everyone who goes to a supermarket with children knows it would be easier to go to the outskirts of a town, park the car without having to pay for it and get everything in one store. In future, that may be the only choice. Local authorities have the choice of making it easier for multiples to practise on their own terms or make them trade on our terms, facilitating people in entering town centres to buy from a multiplicity of outlets rather than one. If one continues down the route we have currently, in 20 years there will just be the large outlet. People, planners and local authorities must take the long view.
We will now take questions from the remaining three members and then deal with supplementary questions.
I will be very brief as many of the issues have been raised. I thank our witnesses for their contributions.
There is sometimes no choice on the issue of out-of-town centres but where shopping facilities can be retained in town centres, it has not always happened. That sucks the blood from the veins of those small shops within town centres. Unfortunately, what we will have is a wasteland in ten or 15 years. Where there should be economic activity there is none because there are no businesses left except bookmakers, banks and so on.
We all understand the economic value of the food industry. There is no question about that. Are processors getting a return? I do not think they are. That is an accepted fact and everybody would agree with it. It comes down to abuses of buying power, but I would not leave it all at the door of Tesco. There are other groups out there. Can we do anything about this? I believe we can. I note the mention in Ms Campbell's presentation of what took place in 1997 when Tesco came to Ireland and gave a commitment to the Irish supply chain. That is something we should revisit, and we should include all the major food outlets. If we do not do something along these lines we could be here talking for the next ten years and nothing will happen. Unless it has a legal standing nothing will happen either.
I fully support and agree with the principle. I am not leaving all the blame at the door of Tesco. It has a job to do and there are many other outlets that are not playing their part either.
I welcome Mr. Power, Mr. Fitzgerald and Ms Campbell and thank them for the vast amount of information they have presented to us.
The witnesses stated that 30 years ago the average amount of time devoted to meal preparation in most houses was one hour. This was done by the unfortunate housewife of the day. Today it is 15 minutes and is done by the up-and-coming new housekeeper that has turned up in the past generation. The projections suggest that by 2020 it will take the modern housewife only five minutes to prepare dinner. Therein lies the kernel of the problem. The conditions of life have changed in Ireland. Fifty years ago I owned a small grocery shop in the village of Goleen. At that time there were ten grocery shops in the little village.
The Deputy is the only one left.
Today mine is the only one left, although I am not in the shop any longer. For years we had a supply of fresh vegetables grown by local farmers and brought in every morning from the field. They were snapped up by the housewives of the day. However, the present-day housewife travels 40 miles or 50 miles to Tesco to buy her groceries. She sits into her modern car and drives off, perhaps travelling 80 miles from Goleen to Cork to get a better bargain. In fact, some people went across the Border from Cork city once a week until Tesco began its price war in the South and there was no more need for it. Let us not cod ourselves: the onus rests on the housewife. She is the person in the galley. Her spending power is vital and the amount she has to spend is limited now in comparison to five years ago. Therein lies the trouble.
Tesco has come in for much criticism today, but what about Aldi and Lidl? Both of these are selling everything from a needle to an anchor. One can buy a motor-boat in their stores. They have socks and shoes that come from Poland. Every Friday there is a market in Bantry, which is my maternal town. No local person can get a parking space in Bantry on a Friday; they must park about half a mile outside the town and walk in. There are people there on the streets selling everything from needles to anchors, including shoes and clothes of all descriptions. Some of them come across the Border from Strabane and Omagh down to Bantry once a week in vans, lorries and trucks. The Bantry housewife will have to go to either Skibbereen or Cork to get to a major supermarket as she cannot park the car near the supermarket in the centre of the town. They drive out to somewhere they can park their cars. There is a host of things to be tackled.
Gone are the days of the local farmer planting an acre of potatoes. Twenty-five or 30 years ago, there used to be early potatoes from Goleen at the Dublin Horse Show in the first week of May. Those farmers are no longer producing potatoes.
They are coming from Cyprus now.
Yes, and they are coming from Spain. That is the position. I see Spanish onions in the supermarkets and they are of beautiful quality, vastly superior to Irish produce. The climate here is not suitable for growing onions and such vegetables. When one goes through a bag of Irish onions one finds that about a third of them have gone off. Quality shows in every walk of life, but particularly in food. Tesco is not to blame for all these imports. If one goes into any SuperValu store one will see it has a good share of imported commodities on its shelves. The few Irish producers left are in north County Dublin, the area about ten miles around Cork city, and, to a small extent, Galway and Waterford. There is a problem, and it will continue because the housewife rules the roost. The housewife today will use the newsagent on the corner only to buy her fresh milk and loaf of bread and the daily paper. That is the total spending of housewives in rural Ireland today.
In the big towns and cities the supermarkets are open 24 hours a day. I have seen people in Cork city going into Tesco stores at all hours of the night and morning. Why they could not go earlier I do not know. Therein lies the problem. If Irish produce is available and imported produce is placed next to it, the Irish housewife will buy the cheaper of the two. She is no longer interested in maintaining jobs in Ireland but only in saving money, probably through supermarket vouchers that will give her a holiday in the Canary Islands or somewhere similar. That is the trouble. How can we change that pattern? We could be here until the cows come home but we cannot change that until we make people realise there is no need to drive 40 miles or 50 miles in their cars every week to shop.
The housewife, no more than anybody else, has become the victim of marketing and advertising. Perhaps that is why she has been led down that path.
I thank the three witnesses for attending. Today's presentation is very opportune because of the report yesterday by Food and Drink Industry Ireland, FDII, particularly its final recommendations on retail buying power. Everybody seems to be singing from the same hymn sheet. To offer a simplistic overview, it is a terrible paradox that we are a nation that can feed probably 35 or 36 million people. We had a Bord Iascaigh Mhara presentation which claimed that 85% of our fish is landed and goes out of the country untouched. That is where our food and drinks industry is heading. Secondary processing will be lost and if this continues ultimately the domestic market will be dominated by imported food products that may have left here in the first place and returned with a brand name. That seems ironic. It is a drive to the bottom. Quality and price suffer.
As a person who has farmed most of my life, I am aware of the challenges presented and see that the situation has become virtually impossible. Ms Campbell made the point that a supplier felt he was in bondage and that our food sovereignty was in danger. That is stark but not scaremongering. I was trying to think of a comparison. Somebody I know well says the road to hell is paved with good intentions. In 1990, when Mr. Gorbachev brought down the Soviet Union, everybody thought this would mean freedom. Now Russia has a system by which a Prime Minister becomes President and switches the powers to the Presidency. There is still totalitarian control.
We are heading that way here unless we do something and there must be a willingness on all our parts to take on this matter. If this presentation and the report from the FDII are to mean anything, agencies such as the National Consumer Agency and the Competition Authority will have to be either changed, or abolished and replaced with a body underpinned by legislation, a body that would have powers of regulation and policing. That is the key to the matter.
I must disagree with my colleagues about the housewife who is a victim just like everybody else. When we finally get what we want we must protect it, with the code of practice, the legislation and the Ombudsman. We must do that.
I have some questions. First, how prevalent within the big multiples are the practices of "hello" money, abuse of credit, loyalty bonus and shelf auctioning? There appears to be a trend. The last page of the Closing the Gap report agrees with what the witnesses said. Some 70.5% of the market is controlled by three major multiples. Does the current legislation not make these practices illegal? Obviously, it does not. Second, how in the name of God did we ever allow this come to a situation whereby such practices are allowed to flourish, if they are as prevalent as the witnesses report?
Given the fact that Tesco is part of IBEC, as is the FDII, is Mr. Fitzgerald surprised that this report went even as far as it did in its discovery? Does he see a conflict? We have, or should have, the ability to extrapolate what we want to see done. I agree entirely with Mr. Power. This issue of the farmer and the housewife must stop and we must deal instead with the consumer, the primary producer and the other producers along the chain, if it is going to work. It seems crazy that the source of life, namely, food, is being compromised and driven into a globalised situation. The big eat the small and gobble them up. I do not agree that jobs are being saved or created by the big multiples and Tescos of this world. Instead they are being devoured and sacrificed.
Mr. Fizgerald's prediction that 230,000 jobs will be halved in a fairly short period is frightening. As a Parliament, we are discussing ways of stimulating the economy. Perhaps this is the problem, that the situation went unnoticed when we had a vibrant — or so-called vibrant — economy and everything else was thriving. Now it is as plain as the nose on our faces but we are ignoring it. It is time we got back to basics on this.
I welcome the contributions, and the information we were given today. We have much further to go on this matter. We should invite more witnesses, draft a report and present it to the Minister for Agriculture, Fisheries and Food and his Ministers of State, and to the Minister for Enterprise, Trade and Employment, if it is to mean anything. I do not want to see a situation where the patent on producing food in this country will be controlled by two or three significant players which probably are not native to this country.
I welcome the speakers and thank them for their very informative and honest assessment of the situation. Mr. Fitzgerald made the point that the food and drinks sector, in conjunction with farming, is the biggest industrial sector in the Irish economy. Directly or indirectly it accounts for 230,000 jobs, or one in eight. That is a stark figure and we must sit up and take note of it.
The decision to deregulate the sector by abolishing the Groceries Act in 2006 was a very great mistake. Will we ever learn from our mistakes? Unless we take action, the figures of the day show that the centre of our major towns will become wastelands. There are the huge new supermarkets, one of which operates 24-7 in my own town. One can do one's entire business there and the ordinary ratepayers, business providers and small indigenous businesses are crucified. I support the view of previous speakers that we must take action although it is probably ten years too late. These people have become like the landlords that we had to get rid of in this country generations ago. We will be kowtowing to them and unable to deal with anybody else. We are paying a very great price and it is time to cry halt.
I support any action this committee can take, perhaps to seek a meeting with the Minister or several Ministers. We are trying to stimulate the economy but are choked and stifled by the retailers in this area. It is not only Tesco. Some of the other big players operate "hello" money, auction space in the supermarkets and put the producers under enormous pressure. Many are ending their own lives because of the pressure. It is frightening.
I know a processor who could sell all the product he wanted to one of these big multiples if he would allow them nine months credit. He cannot do that. Deputy O'Sullivan had a supplementary question. Are there others?
Where does the panel stand regarding Tesco, Dunnes and the multiples in general? Are the witnesses for or against these people? Mr. Fitzgerald made a point about producers and processors supporting the retailers. That is the case at present and it will have to be reversed, or, at the very least, they will have to play together. That is our position. If that does not happen they will not survive without each other and we will not survive without them. We need the Tescos and the Dunnes Stores but we also need the people who supply and process the material and the food. This game must be played together with all playing an equal part. The crux of the matter is that they are not.
Does the panel envisage us going back to the days of the small shopkeeper? This is the only alternative if we get rid of the multiples, the Tescos, SuperValus and Dunnes.
Starting with Deputy O'Sullivan's point, I do not believe it is necessarily a case of getting rid of the multiples rather one of levelling the playing pitch concerning the margins ascertained between the producer and the retailer. That must be borne in mind. I do not advocate the abolition of the multiples. They are necessary and have a place within the market. I refer to a point raised by Ms Campbell on the effects on small towns and the increasing consolidation of the retail sector. She referred to the High Court decision on the Kerry Group's acquisition vis-à-vis Dairygold. There seems to be a contradiction between the consolidation of the co-operative or dairy sector and the need for local food markets. We are told the abolition of milk quotas will take place in 2015 and producers will then be part of a global, competitive market because many of the price supports will no longer remain in the dairy industry. The net consequence will be an increase and even further consolidation of the co-operative movement and processing. Therefore, the brands we all know and love will probably be owned by one or two players in the market. That model compares with the situation in north Cork, for example, in which the new market co-operative movement has begun. It is a small niche model with high end products that compete quite well. At question is how to marry the two models and strike a balance between the local needs and the ability of Ireland incorporated to compete in a global market post 2015. Politically, the subsidisation of agriculture by the European Union will diminish in the next 20 years or so, because the WTO will probably influence outcomes in that regard.
What is the perfect model, if there is such a thing, in terms of how to increase exports and at the same time marry that goal to the needs of developing retail within the high streets? Currently, property rights are so entrenched in the county that if a local authority sought to tackle dereliction or a boarded up shop in a town centre, it could not do so because it would be dragged through the courts. The rights of the property owner outweighs that of the common good in terms of a main street property and they supersede the right of the town in terms of its enhancement of the town centre. I trust the delegation understands the point I am trying to make. There must be a fundamental re-shaping of this position. I have been a member of a local authority and I have witnessed what happens to lands adjoining a town centre in which the so-called "donut effect" is created. It is a consequence of the need to attract the bigger retailers to get increased footfall in a given town. Unless a local authority can provide parking, change the fundamental property rights of people within town centres or it has the ability to impose a CPO, compulsory purchase order, on derelict land then that policy will never change. What is the view of the delegation?
For example, there may be an old house that is rotten and has been uninhabited for years but because it is a listed building no one can touch it.
Hear, hear.
This is one of the problems with our town centres.
Mr. Jim Power
In terms of Deputy P. J. Sheehan's comments I agree to a large extent that the housewife dictates a good deal. The two key priorities for the housewife should be value for money and quality and they are not divorced. A key issue is tacking the cost of business. That is the one way to achieve competitive pricing and we have ignored it. It depresses me that one must pay more for a pint of beer than for a chicken, which tells us something about our set of values. One also pays more for a litre of water than for a litre of milk, which also tells us something about our values.
I refer to Deputy Doyle's comments and the prevalence of "hello" money. My information from speaking to suppliers, who will not comment on this matter on the record because they are afraid to do so, is that the prevalence of "hello" money is very significant. Not only is "hello" money prevalent, there are a great many other pressures brought to bear on suppliers.
Unfortunately, processors and farmers are at war. Recently in Dungarvan, farmers picketed Glanbia because of milk prices. However, in reality this is not where the conflict should lie. The retailers should be brought into the equation. Such conflict misses the point and I refer to my earlier point on the retail margins. We need a good deal more information to create a greater sense of balance. Farmers and processors should not be at war.
I refer to Deputy McGrath's remarks. I will agree with him for today but we will resume hostilities in Thurles on 12 July.
Mr. Jim Power
However, the abolition of the groceries order was a major mistake and the law of unintended consequences has come into play in that regard. The only consequence I have seen from the abolition of the groceries order is the below cost selling of alcohol in off licences which, from a social point of view, is disastrous. It has not delivered anything that the proponents of its removal promised.
I refer to Deputy O'Sullivan's comments. I am neither pro-multiples nor anti-multiples. They have a place and a role to play but there must be a level playing pitch. Multiples must not be allowed to reach a position in which they are dictators, forcing suppliers to do things they cannot afford to do. There must be a level playing pitch and the only way the playing pitch can be levelled is through the application of strong legislation.
It depresses me the way rural Ireland is being denuded of people and economic activity. The actions of Tesco and some other multiples will only exacerbate that trend and it is not acceptable. There is a model which works. Perhaps we sound like romantics today discussing local food producers and so on but the model which works is France. Let us consider the food industry there and the way in which it operates. Artisan food producers have a key role to play and they give France its diversity and a sense of character which makes a very substantial economic contribution to the French tourism product, for example. I note two examples of where such a model works here which demonstrates the potential of the food industry. One is the Fuchsia brand in west Cork and the other, close to my heart in Waterford, is Flahavans which has been successful despite all the obstacles it has faced in recent years. Ireland could become the silicon valley of food production but it requires our legislators to ensure that takes place. It will not happen based on current conditions.
Mr. Ciarán Fitzgerald
The question "Does one love supermarkets?" was posed. The reality for food manufacturers is that they seek diversity too. However, there is a difficulty when one has only one or two customers. Effectively, here one does not have an economically viable business if one is not listed with the three major retailers. If one loses business with one of these the business is gone. Such a level of concentration is not healthy. Producers need diversity and consumers seek it too and we do not have it because of the current concentration of retail power.
I refer to the Competition Act. It states that predatory pricing should not take place. However, it defines predatory pricing as a behaviour which can only be demonstrated by a dominant entity. It further states that none of the major retailers in Ireland are dominant and is, therefore, toothless. It also lists several practices in which neither retailers nor others are supposed to engage, except in a situation in which one can demonstrate that engaging in such distortions is in the best interests of consumers. Incidentally, they are somewhat more than distortions, they are a distraction. Again, there is toothlessness. The post deregulation situation is such that the person with most control is the retailer, which has not delivered value and is not in pursuit of the economic interests of others.
Ms Suzanne Campbell
Bad practice with regard to "hello" money is quite prevalent. Most of those to whom we spoke for the book and for Mr. Boucher-Hayes's report are all very scared of putting their heads above the parapet. I congratulate the brand owners who spoke out earlier this week and last week, because they were terrified of coming forward, losing their income and not being able to afford to live if they are de-listed from the multiple they currently have a contract with.
The phenomenon of people being scared to speak about business practices is an indication of how wrong the food sector has gone. This phenomenon exists in no other industrial sector in Ireland and such business practices are not endemic in other sectors. If people are afraid to come here and talk about the industry, it is the most significant indication that something is really wrong with the industry. If it was in any other domain, it would be out there and known, and people would be able to speak about it.
On what Mr. Power said about France, it is not a romantic ideal. France has a very good model where Carrefour, the number two retailer in the world, has a large store on the outskirts of towns but the town centres are vibrant. People go to the town, buy their fruit and vegetables from local producers and have a chat. It is a social fabric, the upkeep of which is very important and it works in France. It used to work in Ireland and life in rural towns was replicated in that way. One does not see it anymore.
France has enacted legislation to protect French producers. It also has a measure similar to a groceries order which prevents below-cost selling and has several strategies. France cares about food, understands the importance food has in how people live and how food is important to its economy and people's health. It has a multi-strand approach and it was not afraid to tackle the issue and let the multiples roll over. The strategy has worked well in France. It is not just idealistic.
To comment on Deputy Sherlock's question, nobody suggests that we go back to the retail environment of 30 years ago because it is not feasible. We all use supermarkets and they are very good, if they are managed, regulated and one has diversity of choice so that one can shop in a market or go to a local trader and interact socially with people. One should not have to go to one outlet, with no one on the checkouts, which is open 24 hours a day, is like a factory and where all the goods are imported.
If we keep going down the path we are on and continue the race to the bottom where costs are cut, everything in such outlets will be imported and they will be the only outlets we can go to. We might then wonder where we went wrong, but it will be too late. No one suggests that we go back to how things were 30 years ago. Convenience is key for housewives and they want to go to a place where everything is under the one roof, but they also need to see other businesses that provide other services and see if they are being supported. If they are not being supported, but we support the large multiples, we will have an unequal playing field.
Deputy Doyle can make a very brief contribution. We have one minute left.
On the French model, apart from all we have discussed today, there are other issues such as abattoirs closing down and regulation. What is allowed to pass in France that is within EU food safety rules and is acceptable is not acceptable here. It has put people out of business that would otherwise supply the market. We have to look at that issue. We have constantly called for one authority for food safety. Unless that is rolled out in a pragmatic and practical way, the French model, with the best will in the world and the other issues aside, will not happen here.
I am afraid we are going down the road as Great Britain travelled 20 years ago. I am told that in parts of Great Britain one has to travel 80 miles to go to a petrol station and 45 miles or 50 miles to go to a shop. Services are centralised. We are going down the same road.
I am confused about the issue of "hello" money. As I understand Mr. Fitzgerald, it is only illegal if one is a dominant player.
Mr. Ciarán Fitzgerald
Predatory pricing is illegal.
Does predatory pricing include the practice of seeking "hello" money?
Mr. Ciarán Fitzgerald
A number of other practices are illegal if one is a dominant player, but nobody is deemed dominant.
Is there a threshold for market share?
Mr. Ciarán Fitzgerald
No. It has been up to 50%. There was a famous case reported in the newspapers in, I believe, Drogheda, where it was 51%. In most countries dominance in retail is 25%. We know we have retailers who are above that. The other provision, such as the specifics of "hello" money, are covered in another part of the Act which states: "You may not engage in these except where you can show it is in the interests of consumers to so engage". It is toothless. It is not banned.
Have the other two questions been answered?
I was making an observation.
On behalf of the committee, I thankMr. Power, Mr. Fitzgerald and Ms Campbell for attending the meeting today. It has been very informative and we were delighted to have them here.
Ms Suzanne Campbell
Mr. Philip Boucher-Hayes was unable to attend due to a family commitment. He will still report on these matters and write for the book.
Have we agreed to discuss this matter with the multiples?
They will come before the committee.