20 February, 2015

From milk to bananas

Bananas are still very cheap
by Tim Aldred, Head of Policy and Research at the Fairtrade Foundation

The UK’s dairy farmers are kicking up a stink. They’ve been complaining loudly that the prices they are being paid by supermarkets aren’t enough to cover their costs, and that farmers are going out of business as a result. With supermarkets cutting prices to fend off the challenge from discount stores like Aldi and Lidl, dairy farmers feel that they are losing out. This week, it led some to take to the streets to raise awareness with the public.  

The position of UK milk farmers looks a lot that of many banana farmers. As our Make Bananas Fair campaign explained last year, the price for loose bananas has halved over ten years, while the cost of production has doubled.

The squeeze on banana farmers undermines their livelihoods, and makes it harder to improve conditions and wages on the ground. Our campaign said that the government needed to strengthen the rules, and that everyone in the industry should take steps to protect banana farmers from low prices.

The government, perhaps with one eye on the election, has been keen to show it is listening to concerns raised by farmers at home and abroad. Responding to a question in Parliament, the Prime Minister agreed that more needed to be done:

“Specifically on the Groceries Code Adjudicator… it is time to make sure that [it] has the power… to levy fines so that it can get its will obeyed” he said in January.

The Groceries Code Adjudicator (GCA) mentioned by the PM is a new government regulator. It has the important job of checking that food retailers treat their suppliers properly. It looks at things like whether contracts between suppliers and supermarkets have fair terms - and whether they are applied in practice. Over its first 18 months, the adjudicator, Christine Tacon, has been looking closely at the relationships between retailers and suppliers, and has just announced her first formal investigation.

Following the PM’s statement, the Business Secretary, Vince Cable introduced a “statutory instrument” which, if approved by Parliament, will give the GCA new powers to fine supermarkets up to 1% of UK turnover. Effectively, it’s a big stick. As well as a strong incentive to treat UK farmers well, it means that suppliers based overseas – like banana farmers - are better protected. Supermarkets whose supply contracts stick to the rules should not fear the work of the GCA. In fact, they should benefit, as the less scrupulous will not be able to gain a competitive advantage by cutting corners.

It sounds useful, and it is. But there is still some way to go.

Most banana – and milk - farmers don’t sell directly to a supermarket. Instead, they sell to a trader, who then sells their produce on. Under the current rules, this means these farmers are not covered by the regulator’s remit – they can’t ask the GCA to help if there is a problem. So our campaign called for this loophole to be closed, and we continue to do so.

The PM suggested to Parliament that he would also support changes here – though it would probably have to wait until after the election.

Actually, even this doesn’t get to the core of the problem. The main issue for banana and milk farmers is the prices they are paid, which don’t allow them to cover their costs. Neither the GCA, nor any other government body, has the power to challenge supermarkets that pay farmers below the cost of production.

In fact, the law effectively pushes supermarkets in the other direction – it encourages them to drive prices down as far as possible. The Competition and Markets Authority (CMA) has fined supermarkets which tried to agree a minimum price for milk, to the tune of millions of pounds.

So competition law is very good at protecting consumers’ short term interest in low prices. And, rightly, no-one wants to see cartels, (where retailers collude to keep prices in the shops artificially high). But while we shoppers get low prices in the short term, are our long-term interests well-served?  Low prices have led to the number of dairy farmers halving over ten years, with the UK increasingly needing to import milk. What does that mean for our wish to buy British in the long term? If most of our milk comes from overseas in future, what happens if there are shortages? Surely it is in the public interest to retain a viable UK dairy industry. But regulators are either uninterested in acting, or are powerless to do so.

For banana farmers, similar issues apply. Survey after survey shows that most of the public want the farmers and workers who grow their food to receive fair prices and be well treated. It just isn’t in our interests to damage the farms and communities from which our food comes - whether that is milk, bananas, tea, or any other product.

There are things that can be done. Buying Fairtrade is a good way to guarantee minimum prices and additional investment to banana farmers through the Fairtrade Premium. Commitments by supermarkets to move towards living wages and cost of sustainable production are also welcome. I’m pleased that our campaign has encouraged supermarkets and government to think so carefully about the farmers who grow the UK’s bananas.  

Beyond voluntary action, we need to get the market working again for the long-term interests of everyone – both farmers and consumers. We’re a long way from that at the moment. We need the penny to drop with regulators, that maximising public welfare means more than giving us a cut price banana.

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