The EU Commission does nothing about the food retailing oligopoly

José Manuel Barroso, President of the European Commission on the right and Staffan Nilsson – EESC President, meet at the Plenary EESC session of 13-14 February 2013. (EESC photographic gallery).

The theoretically most competitive of all EU markets, namely the large food retailing business, is accused by its suppliers, regrouped in the European Economic and Social Committee (EESC) of operating a real oligopoly. Despite this very important development, which poses an issue with ground-breaking repercussions on the way our ‘free competition’ economies operate, the European Commission out of an ideological distortion insists to ‘liberalise’ everything, including the most monopolist prone activity, which is the distribution of water.

It is really an exasperating mental attitude by certain Commissioners that reaches the limits of psychopathy or even the ultimate colpo grosso. The ‘catch 22’ in this affair is that liberalisation leads straight to oligopolies or monopolies, if it hasn’t destroyed everything before reaching there.

Ideal competition exists only in the minds of some idealist economist who support their views with the well-known ‘long run arguments’, advocating that in the long run markets can self-regulate and find new equilibrium position. The truth is, however, that markets are never at equilibrium. They either go up or down. In any case ,this ‘long run’ argument has been effectively answered by John Maynard Keynes who once replied that, “in the long run we are all dead”. What the great economist meant, is that if markets are left uncontrolled and unguided they can destroy everything when a crisis breaks out, and we will all be ruined before the market regulates and repairs itself by its own means, which is free  competition.

Oligopolistic food retailing

Now, in the case of the food retailing business, the almost total freedom this market enjoyed during the past thirty years has presently led to a dreadful oligopoly. Obviously, in the food retailing market competition worked rather unobstructed, until there remained only a handful of operators, after they absorbed or destroyed every other significant player of smaller size. Mind you, this is the largest single market and has become a source of abundant liquidity for its main operators. Super markets sell for cash and buy at long credits. Think of that. This fact makes the food retailing sector a valuable ally to the banks it works with. Those two sectors together can practically set the rules of the game to our modern societies. And they do it.

Oligopoly is the name of the game

But let’s see what the European Economic and Social Committee has to say. As a matter of fact, the EESC issued a warning this week, that needs to be taken very seriously, not only by the European Commission but by all European Union governments. In a far reaching statement the EESC described how the big food retailing firms, which dominate the daily lives of us all, are exploiting their position and use every available means to suppress their suppliers, that is the thousands of small food processing and producing firms and the farmers. The basic points of the relevant announcement are being quoted here below.

{Retailers’ abusive practices are hastening the decline of the agro-food sector.  A distorted market affects consumers as well as suppliers. On 13 February, the European Economic and Social Committee (EESC) endorsed an opinion to put an end to these dramatic shifts which are exacerbated by the economic crisis.

“It is a fact that a handful of retailers control most of the market and impose their own terms on suppliers. Contractual freedom is a notion that exists only on paper. This is an illegal oligopoly which is causing a distortion of the market, with a widespread abuse of buyer power. The EESC wants to put a stop to this situation”, says Igor Šarmír (Employers’ Group, Slovakia), rapporteur of the EESC opinion on the Large retail sector.

… Self-regulation has not worked at either EU or national level. The EESC therefore calls for a binding legal text to be drafted as a matter of urgency, for fair competition to be encouraged and for action to be taken against illegal oligopolies.

The abusive and anti-competitive practices which large retailers impose on their food suppliers reflect a lack of any real contractual freedom. As a consequence, the inability of certain suppliers to meet the requirements of large retailers and the resulting economic difficulties are contributing to the decline of the agro-food sector in several countries. Certain Member States, which were once self-sufficient in terms of foodstuffs, now no longer enjoy food security.

According to market share statistics, 84% of European suppliers to the large retail sector were victims of a breach of contract in 2009, 77% were threatened with product delisting unless they gave the supermarkets unjustified benefits, 63% saw a reduction in their invoice price for no valid commercial reason, and 60% were forced to make payments for which they received nothing in return}.

This is a real proclamation denouncing an on-going crime. Unfortunately, this is not a development of the past few years. It has worked its way through from decades. It started with the extinction of the neighbourhood grossers in the 1960s and the 1970s and led to the Americanisation of our European societies. Super markets are today the trade mark of our modern economic structures. Food retailing business also constitutes the exemplary market, where one can study the procedure and the end image of a competition led process. Seemingly, the food retailing business has reached an end structure where there is no more completion let alone free. It is the second market that our societies have to accept that it has reached its end structure and the most of the existing firms have become ‘systemic’. Not only any trace of competition has disappeared but the few remaining operators working together have developed a sense of absolute authority.

The problem is, however, that the competent authorities in Brussels and the national capitals do not seem to consider all that as a serious threat to consumers. The EESC press release didn’t even make it to main stream media. If nothing changes food retailing will become the second crucial sector of our economies to ‘freeze’ at its present business arrangement, with the main players to become ‘undead’ as it has happened with banking sector.

Unfortunately, the oligopoly problem that the EESC denounces at a very loud voice does not characterise only the food retailing business. Much more prone to oligopoly and monopoly are almost all markets with some of them having already attained this level. A deplorable example is the financial industry. It is quite frustrating, however, to see and hear the authorities, that is the people officially responsible to protect the society from monopolies and oligopolies, to shamelessly characterise some banks as ‘systemic’. They mean by that those private businesses cannot die and what is even more deplorable the working people, the society as whole, must subsidise them, replenish their capital accounts and restore their liquidity. Will the next step of the Commission be, to tell us that there are ‘systemic’ super markets too?

The full text of the EESC opinion on the Large Retail Sector is available at:  http://eescopinions.eesc.europa.eu/viewdoc.aspx?doc=ces/nat/nat571/en/ces1887-2012_00_00_tra_as_en.doc