Mr. Matt Foley:

I thank the joint committee for the invitation to address it on the below cost selling of fruit and vegetables. My brother and I operate a protected crop enterprise in north County Dublin. We grow tomatoes which we produce for about eight months of the year. We supply some of the main retailers. As chairman of the IFA vegetable and protected crop committee, I represent growers nationally in dealing with the Government and all of the retailers. I am joined by Mr. Paul Brophy who has an extensive broccoli and cabbage production enterprise in County Kildare, Mr. Colm Grimes who farms in Skerries, County Dublin and produces cauliflowers, leeks, scallions and rhubarb and Mr. Eddie Doyle from Mooncoin, County Kilkenny who runs a potato, vegetable and dairy enterprise. All four of us supply the large retailers, both directly and indirectly, through merchants and facilitators.

The horticulture sector has a farm gate output figure of €395 million, of which edible horticultural produce accounts for 85%, while the remaining 15% is accounted for by amenity horticulture. Although a relatively small sector within agriculture, horticulture makes a hugely important contribution to the economy and rural society, with an estimated 6,000 people employed full time in primary production and a further 10,000 employed in downstream businesses. In 2013 the retail fresh produce market in Ireland was worth €1.2 billion, with vegetables accounting for €500 million; fruit, €550 million; and potatoes, €150 million. Fruit and vegetables combined represent 14.5% of the average grocery shopping basket and are purchased in 51% of all visits to grocery shops.

In general terms, production levels in the edible horticulture sector have been maintained, but the number of producers has fallen and continues to fall, as these family businesses are constantly challenged by their weak bargaining position in the food supply chain. The single biggest threat to the industry is the dominant position of the large retail groups in Ireland which are forcing down the prices paid to suppliers, in many cases to below the cost of production. The retail market in Ireland is characterised by the concentration of 95% of buying power in the hands of five retail groups. Almost 80% of market share is controlled by Tesco, Supervalu-Centra and Dunnes Stores, with a further 15% by Aldi and Lidl.

In Ireland and at EU level, it is widely recognised and accepted that there is a major imbalance of power in the food supply chain between retailers as price setters at the top of the chain and primary producers as price takers at the bottom. This imbalance has resulted in a situation where farmers are sometimes compelled to accept unreasonable conditions and prices that do not cover their costs or provide an economic return. Vegetable growers cannot continue in an environment where their produce is constantly being used by retailers as loss leaders and being offered to consumers at way below the cost of production. An example of this is the "Super Six" weekly promotion in Aldi in which fruit and vegetables are sold at between 39 and 49 cent. Similar promotions are replicated in the other multiple retailers. For the average grower, the cost of producing carrots is 55 cent per kg. Swedes cost 53 cent per unit to produce, while a cabbage costs the grower 52 cent a unit.

Below cost selling is the main threat to the sustainability of the horticulture sector. While promotions have always been a part of retail sales, the practice of below cost selling has brought a new and potentially terminal threat to the sector. Supermarkets use it to encourage footfall into their stores. Often the timing of these promotions takes no account of availability of supply. At these times sales volumes can increase to a multiple of normal demand and, in many cases, growers cannot meet the orders and sales are lost to imported produce. Such promotions also greatly affect the sales of other competing fresh products such as broccoli and cauliflower, the highly perishable nature of which means that they cannot be held over until the promotion finishes. This distorts the market for everyone, regardless of whether one's product is on promotion. Products that do not fall within the supermarket specification are normally sold to the catering sector. However, during these large promotions, large volumes of this class 2 product remain unsold. The volatility in demand caused by these promotions is totally unsustainable.

Growers were the victims in a vicious battle over market share when retailers savagely discounted Irish potato and vegetable prices in the run-up to Christmas 2013, during which some items were sold at one tenth of their production cost. Such action by retailers had a very negative effect on the wholesale sector and many farmers have seen this sales avenue completely vanish. It would be naive to think growers are not making a substantial contribution to these promotions. The majority specialise in a small number of products and do not have many product lines over which to spread their costs. The long-term outcome of below cost promotions is a lower price for everyone's products.

The Competition and Consumer Protection Act 2014 was the first attempt by the Government to improve the functioning of the food supply chain. While the IFA believes the legislation does not go far enough, the new regulations under consultation and due to be commenced this year will be judged by suppliers and farmers on their effectiveness in rebalancing power in the food supply chain. The legislation fails to address a number of issues necessary to restore equity to the food supply chain and curb the dominance of the retail multiples. The biggest of these issues is the failure by the Government to prohibit in legislation below cost selling and appoint an independent ombudsman to oversee implementation of the regulations.

It is critical that the new Competition and Consumer Protection Commission take a proactive role in ensuring full compliance by retailers with their obligations under the new regulations. The commission will need to demonstrate its willingness to take on board complaints made by suppliers and primary producers in confidence and initiate its own investigations into the behaviour of retail multiples. It must set the tone for rigorous implementation of the regulations by issuing contravention notices and naming and shaming retailers found in breach of the regulations, as well as taking legal proceedings, when necessary.

Growers are fed up with the quality product, the result of their investment and hard work, becoming a weapon in a war of attrition between the major multiples. The fresh produce sector is in ongoing decline and we will not allow the industry to be decimated by crude price cutting tactics which give the illusion of value to the consumer. Supermarkets are quick to wave the Irish flag and use individual growers for promotions, but that belies the real position. Farmers cannot continue to produce food at rock bottom prices which put their businesses at risk.

Unfair trading practices have been a topic of much debate and a source of serious concern within the European Union for many years. The issue is being addressed in other EU member states, as seen, for example, in the appointment in the United Kingdom of a groceries code adjudicator and the German restrictions on below cost selling. The IFA welcomes the stance of the European Commissioner for agriculture, Mr. Phil Hogan, on the supply chain initiative at EU level and his recent call that “all players in the food chain should realise that it is imperative that producers get a decent return for their raw material.” The IFA has called for the European Commission to address, as a matter of urgency, the issue of equity for producers in the food supply chain by implementing EU statutory legislation to prevent below cost selling by retailers of produce. The voluntary initiative undertaken in the European Union in recent years is simply not working.

In an effort to find a solution to the major challenges being faced by fresh produce growers a horticulture stakeholders forum comprising representatives of five sectors, namely, vegetables, mushrooms, soft fruit, top fruit and protected crops, with the IFA, Teagasc and Bord Bia, has been convened. I chair this forum which is working towards the development of an action plan in a number of key areas. An immediate priority is to resolve and rationalise issues concerning producer organisations to facilitate the greater participation of fruit and vegetable growers. Producer organisations are the cornerstone of the EU support regime for fruit and vegetables. This opportunity must not be missed by Irish growers and the Department of Agriculture, Food and the Marine must strike a balance between compliance with EU regulations and the ability of growers to access producer organisation funding.

I am calling on the committee to support the IFA’s position on the urgent need to regulate the issue of below cost selling.

The current imbalance of power in the food supply chain is unsustainable for family enterprises in Ireland producing fruit and vegetables for sale. A further reduction in the number of growers may undermine the capacity of the sector to supply certain products, as the output supply would fall below a critical mass. This vulnerable sector is under particular pressure from retailers and will not survive the price war if the Government does not take action.