Is the Power of the Food Retailer Trumping All?



By Shaun Haney

We hear a lot nowadays about value chains, the integrated food system and the farmers incredibly important role in it. How many time have you heard the term, “Gate to Plate?” I can buy into this concept as long as all participants are getting a fair return for their investment in the process.

I tend to catch up on my reading when I fly. I was flipping through a Business Week on a flight to Winnipeg this month and I spotted the article entitled, “Wal-Mart Wants More Buying Clout.”

I say what?????  I continued reading…..

“Wal-Mart Stores (WMT) purchasing chief Hernan Muntaner has a dream: teaming the giant retailer with soda and snack maker PepsiCo (PEP) to buy potatoes jointly for a lower price than either company can get on its own. That would allow both to earn more money on the chips and spuds they sell in Wal-Mart’s supermarkets. So far, Pepsi isn’t playing along. But with sales slowing in the U.S. and the price of sugar, meat, and wheat on the rise, the world’s largest retailer is jointly purchasing a growing share of raw ingredients with manufacturers of food and household products sold in its stores. Products already being purchased with suppliers include sugar, which goes into the company’s store-brand soda and five-pound bags, and paper, used in Wal-Mart’s back-office printers. Muntaner envisions a day when his company will do it with most goods it sells.” SEE THE WHOLE  STORY

So much for the idea of value chains.  I frequently hear farmers comment in disgust about livestock packers or grain companies trying to screw them and keep prices artificially low.  I believe that farmers need to be pointing their arrows at the power of retailers and not processors or handlers.  Companies like Costco and Wal-Mart have so much size and scope they are trying to squeeze Pepsi.  You heard me, I said Pepsi.  Pepsi is not a small company that is the little engine that could.  Pepsi is a food and drink global giant.  If these retailers can squeeze and force Pepsi into a corner, where does this leave the farmer?

If Wal-Mart and Costco are able to stiff arm companies like Pepsi or Cargill, farmers across North America are in BIG trouble.  The story continued…….

“When you put the volume together of what we bought and what [suppliers] bought, and buy from just one supplier, you can reduce the cost.”

Just a heads up that the above quote is not adding anymore money to your farms bottom line.  This whole issue of pooling purchasing power of processors and retailers does raise some interesting questions.  There has been a real push to get rid of marketing boards in poultry and dairy.  There is also pressure to extinguish the Canadian Wheat Board in Western Canada which pools farmers grain in an attempt to achieve higher pricing.  Would getting rid of these pricing strategies allow farmers to fall right into the hands of pool buying retailers?  I think thats a separate controversial discussion by itself.

I think farmers need to wise up and realize that we need to make sure that companies like Pepsi understand the value and contribution we make to this supposed value chain.   In the summer I heard Chandler Keyes the government affairs rep from JBS talk about the crippling power of the retailers in the protein market.  This is JBS!!!  In case you live in obscurity….they are a bloody big global company.

Another path for farmers to consider is educating the consumer on what purchasing cheap food from Wal-Mart and Costco really means for North American farmers.  Based on the size of our largest food retailers I don’t think you can influence up the chain.  We need consumers to push the retailers in the direction of supporting farmers and not try to crush them.  We have all heard stories of companies that have struggled to meet WalMart’s constant cost demands on suppliers.  As farmers, we need consumers on our side to drive profitability.

Next time you hear a neighbour talk about the power of the packer, grain company, or food processor extend the conversation to discuss the REAL power of retailers.

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