A couple of weeks ago the Joint Oireachtas Committee on Enterprise, Trade and Innovation released a report on increasing employment opportunities in the Agro-Food sector, prepared on the basis of a rapporteur’s report by Arthur Morgan, T.D. The report was prepared before the release of the Food Harvest 2020 report by the Department of Agriculture and Food in August this year, but it provides a useful comparative perspective. As befits this Oireachtas Committee, the focus is more on the food industry than on primary agriculture. The issues raised were informed by a survey of agri-food enterprises which the Committee conducted.
Some of the Committee’s recommendations are a bit off the wall, such as the proposal for an all-Ireland Economic Committee of parliamentarians to agree on the convergence of Corporation Tax, Excise and VAT rates in both jurisdictions. It dismisses the importance of flexibility in wage rates despite recognising that the food industry, in particular, is very exposed to exchange rate fluctuations given its dependence on the UK market. However, three of its recommendations are worth highlighting.
The report highlights the growing regulatory burden on food businesses, ranging from waste management regulation, health and safety regulation, labour regulations, environmental regulations and the extensive body of food regulation (hygiene, labelling etc). It correctly points out that regulations have a cost and calls for a regulatory impact analysis process to determine its true cost and to examine alternatives such as self-regulation and voluntary codes. It also highlights the importance of reducing the costs of doing business in Ireland more generally. In this context, it refers to the IFA campaign against alleged cost-plus water pricing, but instead of addressing this issue directly it supports the proposal that farmers should be given access to water at a discounted price on a comparable basis to industrial users to compensate for excessive charges.
The report also highlights the issue of market power in the food chain, highlighting the sharp decline in the share of the producer price in the retail price liquid milk over the 2007-09 period. Indeed, Ireland is pretty unique in the EU in the high share of the market (over 70 per cent) taken by the top three retailers. It highlights the ability of the supermarkets and wholesalers to impose trading terms on suppliers. Unfortunately, the report then gets side-tracked into a lament about the repeal of the Groceries Order, which it believes opened the door to ‘predatory pricing’ against competitors. The analysis here is simply inconsistent.
On the one hand the report charges that the supermarkets are using their market power on the buying side to force prices down but not passing these lower prices on to consumers thus adding to their profits. On the other hand, it charges that the supermarkets do in fact lower prices in order to knock their competitors out of business, only to raise their prices again when the competitors are gone. While it is true that there has been a steady decline in the number of retail outlets, the main competitors of supermarkets are other supermarkets and here the degree of competition has increased, not decreased, with the entry of the low-cost discounters. So if there is predatory pricing, it is not very effective.
There are indeed market power issues in the Irish food chain which need to be tackled, but the repeal of the Groceries Order is not responsible for these. The Committee’s proposal for a working group including suppliers and producer groups (presumably together with the supermarkets) to ‘negotiate a fair trading regime for all stakeholders’ sounds exactly like a recipe for everyone to gang up on consumers.
Finally, the report contains an extensive discussion of the attempts to introduce country-of-origin labelling, which is now in place for beef, fruits and vegetables. Labelling rules are currently the subject of an EU legislative proposal which is being considered by Council and Parliament. The report expresses some scepticism about the current industry-led “Love Irish Food” campaign, where the logo is permitted on products providing 80% of the product’s manufacturing process took place in this state and if ingredients were sourced locally where possible. It calls for statutory regulation of the use of terms such as ‘Irish food’. However, it did not address the implicit contradiction that getting a premium for Irish food implies farming and producing food to even higher standards than is common elsewhere, with implications for cost and regulations which it otherwise saw as very burdensome.