In May 2019 the European Commission presented a proposal to step up the collection of prices of agri-food products at different stages along the supply chain to see how prices are determined. This proposal is the third element of the initiative to improve fairness in the food supply chain after recently adopted new rules banning unfair trading practices and improving the conditions for producer cooperation.
The European Commission proposes an extension of price reporting for most agricultural products in all its variety for all economic actors of the value chain on weekly and monthly bases. According to the EC, this measure will address a lack of transparency and information asymmetry in the food supply chain and will strengthen farmers’ position in the food supply chain by supplying farmers and producer organisations with accurate and timely market data. It is expected that greater transparency will allow different actors to make more informed choices and improve the understanding of price formation and the development of trends along the food chain.
The justification for an extended price reporting is misguided and weak. This proposed measure is unlikely to achieve the desired goal of strengthening farmers’ position while triggering a number of unintended consequences.
The proposal
The proposed price reporting will apply to the meat, dairy, wine, cereals, oilseeds and protein crops, fruit and vegetables, olive oil and sugar sectors. The collection of data will rely on systems and procedures already in place, used by operators and Member States to report market information to the Commission. Each Member State will be responsible for the collection of representative prices and market data. Member States will submit the data to the Commission, who will then make the information available on its agri-food data portal and EU market observatories.
A relatively high level of public information on producer prices and consumer prices, volumes of production and trade, etc. is already available from statistical offices in Member States. It is claimed, however, that there is little information available on markets that operate between farmers and consumers such as food processing or retailing. It is further argued that this creates an asymmetry of information between farmers and other actors of the food supply chain and can put farmers at a significant disadvantage when doing business with others. Therefore an extension of price reporting is expected to address these information gaps, in particular where sectoral food supply chains are complex.
The measures are to be adopted by the Commission and are due to apply from 1 January 2021. Member States will be expected to describe the methodology for setting representative prices and to approximate their methodologies to ensure the best possible comparability of the data across Member States.
The case against price reporting in the food supply chain
- While farmers’ position in the value chain is weak, a price database is also a weak background for strengthening that position. Agriculture operates on a different basis than the rest of business in the EU. It is supported, subsidized and treated in an exceptional manner. And yet, this secures neither high efficiency nor a strong position of the main actors in the sector. The present policy does not result in empowering farmers’ businesses, and the proposed new measures are along the same lines of administrative interferences.
- The agricultural market is already inefficient and the proposed measures will make it even less so. Market prices are permanently changing and a real product value resembling indicator, which registered, fixed and influenced by non-market forces distorts information along the value chain and results in diminishing efficiency and abstinence from innovation.
- Product price formation is an essential part of business. It differs depending on the complexity of business, its stage of development, size, type, locality and other specifics of business as well as the current business environment: the market size, the level of competition, consumption patterns, and the situation in the economy (growth, stagnation or recession). Thus, price reporting will affect not only the price of the products, but overall business decisions. It will inevitably lead to different solutions as to what to produce.
- If the price formation process becomes explicit and business confidentiality is abandoned, competition mechanisms cease to function properly. This is how cartels are formed and what private entities are heavily fined for. In this case a cartel would be formed by legislation.
- As a further outcome of price formation disclosure, a risk of price regulations is likely to evolve. This is especially likely given that “fairness” is indicated among the goals of the proposal. Price control contradicts the fundamentals of the present economic set-up in the EU and would make the agri-food sector even more disadvantaged among investors and innovators.
- Price transparency does not necessarily imply trust. It can narrow and distort consumers choice. As inner processes of modern businesses are extremely complex (firstly, due to abundant regulations, both EU and local, and secondly, due to global competition), it is impossible for consumers or businesses to understand and estimate all costs and risks along the value chain. If consumers – both end users and intermediates – do not understand the costs, they cannot not appreciate price differences, and this may lead to an overemphasis on low prices. This especially harms innovative, organic, healthy and quality food and promotes cheaper food. As such, all this contradicts the overarching goals of population health and chronic disease prevention as well as sustainable agriculture.
- Price transparency does not necessary leads to better informed decisions. Given rather substantial price sensitivity to seasonality and yearly changes, a price database can also be a very misleading source of information. This is especially true for such consumption sensitive businesses as agro-business.
- The amount of data and reporting frequency foreseen in the proposal are very extensive. That will lead to an increase in the administrative burden (even if organized in a highly efficient way, which is hardly likely in many cases) both for food market participants and administrative institutions. The efficiency of the whole sector will decrease and the costs will rise. Moreover, producers and retailers are also of different size and market power. All additional reporting requirements as well as price formation disclosure will unproportionally harm smaller farmers, producers and retailers in comparison with bigger ones.
- The proposal envisages reporting only representative prices (such as prices from main markets and significant operators) so as to enable Member States to pursue a cost-effective approach for their reporting and contribute to keeping the administrative burden for small and medium-sized enterprises to a minimum. It should be noted that selecting representative prices is always an arbitrary action. For standardized products, it can better reflect the reality, but products that are the most natural and valuable in terms of population health are not standardized. A representative price system would force them to get standardized and lose a significant part of their value added.
- There is a lot of data reported by business in general and agro-business in particular already. Different classifications are employed, administrative resources are used, it is not a rare practice that different things are compared as similar. Additional new data to be provided by a new system will increase both the burden and confusion because of contradicting and incomparable data.
- Farmers’ power can only increase if the production and retail markets are more competitive. In order to make the production and retail markets more competitive, favourable conditions for these businesses are needed, most importantly a lower administrative burden and less price distortion from interventional measures. This would lead to a higher market diversification in terms of quality and price and so to a greater consumer choice.
Conclusion
The proposed measure of extending price reporting is misguided and is not likely to achieve the desired goal of strengthening farmers’ position. In addition, it will entail a number of unintended consequences which will harm food value-chain participants and consumers alike and will put agriculture at a bigger disadvantage in terms of investment and innovation than it already is. While adopting this measure, Member States should take into account its limitations and likely repercussions beyond the expected objectives and should consider its implementation to the least extent possible.
