The agricultural cost of cheap supermarket food

As government and farmers rethink the UK's agricultural future, it's time to bring the argument back to that fundamental sticking point: the cost of food.

We hear it over and over again: the UK's farmers will have to compete on the global market if they are to survive. And that, by the British government's book, means bigger holdings, fewer farmers and greater intensification. In short, the globalisation of rural Britain and with it the final nails in the coffin of a way of life that for more than 100 generations has forged the country's landscape and wildlife habitat as we have come to know and love it.

In fact British farming, post-BSE and now post-F&M, is at a watershed. Either, we destroy the past by selling ourselves to the notion that the only way farmers can make a living is through crop monocultures and feedlot husbandry for livestock achieved through inputs of chemicals and imported fodder.

Or we reinvent the past by going back to a modern version of mixed farming, in which crop rotations and livestock are integrated into a sustainable cycle of harvesting and replenishment.

Of course, if we did our sums correctly we would know that the high yields of intensive farming come at a cost of soil degradation, carbon loss into the atmosphere, pesticide and fertiliser run-off into our waterways and, most pernicious of all, food products that are positively unhealthy (The Ecologist, Vol 31/5). As Professor Jules Pretty of the University of Essex has shown us, the external costs of intensive farming in the UK amount to as much as 208 per hectare.

The water companies, for instance, pay as much as 135 million a year to get drinking water down to European Union pesticide levels.

All in all we may be paying as much as 2 billion a year for the environmental and health costs of UK agriculture. The irony is that not only does the farmer go scot-free, but he and his colleagues receive up to 3 billion per year in direct subsidies.

The problem is not just that the British government is promoting the intensification of agriculture. It is doing so with the understanding that the main players of the future will no longer be conventional landowners but agribusinesses linked directly to multinational food corporations.

This is not just true of the UK, but of the US and, increasingly, the rest of the world too. The extent of the danger to sustainable farming is evident in a recent report, Consolidation in Food Retailing and Dairy: implications for farmers and consumers, prepared by scientists at the University of Missouri's Department of Rural Sociology.

The report shows how restructuring has resulted in six global food enterprises spreading themselves downwards and sideways to achieve a domain that stretches right around the planet.

Events in the US and Europe from 1997 to the present day, show the degree to which the large stores are gaining ground through consolidation and buying into every aspect of food production.

In 1997 the top five US food retailers had about one quarter of the country's market. Today those same companies -- Kroger, Albertson's, Wal-Mart, Safeway and Ahold USA, a subsidiary of Dutch firm Royal Ahold -- account for 42 per cent of that market. This has come about largely as a result of recent acquisitions.

Increasingly, the supermarkets are seeking control over producers through binding contracts and agreements. They seek to source their merchandise from a handful of producers.

Kroger, for example, obtains its beef ready-packed from Cargill, while Ahold USA's Stop and Shop outlets obtain their dairy foods from Suiza Foods.

Wal-Mart, a more recent entry into the food-retailing business, gets its ready-packed meats from IBP, Farmland and Smithfield.

As the supermarket companies tighten their grip on food retailing, so they are forcing the producer to comply with their specific requirements.

As the University of Missouri report points out, between 50 and 75 per cent of large retailers' total net profit comes not from the actual sale of produce, but from fees demanded of producers for presentation space, for the display itself and 'pay-to-stay' fees and failure fees.

According to The Tampa Tribune, $50,000 would place one jar of speciality pickles on the shelves of all four major grocery chains in Tampa, Florida.

Producers are, in effect, paying for the privilege of having their goods sold.

In a world awash with producers looking for outlets, it's very much win-win for the supermarkets. As the University of Missouri report says, 'most producers now see the retail firms as their consumer'. Inevitably, those producers and small processors who either do not wish or are unable to comply with the supermarkets will find themselves increasingly cut out of the main retailing market.

Constantly battling to expand their interests at the expense of each other through the price war, the big retailers need a global market for purchasing their goods. Here we have a classic situation in which producers who apply strict environmental and health standards are likely to lose out to those who do not. Some economists now question whether, in the light of globalisation, the US needs its farmers. The same also applies to the UK.

Vertical and horizontal consolidation of food retailers in the US has led to the four largest firms sharing the production and processing of as much as half of the country's broiler, turkey and egg sales. And today 20 feedlots in the whole of the US are involved in the production of 50 per cent of all the country's cattle. These feedlots are directly connected to the four processing firms that control 81 per cent of beef processing in the US.

The potential rewards for the supermarkets in their attempts to outdo each other are staggering. In 1999, the US's leading supermarket Kroger acquired Fred Meyer -- giving it coast-to-coast coverage. The Ohio-based Kroger now receives 10 cents in every dollar spent in supermarkets across the country.

In terms of food retailing Wal-Mart was nowhere in 1993. Since then it has become second only to Kroger. It was one of the first retailers to use case-ready beef and pork in its stores. Wal-Mart now has a strong presence in Germany and the UK through the acquisition of Wertkauf and Spar Handels and Asda, respectively. Asda now has 14.2 per cent of the UK's food market -- practically equal to Sainsbury's market share.

Wal-Mart also operates in Argentina, Brazil, Canada and Mexico, and has joint ventures in China and Korea.

Wal-Mart's aggressive expansion into Europe and elsewhere is now being countered by the merger of other major players.

In France Carrefour and Promodes have joined forces to become the second largest retailer in the world. Business Week (31 August, 1999) observed: 'As Europe's new top dog, Carrefour can use its buying clout to extract deeper discounts from suppliers, undercutting rivals, and accelerating a push towards consolidation in the industry.'

The French giant is now the number-one supermarket in Brazil and Argentina, with 20 per cent and 30 per cent of the market share, respectively . It is also the leading retailer in Taiwan, France, Spain, Portugal, Greece and Belgium.

Not be outdone, Dutch company Ahold has begun acquiring smaller retailers in Europe. It has 28 per cent of the market share in the Netherlands, while its sales in Latin America generate some $4.5 billion a year. It is also now operating in eastern Europe as well as Scandinavia and in China.

Through its cooperatives, the dairy industry in the US was until recently fairly immune to supermarket control. But, as in the UK with the demise of the Milk Marketing Board, that is all changing.

In the US Suiza Foods is the largest milk processor and leading manufacturer and distributor of dairy products. Since 1996 it has bought 39 dairies across the US, as well as Spain's fourth largest dairy - Leche Celta. Through Horizon Organic, in which it has a 13.8 per cent share, it is now entering the UK market.

Farmers are definitely losing out as a result of such mergers in the dairy industry.

The University of Missouri report states: '[In 2000] the US imported enough cheese and dairy ingredients to replace 10.6 billion pounds of domestic farm milk. On an equivalent basis, the US exported about 4.3 billion pounds. The net trade imbalance was equal to about 4 per cent of total US production... The pattern is clear - dairy imports are larger than exports and are growing much faster.

'.Regardless of how we measure the nebulous concept of efficiency, the US is not the low-cost producer of milk in the world. If the dairy lobby is successful in opening up global trade at WTO, we will find most of the remaining 90,000 US dairy farms exiting [the market] rapidly.'

If farmers are to survive the flood of cheap imported foods they will undoubtedly need to create new, alternative markets where the public will have access to good local food.

One solution is to 'go organic'. Sales of organic food are now generating $5 billion in the US, and these sales are growing by 20 per cent a year. Local production of organic foods may partially solve the problem of price, but the major retailers are already major players in the organic market.

Yet again farmers will find themselves competing against cheaper imports.

Clearly, if we are to regain a healthy farming system in the UK - with all the attendant benefits to landscape, soil, drinking water, wildlife and health - we, as the ultimate consumer, must come to appreciate the full implications of cheap food in the supermarkets.

The best way we can support sustainable farming and the people who practise it is by insisting on purchasing locally grown food as much as possible. Such local connections between the production and purchase of food will have the salutary effects of keeping land in the hands of farmers rather than agribusinesses, and will enable farmers to move away from the highly industrialised, intensive agriculture that has proved to be so destructive in its use of resources.