We pay more for our groceries than almost anybody else in Europe. Yet farmers don't seem to be doing very well from the system as it stands. So where is all our money going, and how likely are we to get a better deal at the supermarket checkout? asks CONOR POPE
IT’S HARDLY NEWS that the Republic is one of the most expensive places in Europe to live, but a survey published this week has still come as something of a shock, as it illustrates unambiguously just how much more it costs to live here than elsewhere in the EU.
The survey, published by Eurostat, shows that we have the second-highest prices for food and non-alcoholic drinks in the European Union – we have been kept off the top spot by Denmark – and that, despite more than 15 months of deflation, prices here are nearly 30 per cent higher than the EU average. In the UK, by contrast, prices are just 3 per cent above average.
Some of the top-line numbers are as shocking as they are inexplicable. Despite the fact that we make vast quantities of dairy produce, the Republic has, alongside Cyprus, the highest prices in the EU for milk and cheese, 37 per cent higher than the EU average.
We also live in one of the most expensive places to buy bread and cereals, with prices an average of 32 per cent higher than across the EU. Meat costs 20 per cent more; you’ll pay higher prices in only four other countries of the 27 EU states. What has left many people scratching their heads is the fact that retailers in the UK can sell their meat, including much that has been produced in the Republic, at a price that is just 2 per cent above the EU average.
It is almost impossible to get to the bottom of our prices, as there continues to be a chronic lack of transparency in the sector: the big retailers have consistently refused to reveal their profit margins here, claiming the information is commercially sensitive. Oddly, they seem not to be so sensitive about their profits in the UK; Tesco and Marks Spencer have no problem outlining their profit margins there. Considerably higher margins here may explain why some in the international retail game have dubbed the Republic “Treasure Island”.
When it comes to cigarettes and alcohol the statistics are even worse, although considerably easier to explain, as the high prices are largely down to higher taxes. Alcohol costs 67 per cent more than the
EU average – only Finland is more expensive – and we have the highest tobacco prices in the EU, at more than twice the average.
How do we compare internationally? Finland, Luxembourg, Austria, Belgium, Germany and France have prices between 10 and 30 per cent above the EU average; Bulgaria, Romania and Poland have prices between 30 and 40 per cent below it.
The reaction to the news has been entirely predictable. Government spokespeople have been on hand to trot out the line they have for all negative stories about high prices. “It is important for people to shop around,” they say. This is all well and good, but, with the big four retailers so keen on “price matching”, shopping around becomes almost pointless.
Retail Ireland, the Ibec group that represents the country’s shops, has poured cold water on the survey with a haste that might be considered unseemly. Its director, Torlach Denihan, says the Eurostat figures are out of date. “Irish food and drink prices have fallen considerably since the survey was carried out. In the last year food and drink prices have fallen 8.6 per cent, but today’s figures do not reflect this. Irish food prices are now back at 2006 levels.”
He says comparisons with the UK are also affected by the euro’s strength against sterling last year and the cutting of UK VAT rates. “Since the survey was conducted sterling has strengthened considerably, UK VAT rates have increased and Irish excise rates have been cut.” He claims that retailers have “responded aggressively to the new economic climate” and points out that labour costs, service charges and rents continue to be among the highest in Europe. He wants the Government to take “decisive action to get the Irish cost base back into line with the rest of Europe”.
In the other corner are the farmers. John Bryan, the president of the Irish Farmers’ Association, says the findings confirm that Ireland’s food supply chain is broken. He points out that UK food prices are much closer to the EU average than Irish prices are, but British farmers “are getting a higher price than farmers here. It is clear there is an urgent need to restore equity to the food supply chain, with average farm incomes a deplorable €12,000 and the retail multinationals making huge profits.”
Whether to blame our higher prices on bigger overheads or on retailers’ greed is an argument that has been raging for years, but it is not so simple, according to the Competition Authority.
Carol Boate, its advocacy manager, describes the survey results as disappointing and says they indicate the problems that have made Irish prices rocket over the past decade have not gone away. “While there are eight big retail chains in the UK, there are only four main players in the retail sector here, so we don’t have the same level of competition,” she says. “Irish companies are not as efficient, and that is another sign that competition is not as strong as it might be.”
Another significant factor is our planning policy. Walmart and Carrefour, two of the world’s biggest supermarket groups, have refused to open here because of restrictions on the size of the stores they can build.
“We have found that the planning system seems to be skewed against competition and seems to focus on the negatives,” says Boate. “The planning system says we don’t want these giant supermarkets. If that is the policy, then we can’t expect the same level of competition. What we need to do is to work out how to tweak the system so it is more cognisant of the benefits of competition.”
She says that farm prices are much the same as they were 20 years ago yet supermarket prices have climbed significantly. “That does suggest that there is more profit being made by retailers, but it also suggests other things. I don’t want to let the retailers off the hook – we certainly don’t have enough players in the market – but the polarisation of the debate between farmers and retailers is an oversimplification,”
she says, pointing to inefficencies in the wholesale and distribution systems as other factors.
Alan Matthews, professor of European agricultural policy at Trinity College Dublin, is unsurprised by the report. He says Irish consumers’ willingness to pay more for branded products, an absence of discount stores, the higher cost of doing business, a lack of competition, profit-taking and structural issues have contributed to higher prices. He says the higher cost of doing business in Ireland has been overstated by Ibec and points out that while general prices for goods and services are higher here than across Europe, food prices are higher still. “What is interesting is not so much that food prices are higher than the rest of the EU but the fact that food prices are even higher than [those of] general goods and services. There is something in the food market which cannot be explained by the general cost levels, which affect everyone.”
He also says structural issues have been overstated and points out that high prices were uncommon until the mid 1990s. “We were still an island back then, and we could not benefit from economies of scale, and we had all the same structural issues we have now.”
He is critical of the Competition Authority. “They were tasked to keep an eye on grocery prices, and they did produce a couple of grocery-monitoring reports, but then they stopped.”
Food producers have been lobbying hard in recent months for a code of practice for supermarkets in Ireland. The IFA argues that a statutory code and a retailing ombudsman are needed to eliminate abuses by supermarkets. The Competition Authority is not so sure. “Our concern is that it might raise prices more,” says Boate “and it is not clear that it solves the problem. If the code is about making sure farmers get a better price, then who is going to pay that price?”
