Negotiations between manufacturers and retailers are tough in every market but in France, due to the legislation governing the sector, there is are extra considerations. Throw in the often vocal nature of French farmers, suppliers and grocers – and the recent rise in commodity costs – and the tensions can reach teh public domain. Reporting from French farm show SIA, Peter Crosskey gives a flavour of the debate as suppliers and retailers look to nail down their price agreements for the coming year.
French food retailers have less than a week to agree legally binding contracts with suppliers for the coming year. The days of retrospective discounting finished with the 2008 Law for the Modernisation of the Economy (LME) and suppliers have to put everything on the table at the beginning of the year. And what are always tough discussions have become more tense amid the recent volatility in commodity costs.
The French food industry correspondents’ association SYRPA scored a coup yesterday evening (21 February) at the Paris farm show SIA by organising a three-cornered debate between farmers, food manufacturers and retailers. Carrefour general secretary Pierre-Alexandre Teulié spoke up for retailers, Jean-René Buisson, the president of French food manufacturers’ association ANIA, argued the industry case and president of the national farmers’ federation FNSEA Xavier Beulin represented the agricultural lobby.
“The LME changed the landscape for retailers, who now have to work harder to compete for market share: margins have never been so thin,” declared Carrefour’s Teulié. “But as far as our relationships go with the other partners in the food supply chain, we are all in the same boat. So we’ve all got to row in the same direction, otherwise we’re sunk.”
For Beulin, all French farmers, including those who supply supermarkets directly, have to be competitive within a European market. At present, they are losing market share to Germany, where wages are lower. “What preoccupies us is that ten years ago, food represented 16% of French disposable income: now, what with spending on telephones and the like, it is around 11%.”
Since many sections of French agriculture are struggling to survive on three elevenths of this household spending, the farmers want a slice of the eight percentage points that are currently shared out between food manufacturers and the retailers.
In the pig sector for instance, Beulin explained, animal feed costs have risen by 50% since June 2010. This constitutes a direct hit of 30% on the profitability of pig holdings, which are unable to support such sudden movements in costs.
The French food industry buys in two thirds of the country’s agricultural output and two thirds of its products are sold within France. Its members comprise over 10,000 firms, of which around 90% are SMEs, earning margins of between 0.5% and 2%, according to ANIA’s Buisson.
ANIA sits between two very powerful lobbies in French politics and wants to see better co-ordination in the way the current LME is policed. “At the moment the law is not enforced,” Buisson protested. In 2009, he said, ANIA’s membership reduced its prices to the retailers by 8%, but retail prices dropped by just 0.5%.
“Current negotiations are not going well,” he continued. “We are not low-cost suppliers, our businesses have basic needs to meet, too. We either apply the current law or we get another law passed.”
A 2010 law to modernise French agriculture (LMA) will require more farmers to supply their processing and manufacturing clients under contract, in much the same way as other food industry suppliers work with retailers. But, as Beulin pointed out, a contract does not level up the bargaining power across the table.
In many sectors, France has a number of vertically integrated national trade associations, called interprofessions. For some sectors, the interprofession extends from the primary producer all the way to the retailer.
Beulin is a supporter. “We would expect to fix sectorial standards and establish total transparency. We would also want those contracts to extend right down to the retail level: if we don’t involve the whole food chain in an end to end contract, then there is no point in having contracts to start with.”
Teulié reminded those present that Carrefour procures some two-thirds of its perishable agricultural products from French farmers. For the past 20 years, the multiple has been working with 20,000 farmers in a series of three year contracts, particularly in its meat buying. “This has generated incremental growth for those farmers,” he added.
For Beulin, however, input costs remain an insuperable obstacle. “If you look at the bottom of an airline ticket, you will see that it is indexed against the price of kerosene. Why not food?”
Since auction sales take no account of inputs costs, especially in the case of livestock, Beulin is rapidly coming to the conclusion that they are not a reliable measure of the investment made in the products that are sent to auction. Buisson concurred, since ANIA has argued that prices should reflect costs for years.
However, the retailer in the room demurred. “Establishing an index is not straightforward, we are working in a world market and France can’t just isolate itself,” Teulié argued, adding that such a system was likely to be a burden. “Besides, we have seen some suppliers’ demands double and they all put it down to raw material costs.”
The panel at the SIA event was asked to identify key concerns for the coming year. ANIA’s Buisson repeated his call for a better enforcement of the existing law, while Beulin urged “fairness, transparency and a win/win approach”.
Carrefour’s Teulié issued the following rallying cry. “If we don’t all work together, we’re all sunk!” Retailers and suppliers have one more week to find a compromise.