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Many farmers suffer from low prices for their products. They have little impact on price increases from discounters and supermarkets. Is the power of trading companies too great?
With recent protests, Germany’s farmers have succeeded in drawing attention to their problems and the future of agriculture. In addition to the issue of subsidies, there are other reasons for the tense economic situation of many farmers.
A prevailing problem is low prices for agricultural products: “The prices should be viewed primarily in terms of the increase in costs in agriculture,” says Jutta Roosen, agricultural economist at the Technical University of Munich (TUM) and Chair of Marketing and Consumer Research there tagesschau.de. The costs of feed and energy in particular have risen significantly. According to the expert, only a small part of the consumer price actually ends up with the farmer.
Mecklenburg-Western Pomerania’s Agriculture Minister Till Backhaus (SPD) also believes that the prices of agricultural products are a major cause of the difficult situation for farmers. Backhaus believes that producers are getting prices that are too low, while prices at the counter are rising. Against this background, he called for the power of retail chains to be limited through antitrust law.
Criticism of “unfair contracts”
What role do retail chains, supermarkets and discounters play in pricing? An essential role – that is the thesis of the Initiative for Fair Prices in the Supply Chain (IniFair). It is an association of organizations from rural agriculture, dairy farmers, fair trade, development policy and environmental and consumer protection. These include, among others, the European Milk Board (EMB), the working group for rural agriculture (AbL), the German Environmental Aid (DUH) and Oxfam.
“The dominant supermarket companies can still enforce unfair contracts, change them in their favor and set prices for food below production costs,” said IniFair and called on politicians to act. According to IniFair, German farms receive on average only 18 percent of the added value in the food chain, while EU farms receive an average of 27 percent of the added value.
“The four largest food companies Edeka, Rewe, Lidl and Aldi control 85 percent of the food market in Germany. With this market power, they were able to raise food prices without adequately passing on the proceeds to their suppliers in the food chain,” explains Reinhild Benning, agricultural expert at Deutsche Umwelthilfe (DUH), in conversation with tagesschau.de.
Since farms are at the very end of the food chain, price dumping often costs their existence, says the expert. In addition, overproduction of meat and milk allows slaughterhouses and dairies to drive down producer prices.
No cost-covering Economics possible?
The price of milk could be seen as an example of the farmers’ situation. From 2014 to 2021, dairy farmers never received prices that covered their costs on an annual average, emphasizes Benning. “If we cannot make a living from the work of our hands, it is fatal, both for our businesses and families as well as for society,” says Frank Lenz, Chairman of the MEG Milch Board. Individual association officials say that milk prices of just over 40 cents are acceptable, but that doesn’t change the economic facts. “6.6 cents are missing to cover the costs,” says Lenz.
However, the prices for many products are determined not least by the global market, notes agricultural economist Roosen. This is also how the German Trade Association (HDE) and the Food Trade Association (BVLH) see it: “World market prices are of crucial importance for the pricing of agricultural raw materials for all product groups,” say the associations.
The main factor influencing German milk producer prices is the world milk value. “World market price changes in milk producer prices based on this explain 66 percent of the changes in national milk producer prices.”
Who is responsible in the supply chain?
The food trade also points out that it is often given very extensive supply chain responsibility that does not correspond to its actual position within the food value chain. According to the HDE and BVLH associations, direct contractual relationships between trade and agriculture are rare. Afterwards, most agricultural raw materials are sold to food industry companies, which include dairies and slaughterhouses, for processing into food products.
There, too, there were clear economic power relationships: “Eight dairies control more than half of the raw milk market, and the top 10 slaughterhouses slaughter over 80 percent of the pigs in Germany,” explains Benning. “On the other hand, there are tens of thousands of farms without the corresponding market power.”
“Wherever we pay money for products at the processing stage – for example at dairies or slaughterhouses – we have little insight and no influence on how much money is actually passed on to the farmers,” explains Thomas Bonrath, press spokesman for the REWE Group opposite tagesschau.de. This is not automatically guaranteed, not least because of the complexity of this multi-stage value chain and the resulting pricing.
What politics can do
There is currently a struggle to solve the problem of how to help farmers. “A fair producer price must be the starting point of every negotiation,” said Bonrath. Partnership solutions with agriculture would always be a priority. “However, these must also be possible legally, especially under antitrust law,” adds the REWE spokesman. “We don’t yet know of any proposal for minimum prices or anything similar that would guarantee this.”
DUH agricultural expert Benning, together with the farmers’ association European Milk Board (EMB), is calling on politicians to pass a law that would contribute to a fairer distribution of added value in the food chain: “The government could do the same with a bid for cost-covering prices and legal rules for fair contracts “Killing several birds with one stone: Farmers could secure their income. In addition, if they had the right to reasonable producer prices, dairies and slaughterhouses would write smaller quantities into their contracts,” said Benning.
Overproduction would be reduced and could no longer put pressure on producer prices, she emphasizes, pointing to successes in Spain and France: “Farms there can already refer to legal rules against unfair trading practices and enforce decent contracts and better prices.”
Tips for consumers
What can consumers do to support farmers? TUM agricultural expert Roosen advises using short value chains. DUH agricultural expert Benning’s tips are similar: “Consumers can buy directly from the farm, be it at the weekly market, through a vegetable box subscription fresh from the field or in the farm shop or in the One World store,” she advises. In these ways, significantly more added value remains in the countryside.