It’s doubtful any chain has an equal distribution of bargaining power, says Kevin Hawkins
A few weeks ago, NFU president Peter Kendall made a familiar plea for supply chains that deliver "a fair share for all, with everyone making a margin".
The economic logic of improving the returns from farming is certainly persuasive. Better profit margins will help build farmers' confidence in the future, encourage investment in land, buildings and machinery and increase the long-term productivity of agriculture in the UK.
So what stands in the way of this? Greedy supermarkets? Fat cat shareholders?
Many farmers, including Peter himself, seem to think so. But what, exactly, is meant by "fair shares"? There is no objective measure of fairness. One can no more say what a fair return is for Tesco than we can for a middle-sized meat processor or a big cereal farm. A profit margin anywhere in the supply chain, however we measure it, is fair if the owner of the business feels it is. How does he decide? By comparing what he is making with what he thinks others are getting.
Prices at each stage of the supply chain are driven by the application of bargaining power. Margins are determined by the scale and efficiency of the business. The aim of "fair shares for all" implies some form of consensus on what those shares should be, sector by sector, and some means of delivering them on the ground. It also implies that the final consumer will pick up the tab. Perhaps Peter can explain how "fair shares" can be achieved in a fiercely competitive market without breaking competition law.
However, he now pins his hopes on the supposedly benign effects of regulation. Some enthusiasts for the Adjudicator believe that his decisions will result in better returns to producers and small suppliers. They are going to be disappointed. The Adjudicator is likely to have a tightly-defined remit to ensure that GSCOP is observed not to manipulate the outcome of private negotiations on prices and margins.
It is doubtful there is a supply chain anywhere in the economy that has an equal distribution of bargaining power between the various parties.
As long as producers negotiate as individuals, they will never attain parity with corporate customers, whether manufacturers or retailers. Decrying "exploitation" may be justified but there's no substitute for muscle at the bargaining table.
A few weeks ago, NFU president Peter Kendall made a familiar plea for supply chains that deliver "a fair share for all, with everyone making a margin".
The economic logic of improving the returns from farming is certainly persuasive. Better profit margins will help build farmers' confidence in the future, encourage investment in land, buildings and machinery and increase the long-term productivity of agriculture in the UK.
So what stands in the way of this? Greedy supermarkets? Fat cat shareholders?
Many farmers, including Peter himself, seem to think so. But what, exactly, is meant by "fair shares"? There is no objective measure of fairness. One can no more say what a fair return is for Tesco than we can for a middle-sized meat processor or a big cereal farm. A profit margin anywhere in the supply chain, however we measure it, is fair if the owner of the business feels it is. How does he decide? By comparing what he is making with what he thinks others are getting.
Prices at each stage of the supply chain are driven by the application of bargaining power. Margins are determined by the scale and efficiency of the business. The aim of "fair shares for all" implies some form of consensus on what those shares should be, sector by sector, and some means of delivering them on the ground. It also implies that the final consumer will pick up the tab. Perhaps Peter can explain how "fair shares" can be achieved in a fiercely competitive market without breaking competition law.
However, he now pins his hopes on the supposedly benign effects of regulation. Some enthusiasts for the Adjudicator believe that his decisions will result in better returns to producers and small suppliers. They are going to be disappointed. The Adjudicator is likely to have a tightly-defined remit to ensure that GSCOP is observed not to manipulate the outcome of private negotiations on prices and margins.
It is doubtful there is a supply chain anywhere in the economy that has an equal distribution of bargaining power between the various parties.
As long as producers negotiate as individuals, they will never attain parity with corporate customers, whether manufacturers or retailers. Decrying "exploitation" may be justified but there's no substitute for muscle at the bargaining table.
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