The Competition Council (CC) analysed the market for eggs, fish, dairy, meat, grain and bread products, taking into account the aggravated situation in the food sector and rising retail prices. In the final part of its study on the meat, egg and fish markets, the CC found that goods produced in Latvia were on average subject to higher mark-ups in the retail supply chain than goods produced outside Latvia, and that there were deficiencies in retailers’ cooperation agreements with suppliers. Therefore, the CC calls on purchasers, including retailers, not to abuse their purchasing power, to be vigilant and not to violate the fair trade practices set out in the Prohibition of Unfair Trading Practices Law (PUTPL) against their suppliers.
Juris Gaiķis, Chairman of the CC: “The cost of food production increased rapidly due to the Russian war in Ukraine and the shortage of raw materials, the energy crisis and inflation, and so did the final prices of food products in the shops, the impact of which was felt by every consumer. Therefore, the Competition Council launched a study on the markets for eggs, fish, milk, meat, grain and bread products in 2023. With this publication of the final market surveillance report on meat, eggs and fish, which forms the third part of a large study, we have obtained comprehensive data on price formation and transmission from farmer to producer and from producer to trader, while assessing whether there are any signs of unfair trade or other anti-competitive conditions. We have discussed the data with industry authorities, producers and traders and hope that it will serve as a reliable source for policymakers to make data-driven decisions and for participants in the food supply chain to work together in good faith.”
Pricing of Latvian and non-Latvian products
During its market surveillance, the CC found that the Latvian Doctor’s sausage, fresh chicken and fresh fish are, on average, subject to a higher mark-up at the retail stage than equivalent non-Latvian goods. For example, Latvian Doctor’s sausage was on average priced 16% more expensive than non-Latvian Doctor’s sausage. However, the mark-up applied to domestic fresh chicken at the retail stage of the supply chain was on average 196% higher than for imported chicken.
In the study, the CC also found that on average retailers priced certain domestic meat, egg and fish products cheaper than non-Latvian goods. In particular, fresh pork produced in Latvia was on average priced 1.64% cheaper than non-Latvian products during the period under review. At the same time fresh pork produced in Latvia was priced 140% more expensive than non-Latvian products during the period from January to April 2022 and from April to May 2023.
However, the differences found in the mark-ups of imported and domestic meat, eggs and fish products are not as significant as those found by the CC in previous studies for dairy products, bread and grain products.
Retailers’ private label and independent pricing
The CC found in its market surveillance that the purchase prices of private label products – fresh pork, Doctor’s sausage, fresh chicken, eggs, fresh fish – produced by a producer for a retailer as a private label product of a retail store are significantly lower than the purchase prices of equivalent independent brand products.
Often the supplier produces both the retailer’s private label goods and the manufacturer’s own brand goods at the same time, which are identical in composition. The production costs of such goods are equivalent, but their purchase prices differ significantly. It is at the production stage that all the product’s production, packaging and other costs are accounted for. However, the CC found that an increasing share of the mark-up is generated at the retail stage.
Consequently, retailers, given their market power, need to be particularly careful to ensure that they treat their suppliers fairly in situations where the same supplier produces both private and own brand products, which are also identical in composition, and not engage in prohibited practices under the PUTPL or practices that do not comply with the requirements of good faith and fair dealing.
Deficiencies were found in cooperation agreements with suppliers
The CC analysed all available contracts between purchasers of eggs, fish, milk, meat, grain and bread products and their suppliers in the final part of its market surveillance.
In analysing the contracts submitted by the purchasers and suppliers, the CC found that in some of them, the purchasers had incorrectly indicated the maturity criterion for agricultural and food products. Therefore, the CC invites purchasers to set the starting point for the payment deadline for agricultural and food products in the terms of their contracts with suppliers as the date of delivery of the goods rather than the date of issue or receipt of the accompanying documents.
The CC found that purchasers have the right to unilaterally amend contracts when agricultural and food products are delivered in inadequate quality, or when suppliers fail to fulfil their obligations properly and cannot remedy breaches of contract, and purchasers have the right to unilaterally amend price lists for marketing services. The CC calls on retailers to carefully assess the information provided to suppliers on procurement forecasts for new and unknown agricultural and food products in order to avoid returns of agricultural and food products and thus shift the economic risks to the supplier.
In certain contracts, the CC found that, compared to non-Latvian suppliers of agricultural and food products, contracts of Latvian suppliers provided for significantly higher penalties for non-compliance with quality and safety requirements and for breaches of trade secret rules. The CC calls on retailers to review the terms and amounts of contractual penalties for non-compliance with quality and safety requirements and for breaches of trade secret rules in their contracts with Latvian-registered agricultural and food product suppliers in order to balance the economic risks between Latvian and non-Latvian agricultural and food product suppliers. The CC also reminds that, in the context of assessing the proportionality of the amount of the contractual penalty in their day-to-day cooperation, market participants may use the self-assessment tool developed by the CC for purchasers to assess fair trade practices and to apply reasonable contractual penalties.
INFORMATION:
The market surveillance of meat, eggs and fish products is part of the CC’s comprehensive market surveillance of eggs, fish, dairy, meat, grain and bread products launched in spring 2023. The study covers the period from January 2021 to May 2023. The CC assessed cooperation between suppliers and retailers, as well as the correlation of price changes along the supply chain and retail price volatility. In total, data were requested from 28 retailers and 40 manufacturers/suppliers from within and outside Latvia. In total, more than 100 000 pieces of data from the first round and more than 70 000 from the second round have been analysed.
See Part I of the study on the dairy market HERE. See the summary HERE.
See Part II of the study on the grain and bread market HERE. See the summary HERE.
See Part III of the study on the meat, egg and fish market HERE.