multiple retailers and the request for a 40% reduction in price from organic producers

Understanding the balance and flow of power is crucial to understanding what people say, what they don't say and what they imply.

Below is the original version of what appeared in the Irish Examiner yesterday, Thursday 28th May.

It was reported various places that multiple retailers are set to ask for a 40% price reduction from their suppliers of organic produce.

I have spoken to numerous well positioned people involved in production, distribution, processing and retailing of organic produce since then, and it seems the reality is more complex than was first reported.

The particular producer featured in the story on the 40% price reduction is uncertain at present whether the retailers were directly asking for a reduction. However he did receive strong signals that this was coming downstream.

Others, when queried, told me that there they have not been asked for this reduction directly.

According to Glenisk, �We have not had any 'demands' from retailers and we're on good terms with them all. Pricing is obviously a challenge right now; we're focused on the broader issue of value for money. For example, we're running 50% extra free promotions on all of our 4 packs and that has been very well received by consumers.�

Glenisk also claim that this cost will not be passed onto the farmer: �No, it's our cost. We find that consumers appreciate the extra value and consequently that has a positive effect on sales.�

Supermarket sources also told me, when queried, that they were not directly asking for a 40% reduction.

This raises interesting and important questions about whether producers, consumers or those in between - the retailers, processors, distributors - have the most power when it comes to the organic sector.

Whatever about direct requests for price reductions, the market share multiple retailers command defines the terrain within which their suppliers � Irish farmers - operate.

In mainland Europe, nowhere has the same level of multiple retailer penetration as do Ireland and the UK. Simply put; there are other routes to market, so those who supply into the agri-food system have options. They have more power.

So when Tescos announce a more international sourcing policy for Irish stores, or a change in store layout, Irish producers can start to feel the pressure.

While Tescos claim to send over 600 million euro of Irish product abroad annually, it is also the case that Irish agri-food companies have many more options when supplying the mainland EU market. This is clear from, for example, the various routes to market in European countries the Good Herdsman achieved at BioFach this year.

At the end of the day, does it actually matter if a supermarket directly asks a for a price reduction, if all the signals and pressure are pointing that way for sooner rather than later?

Will processors who supply supermarkets make price-reduction predictions and pass these on to producers? Or will they behave opportunistically?

Some of the facts of the retail situation for organic farmers at the moment make for stark reading.

While organic is sold through other routes, sometimes in a very high profile manner, it is still the case that the majority of organic produce is still sold through the multiple retailers: up to 85% according to Bord Bia.

Organic farmers make up about 1% of farmers. There are often hardly any alternative options for sourcing feed or processing units.

In general, consumers are cutting back. This can have unintended positive consequences � some consumers eat out less and eat organic food at home more, and still save money.

Organic is not due to suffer to the same extent as other areas, according to recent research into Irish consumer motivations. However, consumers cutting back by 1/3, as the research suggests, will inevitably have some negative consequences.

So we have a small number of producers, with few input or processing options and one main channel to an under pressure market. This main channel has enormous overall clout in the agri-food sector.

Along with this, there is a new version of an old issue: the Northern situation. It is to this we turn next posting.