The familiar story of giant retailers putting pressure on small food producers played out again this week when Dublin Meath Growers brought its case against Tesco to the Oireachtas
A YEAR AGO today, Dublin Meath Growers (DMG) opened its €4.8 million plant in north Co Dublin for packing, storing and grading vegetables and salads destined for kitchen tables through the land.
It was a proud moment for the growers and for the area generally, which is home to the largest horticultural industry in the State. What was established by local growers as a co-op in 1987 to cut out the middleman had grown over the years to become one of the biggest suppliers of fresh vegetables to the biggest retail chain in the country, Tesco Ireland.
And therein lay the rub. Business grew from €3 million to €30 million within a decade, but 90 per cent of it was with Tesco. DMG was riding the crest of a wave but the wave was owned by Tesco, the third biggest retailer on the planet.
The launch party went well. Local Green Party TD and Minister of State for Food and Horticulture, Trevor Sargent, congratulated the growers on their expansion. DMG expressed confidence about further expansion into the future. Kenny Jacobs, Tesco’s marketing manager, spoke of their mutually beneficial relationship and wished the growers continued success.
“Tesco Ireland’s partnership with DMG has been a success story too and hopefully one that will grow and grow and stay as fresh as when it started,” he punned.
Perhaps if they had reason to be more fearful for the future, the growers might have spotted what was to come in some of Jacobs’ other remarks. “Life in retail does not stand still,” he said; business must evolve to meet consumers’ demands.
He talked about offering consumers a “constant” supply of Irish vegetables at competitive prices. Nothing wrong with that – except that growing most vegetables in Ireland is a seasonal business.
OR AT LEAST it used to be; Jacobs also told the gathering how Tesco had got DMG to extend the growing season of many Irish vegetables. Swedes, he pointed out, used to be grown from August to March but are now supplied locally all year round.
Things unravelled pretty quickly after the launch, as Colm Warren of DMG told the Oireachtas Joint Committee on Enterprise, Trade and Employment during the week. Just two months later, Tesco told the growers they were too expensive and ceased trading with DMG in February 2009.
DMG was left with debts of €600,000 and a state-of-the-art but idle plant. From employing 80 staff, it was reduced to just two or three voluntary members.
Warren told the committee he wasn’t motivated by a desire for revenge but there was no denying the calculated anger in his contribution.
“We were bombed out by what occurred to us. It was totally ruthless because we had been encouraged to put €5 million investment into this building.”
Some might see in this tale a lesson in the behaviour on voracious capitalism. “Until the predatory actions of huge conglomerates are ended there will not be any real developments in horticulture,” Warren told TDs. “We will have to have a straight pathway to the Irish consumer, one which is fair and recognises the work and effort put in by growers.” Others might smell sour grapes; Tesco says DMG was simply outbid in a fair tender process. The business went to Total Produce, part of the huge Fyffes group and, the retailer says, local farmers were not affected.
What is clear is that this isn’t an isolated story. Suppliers up and down the country are fighting a white-knuckle battle against the ever-increasing demands of big retailers. DMG went public because they were “bombed out” but most others have kept their heads below the parapet for fear of being blacklisted by the retailers.
A leading potato grower told The Irish Timeshow he had upgraded equipment to meet the demands of his main customer, a multiple, only for the retailer to pull the plug shortly afterwards. Having since regained some of his business with the multiple, he declined to go on the record.
The war is particularly acute in the farm sector. Fresh produce spoils quickly so growers can’t just leave it in the warehouse while waiting for trading conditions to improve. A number of TDs at this week’s meeting spoke of their distress at the sight of cauliflowers being ploughed back into the land because they couldn’t find a buyer at a sustainable price.
BESIDES, WE ARE supposed to be a “food island”, aren’t we? Yet there are no more than 300 commercial growers left in the country and most of these are in difficulty. John Dockrell, chairman of the IFA’s vegetable growers’ committee, says the industry faces disaster unless action is taken in the next few months.
“If we lose a number of key players, or even small players, this year and the problem escalates to the point that we lose several more players next year, we will not have the critical mass required to sustain the supply chain. Without such critical mass, there will be no need for Irish produce.”
Bad weather and the credit crunch have played their part in the current crisis, but the retail price war is making a bad situation worse. By turning the screw on their suppliers, the retailers are forcing producers to sell goods at near or even below the cost of production. Even when they sell cut-price goods as loss leaders, the producers suffer, because rival retailers then demand cuts in their prices so they can price-match.
In the case of DMG, Tesco changed from using a seasonal price for seasonal produce to demanding weekly quotations, Warren explained. If its quote wasn’t accepted, DMG had to tell the grower to store the crop for another week – if that was possible – until the next tender. The crops risked spoiling and its staff were left twiddling their thumbs.
What happened to the growers is eerily similar to the tales related in Charles Fishman's book on The Wal-Mart Effect, which details the fates of suppliers whose companies grew on the back of contracts from the world's biggest retailer but were ultimately cut adrift. Fishman shows how many small entrepreneurs started working for themselves but ended up working for Wal-Mart as it relentlessly cut costs and squeezed its supplier base. "Wal-Mart chewed us up and spit us out," one rueful ex-supplier commented.