Oireachtas Joint and Select Committees
Tuesday, 21 April 2015
Joint Oireachtas Committee on Agriculture, Food and the Marine
Horticulture Sector: Irish Farmers Association
I remind members, witnesses and those attending in the Public Gallery to turn off their mobile telephones and devices. I welcome the following witnesses from the IFA vegetable and protected crops committee: Mr. Matt Foley from Rush, who is the chairman of the committee; Mr. Paul Brophy from Naas; Mr. Colm Grimes from Skerries; and Mr. Eddie Doyle from Mooncoin, who is also chairman of the IFA potato committee. They are attending the committee to brief us on the challenges in the Irish horticulture sector, with particular regard to pressure from large supermarkets on the pricing of fresh fruit and vegetables.
I draw the attention of witnesses to the fact that by virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to the committee. However, if they are directed by the committee to cease giving evidence on a particular matter and they continue to so do, they are entitled thereafter only to a qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and they are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person, persons or entity by name or in such a way as to make him, her or it identifiable.
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 Houses or an official, either by name or in such a way as to make him or her identifiable.
I invite Mr. Foley to make his opening statement.
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.
I thank Mr. Foley for his strong and forceful contribution. I have long desired this issue to be discussed by the committee. We produced a report some time ago on inequity in the food supply chain, and members of the committee have long advocated action in this regard. We have found it difficult, however, to persuade people to be as frank and forthright as Mr. Foley has been today. I am sure all members are keen to contribute. I call on Deputy Éamon Ó Cuív to begin, followed by Deputy Martin Ferris.
I welcome the delegates. It is beyond time that we had a discussion on this issue, which deserves serious attention in its own right. At the same time, however, we should acknowledge that it is part of a wider issue. What we are dealing with in the agricultural industry is a type of hourglass effect, with a large number of consumers, a very small number of retailers and processors, and a large number of producers. This is the case not only in Ireland but across Europe. In most countries the market is dominated by five multiples or thereabouts, which means there is an overweening power in the middle. In the case of the delegates, that power is the retailers, while in other sectors it is a combination of retailers and processors.
I am very strongly of the view that the key issue in farming is that farmers want it to be profitable in its own right. They want to have certainty that if they produce good-quality goods, they will get a fair return for them. Mr. Foley outlined the issues very clearly, including the sudden promotions, prevalence of below-cost selling and the absolutely crazy situation that pertained in 2013. I understand that Christmas 2014 was not very good for producers either, because the retailers manipulated the situation in a different way and left farmers with unsold products. Perhaps Mr. Foley will comment on that?
Mr. Foley seems to be saying that this issue should be tackled on two levels. At a national level, he supports the regulations in the groceries order but argues they should have gone a lot further. In line with the Oireachtas committee report recommendation, he calls for the appointment of a food ombudsman who would examine these matters and determine whether or not fair play is pertaining. Mr. Foley also wants a ban on below-cost selling at local level, which I would heartily support. What is going on at the moment in this regard amounts to exploitation. In addition, Mr. Foley would like to see consumer law tightened up, not only to protect consumers but also producers, many of which are small operators. Will he elaborate on the practical mechanisms that might be employed in this regard? There is a major challenge here and we will have no horticulture industry left if things continue as they are. We certainly will not have a traditional farmer-led horticulture industry.
There also is scope for action at the European level. During a visit to Brussels in September last year, it seemed clear to me that the European Commission is very engaged on the issues of price and the power of multiples. This concern applies across all products but is particularly acute for the vulnerable vegetable and fruit sector. Whether one is in the Mediterranean or in Ireland, it is a common problem. It was pointed out to us during our visit that it is the position of the Commission that a farmer is entitled to a fair return for his or her product. We should build our case around that very simple statement, which is set out in the Lisbon treaty. It seemed to us at the time that there are two elements to this, namely, information and regulation. I noted Mr. Foley's observation that voluntary codes do not work. It is a view with which I agree. As I said, what is required is a two-step process. First we get the information and, second, we bring in regulation to ensure there cannot be exploitation of a dominant position, which is basically what is happening at the moment.
On the question of information around produce, the delegates might be aware that we had a delegation from the French embassy before the committee some time ago. Those witnesses spoke about the gathering of information, the working of the observatory and so on. It would seem to be a relatively simple matter to appoint, either at national or European level, people who would function as an observatory, working out, for example, the amount of broccoli sold and the retail margin taken by the shop, transporter, farmer and so on. Those data should be taken over a season because I would guess they play at highs and lows. This would give us the facts and allow us to compare price paid with production cost. I am very confident that if consumers knew what was happening, they would be very much on the side of the producer.
I assume that if all the vegetable and fruit producers in Ireland were to refuse to sell, say, broccoli or cabbage, the retailers would simply import them? There is an issue here in respect of labelling. In the case of the National Dairy Council, for instance, we have seen how it is possible to be effective in ensuring the consumer knows what is happening. Is there any way of introducing country-of-origin labelling which would ensure that where a native product is being swapped for an imported product, that the consumer would be aware of it and be aware, through advertising, of the effect it is having on this very important sector of the farming industry?
I very much welcome Mr. Foley's contribution today. It is good to see people coming forward publicly to outline what the issues are. I understand why so many farmers have been reluctant to do so. We need to follow up on the extensive work the committee has already done on this issue to ensure there is fair play for the horticulture industry and that it not only survives but thrives.
I thank Mr. Foley for his presentation. All members will support what he said regarding the abuse of power by the five multiples and the damage it has done to producers and, in the broader context, to small shopkeepers and other rural enterprises. The way in which these retailers have been able to get away with it down through the years is an indication of the worrying influence they have in the wider political sphere. It is a challenge to democracy when such powerful players can effectively set the agenda. This committee has done good work on this issue in the past and we all want to see the implementation of the recommendations set out in our report. We hope that will be done in due course.
Mr. Foley indicated that producer numbers have fallen and continue to fall. Most of these are family businesses, as he said, which are unable to compete because of the prevalence of below-cost selling. Can he give any indication of the numbers of companies that have gone out of business in the past five years? How does he see the numbers going if this issue is not dealt with?
I agree with Mr. Foley and Deputy Ó Cuív that a voluntary code will not work. There must be a mandatory system of regulation and it must have teeth. I fully support the proposal for the appointment of an ombudsman.
Someone must ensure the regulation is implemented and oversee the situation where multiples are getting away with abuse. This is not just happening in this industry but across the agricultural producer area, where multiples are abusing their power for their own selfish benefit.
I thank the delegates for their presentation and assure them that we fully support the position they have adopted here today.
I thank Mr. Foley and his colleagues for their presentation. It is good to see people are willing to come and outline the problems. We had hearings throughout 2013 on the grocery goods sector and it was stated during those hearings that people were reluctant to come forward and discuss the problems because of the fear of retribution from the multiples if they made their views known.
Mr. Foley said in his presentation that the value of the horticultural sector is small in terms of overall agricultural output, but the number of people employed is significant, indicating the industry is labour intensive. If the horticultural sector were lost to us, the impact would be greater than the loss of the products themselves. In the hearings we had in 2013, all of the multiples were adamant that they do not ask suppliers to contribute to the cost of promotions. They were also adamant that they do not include this requirement in contracts with suppliers. Will the delegation outline for us the type of conversation that takes place if a multiple is putting on a promotion? What do they say to suppliers in terms of price, is it included in supplier contracts that they must participate in these promotions, and is a price variation fixed in those contracts? What would the reaction be if a supplier indicated he could not afford to or refused to participate in a promotion? What reactions have been experienced by the sector's members from multiples in this regard?
This committee has not been remiss in tackling this problem. When I was Chair of the Joint Committee on Enterprise, Trade and Employment in 2010, we held a full inquiry into this issue. The power the multiples wielded at the time was frightening. Their power was so substantial that even reasonably big businesses were terrified of putting their heads above the parapet. We hired a young researcher to interview people at night on the issue. The IFA was forthcoming with information at that time and it is now repeating what it said in 2010. We had a full conversation with the IFA then and it pointed out the inadequacies at the time.
The 2014 Act has been a missed opportunity. It is inadequate, will not work and is somewhat mealy-mouthed. One of the 80% multiple cohort does not treat its workers well, not to mind treating small businesses like growers very well. Some of its workers have been out on strike recently, due to variable contract hours and other issues. That same business dismissed this committee out of hand when it sought its attendance. It waved us away. The impression was that we are just small fry who should know our place in the queue and not be annoying it because its job is to make a profit, never mind how it does so. That type of behaviour is wiping out small shopkeepers and businesses. It is wiping out growers and producers, but also wiping out people further down the line. Small shopkeepers are important because they provide two or three jobs in their areas.
The multiples are not fooling consumers. I have been told that the multiples said they could supply a Christmas dinner and vegetables for approximately €1.25 per person, but consumers know that this is not feasible. Informed consumers did not fall for this marketing. However, one can understand that with money being scarce, as it has been over recent years, people will buy the cheapest products, particularly if they are of good quality.
The multiples are up to same old tricks again. They say there is no such thing as low-cost selling or that producers are not paying for the most advantageous shelf space. We were told before this does not happen. It is a bit like asking us to turn a blind eye and a deaf ear, where we hear and see no evil, but we all know these practices take place. Price cutters amplify growers' vulnerabilities. They are vulnerable and under threat when we aggregate all the factors involved.
We used to be told we should use the Competition Act to deal with these issues and that it provided a remedy to this situation. That was a load of nonsense because evidence had to be produced and people were afraid to come forward. I believe we need a system like that in Britain, a groceries' code adjudicator, and that is what the committee recommended in 2011. This is more or less the same as what was recommended by this committee under the Chairman, after an extensive review of the situation. We need the clout of law and need to be able to name and shame those who are not compliant. We also need to have significant penalties that can be imposed on those who engage in practices that will end with the destruction of a vulnerable sector.
Throughout the country everyone is rushing to the big stores. This will wipe out all smaller businesses and producers. We will then have crocodile tears. I will not participate in any more protests in the middle of the country or anywhere else, because the people who are there crying crocodile tears are the very people who pass by the rural post office or shop and only avail of them at night when they cannot get to the big store ten miles away. I am fed up with this situation. The people who contribute to this situation are the people who can stop it. The consumers have huge power here, so let us see what they do. We will end up with empty streets in villages with no shops except in major towns, but all we see are crocodile tears and politicians jumping on bandwagons and misleading people. The consumers can change the situation if a statutory code is laid down.
The situation now regarding what will happen is that people will go to the major multiples and retailers and the small shops will die. Then the multiples will wipe out small producers altogether as there will be no competition to which they can sell their produce. We know where we are heading and we know how to stop that. The only way to stop this is to bring in regulations. I am glad to see Commissioner Hogan is on-side on this, but he needs to go a step further and match rhetoric with action to ensure we sort out the issue. Otherwise we will end with a country where we have very little in rural areas and where all business is done in the bigger towns. There will no longer be local football, hockey or rugby teams. Locals schools and everything else will come under threat. We will not be around in ten years time to see that happen, but it will happen the mad rush towards multiples continues.
It is time to cry "stop". It is not just time to cry "stop", but time to act and to put mechanisms in place to stop what is happening. This Legislature has the power to contribute to that, but I sometimes wonder whether it is cowardly and afraid to take on the big boys. It is very easy to take on the small people and to put licences and all sorts of regulations in place that prevent them from getting out of their traps. Taking on the big boys is a different job and I wonder whether we have the political will to do that. I would not hesitate to support any measure to deal with the situation. If a Bill was introduced tomorrow to deal with it, I would be delighted to support it, because I am sick of what is going on. Recent events have made me even sicker. I wholeheartedly support the IFA's campaign.
Some of the delegates said to me outside that there is not much vegetable production in Westmeath. If they go down to Ballinahown or to Cloonown which is right beside us, there are good carrots there too.
I welcome our visitors and thank them for their powerful presentation.
There has been broad political agreement on this issue from the outset. It was unfortunate that the witnesses did not make a contribution to the deliberations of the joint committee when we dealt with this issue some 18 months ago. At that time, I recall asking the chief executive of one of the large multiples about the type of structure his company had in place. He asked me whether I was suggesting that his company charged "hello" money and told me that any such suggestion should be taken up with the Garda. I gather from conversations with people in the fruit and vegetable sector that this problem occurs regularly. What types of arrangements do the producers have with the various multiples? Do they deal with them as one body or as individual companies?
A vegetable company located not far from my home, which deals with all of the multiples, informs me that it pays a charge to have its products placed on the shelves of X, Y or Z company. If this charge is not paid in advance, the multiples will not sell the company's products, which is not fair. Do the witnesses also pay such charges? What kind of charging arrangements do they have with the multiples? Do they have contracts with A, B, C or D multiple or are they afraid to answer my question on the arrangements in place? On the previous occasion we addressed this matter, it was implied that producers were very much afraid.
This problem is not confined to vegetable growers. Time and again, milk is used as a loss leader in several supermarkets. A customer of five different supermarkets will be charged five different prices for the same carton of milk, which is wrong. I presume the same applies to vegetables.
I agree with Deputy Penrose that the debate on the Competition and Consumer Protection Bill was a lost opportunity. The joint committee's report of 2013 made fair and reasonable recommendations based on the British system that had been introduced in the preceding 18 months. Do the witnesses have evidence on how the British system is working? It has been in place for two and a half or three years. I support the independent adjudicator model adopted in Britain. Has the adjudicator been busy keeping an eye on developments?
I agree that a voluntary code is no good and a statutory mechanism is required. The European initiative about which the Commissioner has spoken recently is very welcome. Most of the large multiples, with the exception of one which did not have the manners to grace the joint committee with its presence in 2013, are based elsewhere in Europe. Is the introduction of Europe-wide regulation, as opposed to an Irish system with less clout, the most appropriate response to this issue? The joint committee noted previously that the profit margins of the large multiples were not available for scrutiny because they have an opt-out clause based on the fact that they have their headquarters elsewhere. Will Europe-wide regulation be required to ensure all angles are covered?
The main issue is the requirement that producers receive a fair price for their products. Profit margins are becoming tighter across the board. A structure must be introduced to ensure everyone is treated in a fair and proper manner. Deputy Penrose referred to the way in which a specific company had been dealing with its employees recently. The witnesses have been subject to certain practices for many years. It is time to act.
I welcome the witnesses. The problem, as alluded to by previous speakers, is that the multiples have secured a dominant position in the market as a result of the shopping behaviour of Irish people. I do not know how the growing phenomenon of online sales will be dealt with but it, too, must be addressed. Are potato sales, which stood at €150 million at one point, still in decline as a result of changes in eating habits such as the consumption of more pasta?
One could argue that below-cost selling is taking place in the tillage industry. I calculated my production costs a moment ago. The only difference that arises is that we can sell to numerous suppliers at the world price, rather than at a price that is being manipulated internally. In 2009, the dairy sector could also have argued that it was selling its produce below cost. Incidentally, the term "below-cost selling" must be defined if the legislative change they seek is to be introduced. Responsibility for one of the main costs facing farmers, namely, the cost of conacre or leasing, lies with farmers and there is no way anyone would legislate in that area.
Tillage land is currently making €300 per acre, while potato land may make less. I do not know how to get around the challenge these profits present. As a tillage farmer, my sector is facing competition from people who are willing to rent land for ten years for grass. Some people can make a profit growing grain or vegetables on their own land but not everybody is on their own land. Should we introduce a definition that includes the percentage of land that is owned and the percentage that is rented in order that farmers will be able to work through their costs, as is done in the Teagasc bulletin every year, and decide what is a fair set of costings? One cannot speak generally about below-cost selling because the costs of production vary from farmer to farmer. For this reason, we need to agree a definition of costs. We heard that the greatest threat is the failure of the Government to address the issue of below cost selling but we must first define the problem before we can deal with it. I do not mean that statement as a criticism of the witnesses.
As other speakers noted, the joint committee had substantial discussions on below-cost selling a few years ago. It would have been good to have representatives of the growers before us at that time but they failed to appear because they were afraid. I was informed privately that they feared they would be de-listed or treated unfairly by the multiples. It is time to spit everything out and inform members which companies are behaving poorly and which are not. We cannot pursue this issue with one hand tied behind our backs. We need to know which companies are misbehaving and which are not.
At one point during the joint committee's hearings, I asked a representative of one of the multiples if he had ever heard of the terms "pot-holing" and "marketing support". The response was to blank the question. These terms were used by a producer located not far from this building who had been drive to his wits' end by the behaviour of some of the multiples. We need to have this information on the record because it is frustrating that the issue is clouded in fog. I have the impression that the reason we are here again is that the multiples have decided they can continue to behave as they wish. It is time to name and shame.
We heard that Irish supermarkets are quick to wave the Irish flag. That is also true of many other businesses which import foreign grain and other products. I spent at least ten minutes last week looking at a carton of milk, which had many Irish features on the label but had been produced in Northern Ireland. We all wish to have better co-operation between North and South but it should not take a person who is familiar with these matters, as I am, ten minutes to figure out the origin of a carton of milk. I found out only by reading a small stamp.
Farmers have a free choice. I dropped a large amount of conacre this year because I could not make money on it. I normally forward sell when I rent land. I know my costs of production, which are straightforward, and the cost of land. For this reason, I sell on or near the day I set and if I cannot make money on that day, I do not plough. It is as simple as that.
I know that a person cannot stop fully but there is scope to pull back to a certain degree. Were it not for the single farm payment, it would be impossible to make such decisions. Forward selling is one option upon which progress could be made. If we are to revisit this issue and speak to the multiples again, we must ensure that discussions on their behaviour are open and frank because I believe their behaviour is wrong. I spoke to many of them during the Christmas period when they were ruining the market at a time of year when farmers absolutely had to sell their produce. I am also aware of their behaviour when it comes to spoilage. We need facts and we need some brave person to stand up and say: "This is what is happening. Here is the documentation. I am not happy about it." I know it is a difficult thing to ask but we need to get this onto the agenda. Otherwise, we will be discussing this again in two years' time. A lot of other farmers will not be caught out. Unfortunately it is those farmers who are trying to make a living from this industry who will suffer.
I thank the witnesses for coming here today, for their very detailed presentations and for the forthright manner in which it was presented. While bravery may be too strong a word, I acknowledge that it takes some guts when the topic under discussion involves them being critical of the hand that feeds them. The witnesses are here today representing producers throughout the country rather than to talk about specific cases. I have no doubt that the challenges described by them today are being faced by everyone in the industry. I will not repeat the sentiments of those who spoke before me, but they have outlined the position of this committee on this. We are very much at one on this issue.
The witnesses spoke about the challenges that promotions bring and the price volatility that is decimating the industry. I ask them to outline the regularity of such promotions. How often are they happening? Is it once a year or a couple of times a year that one could expect to get a call at short notice? Is there any discussion or leeway on it or are farmers simply told by the supermarkets to supply the product or it will be sourced elsewhere? In that context, what type of contracts do farmers have? Obviously, promotions are over and above the contracts. What form of contract could a producer in the fruit and vegetable sector expect to have? What is the typical duration and what certainties are built into it? Are we seeing a general straying away from contracts or is it that the contracts themselves are not sufficiently robust to give producers the certainty they need to plan into the future and operate normally in the expectation of making an income that would cover the cost of production?
Mr. Foley said that there are issues with regard to the roll-out of producer organisations and I ask him to outline them to us. How does he see them working and what needs to be done to make them work? I completely agree with the points he made about the role of the Competition and Consumer Protection Commission in the future and the importance of the new grocery regulations. These are absolutely key and we will use our influence here to try to ensure they are as robust as possible.
Mr. Paul Brophy:
In 2013, the strategy of the supermarkets was simply to increase footfall and they slashed and burned to do so. It became a race to the bottom, with prices dropping from 39 cent to 29 cent, to 19 cent, to 9 cent and finally to 5 cent per pack or kilo of product, and the supermarkets all followed each other. The strategy backfired in the end and led to a backlash because people knew it was devaluing all the products. In 2014, when prices came down, the strategy was slightly different. The supermarkets started a tendering process whereby producers were asked to tender for their price. A lot of growers here would not deal directly with all the supermarkets but would deal through a consolidator. The consolidator would bring them a portfolio of products which could include, for example, ten fruit items and two vegetable items. It is then open to them to tender for the products but the supermarkets tend to play one against the other to get the best value going forward. That had a more upsetting effect on prices in 2014.
It was due to pressure on the part of the IFA and other organisations that the supermarkets did not adopt the strategy of cutting the prices to ridiculously low levels. That was the answer to what happened in 2013. However, there was some wastage and there was not the same degree of uplift in sales because the volumes were not sold and importers had product in. We were led to believe that there were significant losses on the part of the retailers and some of the importers of product that was lined up to be brought in. When the price was not there, the customer was not there. That was the effect in 2014.
Mr. Matt Foley:
I will respond to the question on the contracts. Many producers would have contracts which are not strictly contracts. I have what I would call arrangements on paper which are not legal agreements. Under the new laws and the rules of the Competition and Consumer Protection Commission, if a producer is dealing with a business valued at €50 million or more, that business must issue the producer with a contract. I would imagine that, going forward, most growers will either have a contract with a supermarket, if they are dealing directly, or with a facilitator. That will be the law. The IFA is aware that there are contracts floating around now but a legal agreement will be a requirement in almost every case in the future.
Regarding the legislation, the IFA looked for an ombudsman, having examined the situation in England. I heard today through Twitter that four supermarkets are in trouble in the UK on foot of investigations. The IFA has made representations to have some other parts of the Competition and Consumer Protection Commission legislation changed. Those representations are with the Minister at the moment but I do not think he has fully signed off on them yet. We certainly feel that it is up to the legislators to put the necessary laws in place and to ensure those laws are implemented. The strength of the new commission will be judged on what it does, how and what it investigates and how much it investigates. We also feel that adequate resources should be made available to the commission to enable it to do its job properly.
Members will be aware that the age profile of growers is one of the most worrying issues. Indeed, the age profile of this current IFA committee is far lower than any other that I have been on for quite a while. There are very few young people entering the business and one must ask why that is the case. Are they afraid of hard work or what is the issue? The reality is that they do not see themselves making a good enough living out of it. Unless they can get a proper economic return, they will not go into the business. My experience is that once a producer stops growing, he or she never goes back to it. If we lose that critical mass of growers, we will not be able to rebuild the sector.
Mr. Doyle will deal with the questions on potatoes.
Mr. Eddie Doyle:
Potato growers would have some problems that are similar to those outlined, but a lot of potatoes are not traded directly to supermarkets but through facilitators. We have had our own specific problems in this regard. Some of the facilitators have arrangements with growers.
They might have a corps of growers but outside that corps they buy mostly on the open market, or free buy.
Producers have been treated very badly. We have had huge crops because of the good weather for the past few years. Growing conditions across Europe have been very favourable leaving us with crops bigger than anyone would have expected. High prices in 2012 because of the atrocious weather in that season encouraged some growers to come back into the industry. We have had a few people growing over and above what they should grow. It has led to very poor market conditions. We are struggling to get through this year. Potato growers are resilient and the good people who have been in the business for years will come through.
Deputy Barry said we should not be taking land and planting our crops at such high prices. It is a valid point. We in the IFA try to make that point to growers and for the most part they are very responsive. We are getting to grips with the potato problem. We have a promotion which will go ahead in September and will be very beneficial to the industry. It will help improve sales, which have been affected by pasta, rice and so on. Every other carbohydrate on the market is promoted as better than the potato, which sadly it is not. Our promotion aims to change that and bring the potato back to its former importance in the household. We work hard on this. An Bord Bia and the merchants are involved too. The IFA is pushing it and the Department of Agriculture, Food and the Marine is very helpful.
One speaker mentioned labelling but unless we have the legislation behind labelling we will not get anywhere. We can label but it might only be down to a little stamp on the corner of the carton before one recognises where the product comes from but the consumer does not have time for that. We need labelling.
The own brand selling is doing equal harm to our industries in agriculture. Lidl, Tesco and Dunnes Stores do not produce milk. Legislators could take this on very easily. The name of the producer of that item should be given equal space on the carton or package. Let Tesco, Lidl or Aldi put their names on it but we have to get equal space. That must be taken into account.
This issue would be easier to address than below cost selling although it is urgent to address that. The incessant and relentless pressure of promotions has driven us into the ground. Someone asked how many are left in the industry. I would not be able to give numbers on the spot but there are only five or six left in each category of vegetable. We can put the growers for each code in the country in a car and take them to a meeting. That is how I see it. It is why the supermarkets readily support us but their way of supporting us is to get quotes from our competitors and force the cheapest quote on us, regardless of whether we put it in or not. They are not doing anything illegal but a tender is not a tender when they force a grower down to the cheapest price. The dunce is running the class in many events in the vegetable industry because the supermarkets have forced us into an unsustainable position. We are at the last gasp coming in here to speak to the committee.
Mr. Paul Brophy:
In response to Deputy Barry about below cost selling. The cost of production is a separate issue. The supermarkets take a product that has been invoiced to them at between 75 and 80 cent and sell it for 39 cent. That simple act undermines our livelihoods and those of the small shops which have only a certain amount of products to dilute the effect of the promotions whereas the big supermarkets have thousands of items. They use the promotion to catch footfall. It is a very simple equation. It is selling something below the invoiced cost. There is no science to it. That is wrong. Section 9 of the OECD guidelines for competition state they should conduct "all their activities in a manner consistent with applicable competition laws, taking into account the applicability of the competition laws of jurisdictions whose economies would be likely to be harmed by anti-competitive activity on their part".
Deputy Ó Cuív’s description of the hourglass was perfect. There is a narrow band of buyers that can select and use whatever strategy they like and play one of us off against the other. We deal with a fresh product and do not have the option of moving it into many different outlets. The tradition of promotions developed many years ago to offload surplus product such as strawberries or tomatoes when they came in as a flush. We all bought into the strategy because we did not have the refrigeration facilities to keep product fresh for longer. This has developed on the back of big businesses devising a simple strategy to undermine small, unbranded products. I can guarantee they would not touch a strong brand and I will not mention any names. They never appear in these super-sixes. They pick us off as individuals and use products that are freely available in Europe, and do three to four promotions a year, two of which will fall into a grower’s season of production. They do not give the opportunity to produce for that promotion, not that anybody would because due to variables such as weather one could miss one’s mark. There is a six-week lead-in, which is not enough time. It takes 20 to 25 weeks to produce my crop. I cannot gear up with a six-week lead. The product goes fivefold in sales in the week it is sold. One cannot fill it, so foreign product comes in to supplement it. People who have overbought are left with a mess a week or two later when they go off it.
An example of the other collateral damage is if my neighbour is selling something that competes on the shelf with my product. Customers buy two packs of my product that week and ignore my neighbour’s product, which affects him, whether or not he is in the promotion cycle. The wholesale market is even affected. The year they did the super sixes at Christmas, when all the supermarkets followed one another like sheep, the people who depended on the traditional wholesale market in Smithfield could not sell their product because the canny traders in Moore Street went into the local discounters, bought the products off the shelf, sold them on their stalls and made more money than if they had bought the product in the wholesale market. The collateral damage was even wider because people who were not affiliated to the supermarket trade got caught in the crossfire. It is a huge abuse of market dominance.
The Competition Authority blocked the sale of Aer Lingus to Ryanair on the basis that it would not be good for the country. This is not good for the country in the long term, economically or socially. It will wipe out small businesses. My payroll is over €1 million a year. What is the spin-off from that to the local economy? The people I employ go into local shops, even the ones we are giving out about, and spend their money there. We buy our inputs locally. This has a huge ripple effect. While it may be small in the context of the IFA overall, as an employer and cash value business it is a huge issue.
Below cost selling is simply selling something below the invoiced price. It has nothing to do with the cost of production. My cost of production is different from other people’s cost of production, depending on scale. They might have the advantage of being small and nimble but we have other competitive advantages having scale.
The cost of production really has nothing to do with this as this is a case of selling something for less than one has paid for it. Only the big players can do that because they have the footfall and the other products with which they can catch back the money.
I have been involved in buying and selling a lot of products over the years and not just agricultural products. I take Mr. Brophy's point about the invoice cost but it would be naive to say that is a fundamental basic. We all know about rebates and we all know about scale. Mr. Brophy knows well that if we brought in something based on the invoice cost, I, or someone else could produce an invoice to the supplier at whatever the supplier wanted and then everyone else is screwed because that invoice is then taken as a template. That I why I am trying to drill down to the cost of production. The way this is going to be solved will be with a bottom-up approach where we can actually make a living as primary producers. I am absolutely sick to the teeth of the primary producer getting fleeced. Mr. Brophy's case is an extreme version of it. People are lying to our face and telling us that the public wants it and that they are doing a public service; they are not. However, rebates exist. In fairness, we cannot get away from cost of production. The retailer pays the supplier but at the end of the day I ask who is paying for the promotions.
I am being told that people are paying for marketing support, which is "hello money" under a different form. I am hearing that there are certain people paying directly to get their products into prominent positions. If what I am hearing at this meeting that the retailers are paying the growers for the product, they are dropping the price dramatically so everyone else is getting hammered. There seems to be a web of intrigue and it is a case of whatever they can decide or dream up at short notice. If we could be supplied with a list of where the major abuses occur, even without names, it would be really helpful as a way to begin untangling this. If we follow the money we will get to where the problem is. I know that some of these multiples do not supply their accounts in Ireland but if we follow the money of where the suppliers are supplying we will get to where the abuse is happening. It is good to hear this because at least, now, we have growers who are willing to say, "Stop" and we have not had that up to now.
Mr. Brophy has highlighted the promotions, such as the super six. Is there any evidence that money has to be paid in advance, the "hello money" or whatever? From what I hear from different people the "hello money" is a requirement in order to get a product on the shelves of supermarkets. Has Mr. Brophy any evidence of this practice?
Following from a question I asked, I refer to the balance between the initiative taken by EU Commissioner Hogan on this matter compared to the Irish solution. When we were dealing with this matter a year and a half ago we were castigated in a Sunday Independent article by an individual who has since become a part-time politician, that we were not looking after the consumer. Deputy Ó Cuív was lumped in with us at the time and we were seen as a group of Fine Gael farmers who had only one item on their agenda and that was to look after our own people as such. Where does Mr. Brophy see the balance being? We could be accused again. We are all on the same side here but the consumer side will be used by the multiples who will maintain they are looking after the consumers and giving them what they want.
Deputy Deering has raised a very important issue that the normal trick fight-back is that we are anti-consumer. I think we can fight back on that one. A lot of urban people understand the concept of fair trade coffee. They understand that coffee growers should get a fair return on the coffee bean. In fairness to them, some of the most urbanised people in this country will go to the Fairtrade shop to do their business because they do not believe in exploitation. I have been down in north Dublin a few times and I think what is going on here is a hugely damaging exploitation, not only of farmers but of the Irish industry and that unless we as a people stand up, we will not have a native farm-led horticultural industry in the country.
We need to explain to consumers that if they want consistent supplies of Irish vegetables, potatoes and fruit, the first thing to know is whether the product is Irish and when it is not; whether it is fresh and when it is not. More people are environmentally aware and many people have an objection to huge air miles being involved in importing products that could be produced at home. Therefore, I think this committee has a role, through the State agencies, as happened in the case of NDC milk. We are very good at labelling beef. It is very interesting to watch all the major supermarkets putting up big billboards saying, "We only sell Irish beef". They know that the consumer buys into that idea. We have to get the message across that where possible the consumer knows when a product is imported and when it is Irish. That relates to the point made by Mr. Brophy about the own brand which was discussed but we did not reach a final conclusion.
The own brand issue is a huge issue in farm products. For example, with reference to the attraction of own brand products, two cartons of milk will be produced in the same dairy out of the same milk but one will be cheaper. My belief is that the answer is very simple. Whereas if in the case of the branded product the supplier is changed from one dairy to another, the customer will know but in the case of the unbranded product this can be swapped around anyway, the supplier can be changed and nobody knows. The consumer is entitled to know who and where has provided the product. I remember seeing in French supermarkets many years ago that the sheep farmer who produced the lamb was identified. Should we insist that the consumer should know from the label who produced the vegetables and fruit and where they were produced? Should there be country of origin law introduced and the Tricolour only permitted to be used to show that the produce was genuinely produced in this country? There should be none of this washing and packing products and calling it an Irish carrot. We could explore together how information could be given to consumers because I do not underestimate the consumer if given the right choice.
I refer to the six big supermarkets without naming them. We know who are the big players. Do they account for 80% or 90% of products sold? I refer to small greengrocers and small corner shops. I am counting SuperValu as being one of the big supermarkets because it is part of Musgrave. Are we reliant on 90% or 80% of products going through the big five, through the narrowest part of the hour glass?
Exploitation is exploitation where somebody in a dominant position abuses that dominance. Up to now, European law has always been concerned with abuse of dominance against the consumer. This is not just an Irish problem, the EU has made it absolutely clear to us it is a pan-European problem. We need to work on this as a pan-European problem as well as a local problem.
We need local legislation as it is quicker to implement. We also need tightening of regulations and so on.
If we want to retain European agriculture as it is - we are not the country with the largest number of horticultural farmers - we have to press Europe so that they absolutely control the dominants. I am delighted that Commissioner Hogan has taken up the banner on this since he became the Commissioner. Certainly the Commission officials are very supportive of his position. However, we need to push this home. First, something he can do quickly is to publish information. He can then introduce regulations which would be a bit slower and take more time. The more the information on issues such as labelling, pricing, margins and so forth is in the public domain the more we can educate consumers that it is not really in their interests.
I never came across a supermarket that operated as a charity. We need to be blunt. The supermarkets might offer vegetables, which are grand and healthy, at very low prices. However, as customers come to the checkout with children they offer chocolate, Coca Cola and other soft drinks on which they are making a killing. Any newspaper that claims that they are out to help the consumer is being very naïve about supermarkets. Supermarkets are interested in one thing, profit. We should send out that message clearly. They will manipulate everybody, including consumers, to make that profit. It is always very interesting to watch the layout of the supermarket, including the location of sweets as last-minute buys where children can stick out their hands.
We need to get across the message that we are not anti-consumer, but the consumer is also the producer and depends on the producer to create the wealth for the country. We have to fight back on that issue. As a committee we should jointly reject that we are anti-consumer, but we are very much for maintaining this industry for this country.
I was intrigued by what Mr. Doyle had to say about own-brand selling, etc. Certain supermarket chains offer a 1 kg bag of carrots labelled, albeit in relatively small print, as having been grown in Ireland. Presuming that bag of carrots is not sold below cost, are the witnesses claiming that Irish growers are worse off if their carrots are sold in that way than if they are sold loose and the consumer can select and weigh them? Is there a difference in what the producer gets or is there concern other than purely the amount of money the grower gets?
One question was asked about the producer organisations, POs, in the first round that should also be addressed.
Deputy Ó Cuív alluded to the fact that we did not come to a conclusion on the own-brand issue. Some of the smaller processors have indicated that own-brands have a role to play. That is not in fruit and vegetables obviously, but mainly in secondary processed foods. However, their overuse creates a masking effect. That is why we did not want to make a recommendation. We addressed the matter in a full paragraph in page 21 of our report, which stated, "The committee considers that own-brand products give too much power to the retailer and make it too easy for them to substitute".
Mr. Matt Foley:
We had quite a few POs ten or 15 years ago. I think I have been in three or four of them over the years. They come and go for various reasons. For those making investments it is a huge area of support from within the EU. There seem to be major difficulties in drawing down the money. There are two cases at the moment, one involving a mushroom PO and another involving a salads and tomato PO. They are not able to draw down through some of the regulations. In my capacity as chairman of the horticulture forum, I have written to the Minister of State, Deputy Tom Hayes, on the issue. On Friday I received a reply which we need to digest. His letter concedes that the rules are quite restrictive and need to be reviewed. There seems to be one rule in one country and then when applied in our country it is different.
On the PO side I can speak for the people who are having difficulties. They certainly felt the Department approved their plan of action but they were unable to draw down the money when it came about. That is the argument that has been put to me. They are in continuing discussions with the Department. Of a €5 million drawdown they will lose at least €1 million and it could be higher; I am not 100% sure of that figure.
Vegetable growers have been very reluctant to join POs because of the restrictions as well as the massive amount of paperwork and cost. Representatives of one PO recently told me that the cost of drawing down the money nearly negated the amount of money they were getting. It is being reviewed at European level. It is a very good avenue.
In conjunction with Bord Bia, the IFA looked at the whole PO situation in Ireland. About two years ago a report was commissioned and we carried out an investigation as to the best way to move forward. Through the horticulture forum we are trying to get a pilot scheme to get some vegetable growers to move halfway into the PO to try to move things forward. I believe the EU allocated €800 million last year towards PO and we are only drawing down a tiny amount of it.
Any proposed legislation needs to be two-pronged. We need national and European legislation. On a national level we have an opportunity at the moment. The door is not quite fully shut on the Commission as to any changes that could be made. It is very important that we push that as far as we can. It is also important that the Government keeps the pressure on Commissioner Hogan to deliver on what he is saying. Some MEPs have spoken in favour of some sort of legislation. Ms Mairead McGuinness, MEP, was very vocal in what she said. I would encourage any possibility of introducing legislation in Europe. We believe that below-cost selling is totally anti-competitive and needs to be addressed.
On the labelling issue, I do not know any vegetable grower who is not a member of Bord Bia or does not use the Irish logo. In order to place the Bord Bia logo on produce, a producer must have an identification number. It is not up to farmers or the IFA to check those kinds of things. It is up to the Department of Agriculture, Food and Marine. We have always been pressing for more checks in this area.
On the matter of costings, we are investigating the possibility of cost plus, where we look at the cost of production and we then determine what margin we need to sustain the business and reinvest, which is terribly important.
I hope that is the direction in which we move in future.
A couple of questions were asked on own-brand goods. What is the impact of own brands on fresh vegetables? Is it simply that they allow companies to switch suppliers? Some hams and cheeses feature a code identifying the product as being from the European Union and the country of origin. Is such a label used on vegetables sold in own-brand packaging?
Do producers receive a lower payment per kilogram for own-brand products, for example, those packaged in a SuperValu, Tesco or Lidl bag, than they receive for products provided in a standard box from which customers can choose?
The joint committee has been very supportive of producers and has advocated on their behalf, especially producers of fresh and seasonal products. We highlighted this issue in December 2013. Last Christmas, the joint committee welcomed a commitment from the retail multiples that they would not engage in a price war. We were chastised for our position and there was some spin and counter-spin, with the committee being accused of being in breach of competition law. I should clarify that we asked the multiples not to engage in a price war. We did not ask them to set a minimum price, much as we may have liked them to do so.
We found during our hearings with the major multiples and their representative organisations that they became very defensive when challenged on issues such as "hello" money. As the retailers have shown over the years, there is more than one way to skin a cat, even if hello money, as we understand the practice, is not used. We need to be vigilant, as the price war and tendering issues have highlighted.
The door is still open in respect of introducing national regulations. We must ensure that enforceable regulations are introduced, with statutory powers of oversight. We were reassured by officials from the Department of Jobs, Enterprise and Innovation that companies found to be in breach of the law were engaged in a higher class of criminal act. It would be interesting to find out how the United Kingdom authorities deal with four retailers. I hope they will be named and shamed.
The issue boils down to Deputy Ó Cuív's point on the need for fair trade for all. It is the European Union's stated objective that everyone should be able to secure a viable income. The industry will not survive otherwise. Mr. Brophy referred to the size of his payroll in the context of a provincial town. It must be very important to the area in question. If production is lost and everything arrives in a chilled truck or container, it will not return because people who give up growing fruit and vegetables do not start again. I am something of a veteran in this regard. Many years ago, I used to visit the vegetable market at 5 a.m. on most Mondays. I did not do so because I like to get up early. As with everything else, one does what one is paid to do.
I will circulate a strong statement on this issue to members. We welcome the evidence we have received on various practices in the sector, which the witnesses did not discuss in detail for understandable reasons. The joint committee will play its part. As the witnesses have seen, there is all-party agreement on this issue and all sides fully supported the report we published in October 2013.
I thank the representatives of the IFA's protected vegetables and crops committee, Mr. Foley, Mr. Brophy, Mr. Grimes and Mr. Doyle, for appearing before us.