NFU price negotiation with British Sugar - competition law

[Grass And Grain]

I think farmers need to work together more. Strength in numbers. Balance the power between farmers and processor.

I'd like to see the British Farming Union help facilitate this, but it must be done within bounds of competition law. See attached document.

Question is, how is it legal for NFU to negotiate the price and contract terms with British Sugar? That's not meant to be a criticism of NFU, far from it. Thinking more along lines of can this be emulated (legally) in other sectors with other processors?

 

[carbonfibre farmer]

@robbie

 

[teslacoils]

There are few examples I can think of that are worse to demonstrate farmers working together than price negotiations with BS. My short years of farming have seen all sorts of moaning about the sugar price but still growing it.

What's the ownership structure of beet processing elsewhere in the world?

 

[teslacoils]

So, I was waiting for my cup of tea to cool down so I dug. Here is a potted brief of the worlds top bet producing companies, and their processing system and ownership.

......

Russia. 39.2mt (2013) 33.9mt (2020). Russias beet is processed in 73 factories. Many are highly vertically integrated with private companies growing the beet for their own factories

France 33.6mt (2013) 26.2mt (2020) 5 companies process French beet. Two are farmers cooperatives (2017).

USA 29.8mt (2013) 30.5mt (2020) Beet processing in the USA is 100% owned and controlled by farmer cooperatives.

Germany 22.8mt (2013) 28.6mt (2020) Beet processing is more regional and run by several priovate companies

Turkey 16.5mt (2013) 23mt (2020) 33 factories, of which 25 are state owned. The govt aims to privatise up to 14 of its factories. (2018)

China 12.1mt (2013) 11.6mt (2020) China is building 8 new factories in Inner Mongolia (2019)

Ukraine 10.8mt (2013) 9.2mt (2020) as with Russia, the 29 private factories have many owners and are vertically integrated

Egypt 10mt (2013) 13mt (2020) 7 factories are in private (3) and state (4) ownership. Currently the worlds largest beet factory is being built.

Netherlands 6.7mt (2020) Sugar production is all by a farmer coop.

UK 8mt (2013) 4 factories. One private monopoly owner.

......

So there is something of a split between the more historically state owned countries which have privatized their sugar industry with the factories and land often in private control. Then you have countries where the industry has developed steadily and is now in the hands of large farmer coops. Some countries have a more fragmented system.

And then you have here. With one monopoly private buyer. Just us. Nowhere else does this.

Hence to counter this, we have a special arrangement whereby the current dominant farming union negotiates the price for you all. And, like all good price takers, you either take it or leave it.

 

[Grass And Grain]

There are few examples I can think of that are worse to demonstrate farmers working together than price negotiations with BS. My short years of farming have seen all sorts of moaning about the sugar price but still growing it.

What's the ownership structure of beet processing elsewhere in the world?

So, I was waiting for my cup of tea to cool down so I dug. Here is a potted brief of the worlds top bet producing companies, and their processing system and ownership.

......

Russia. 39.2mt (2013) 33.9mt (2020). Russias beet is processed in 73 factories. Many are highly vertically integrated with private companies growing the beet for their own factories

France 33.6mt (2013) 26.2mt (2020) 5 companies process French beet. Two are farmers cooperatives (2017).

USA 29.8mt (2013) 30.5mt (2020) Beet processing in the USA is 100% owned and controlled by farmer cooperatives.

Germany 22.8mt (2013) 28.6mt (2020) Beet processing is more regional and run by several priovate companies

Turkey 16.5mt (2013) 23mt (2020) 33 factories, of which 25 are state owned. The govt aims to privatise up to 14 of its factories. (2018)

China 12.1mt (2013) 11.6mt (2020) China is building 8 new factories in Inner Mongolia (2019)

Ukraine 10.8mt (2013) 9.2mt (2020) as with Russia, the 29 private factories have many owners and are vertically integrated

Egypt 10mt (2013) 13mt (2020) 7 factories are in private (3) and state (4) ownership. Currently the worlds largest beet factory is being built.

Netherlands 6.7mt (2020) Sugar production is all by a farmer coop.

UK 8mt (2013) 4 factories. One private monopoly owner.

......

So there is something of a split between the more historically state owned countries which have privatized their sugar industry with the factories and land often in private control. Then you have countries where the industry has developed steadily and is now in the hands of large farmer coops. Some countries have a more fragmented system.

And then you have here. With one monopoly private buyer. Just us. Nowhere else does this.

Hence to counter this, we have a special arrangement whereby the current dominant farming union negotiates the price for you all. And, like all good price takers, you either take it or leave it.

The negotiated price is derisory (so not a good example to follow!), maybe that's because sugar's a commodity.

Best mate is ex supermarket buyer, and he says processor suppliers are few and far between, so they have negotiating power, but the processors are dominant over the fragmented farmers.

Need to get to grips with what can and can't be done under competition rules, then set-up the strongest possible farmer groups.

Wonder if BFU should be at the table instead of NFU, as beet prices have been poor. Or place BFU as an extra layer representing growers. If due to BS being monopoly, and it being OK for NFU to negotiate, maybe we start with beet.

 

[Grass And Grain]

Wonder what price Netherlands farmers get for their beet?

 

[Grass And Grain]

@Flat 10

 

[Andy Nash]

As an aside, why is British Sugar allowed to exist but the milk marketing board wasn’t?
If I remember correctly, the MMB was deemed uncompetitive and had to be disbanded.

I can’t remember exactly how the price paid to milk producers was decided, I think there was a committee with various interests represented under the overall control of the min of ag, but I do remember the howls of protest every year from the processors when the price they had to pay for ex farm was announced.

 

[kiwi pom]

No way a farmer co op to rival British sugar could exist?
Perhaps if the powers that be could see there were companies trying to compete, they would do something.

 

[wanton dwarf]

I think farmers need to work together more. Strength in numbers. Balance the power between farmers and processor.

I'd like to see the British Farming Union help facilitate this, but it must be done within bounds of competition law. See attached document.

Question is, how is it legal for NFU to negotiate the price and contract terms with British Sugar? That's not meant to be a criticism of NFU, far from it. Thinking more along lines of can this be emulated (legally) in other sectors with other processors?

Why would Competition law be applicable to Contract Prices before goods are grown ?

Obviously if Sugar Beet was not offered at a good price nothing would be set/grown and the quality of the crop would vary - which could affect processing.

No contract price - no crop - no end product. So I don't see this as an issue.

Farmers could of course grow a different crop - purely a matter of profits. However if you think the negotiated price is low then the obvious cure is to take part in the processing as a Co-op via vertical integration. Unless the ambition is there to actually make money all farmes will be doing is bumping along the bottom of the barrel whilst moaning.

The start really should be in energy production IMHO - which should be used to make Nitrogen in the first instance.

 

[Grass And Grain]

Why would Competition law be applicable to Contract Prices before goods are grown ?

Obviously if Sugar Beet was not offered at a good price nothing would be set/grown and the quality of the crop would vary - which could affect processing.

No contract price - no crop - no end product. So I don't see this as an issue.

Farmers could of course grow a different crop - purely a matter of profits. However if you think the negotiated price is low then the obvious cure is to take part in the processing as a Co-op via vertical integration. Unless the ambition is there to actually make money all farmes will be doing is bumping along the bottom of the barrel whilst moaning.

The start really should be in energy production IMHO - which should be used to make Nitrogen in the first instance.

I'm unsure of the exact nature of the law, but reading the file from the OP, it seems as though consulting with others to set prices or control of supply can be illegal.

Presumably the NFU are within the law, so I was using the BS example to try and identity what is/isn't legal, then see how that can be applied to other sectors.

e.g. why haven't all the B&B pig rearers joined forces to negotiate a minimum rate per pig.

Why haven't all the egg producers who supply a named processor, got together in a group to negotiate terms.

The crisp factory negotiates with the potato merchant for the season's price, then the merchant tells the growers what the price is. Take it or leave it. Why aren't all those growers in a group, employing a negotiator to negotiate the price, rather than being a price taker.

ABP will say what price they're paying this week for beef. Why aren't the farmer suppliers in a group to negotiate this with ABP, Dunbia, etc.

Here's what Sainsbury's do for pork products...

Each month suppliers have to tender their prices for sausages, belly pork, small leg joint, medium leg joint, large leg joint, 2 pork chops, 4 pork chops, etc.

If xxxxxxxxx are cheapest for 2 pork chops, they get a 5% uplift in volume. If Karro are the most expensive for 2 pork chops, then they lose 5% of pork chop contract for the next month.

Idea being Sainsbury's find the sweet spot of the lowest price they can get, yet suppliers don't go bankrupt. But Karro now have a whole load of pork chops left over each day for the next month, so come tender day they've to be competitive. They need to sell all parts of the carcass, so not getting full allocation of pork chops puts a dent in their margins, or they've to find another outlet.

The above method saved Sainsbury's millions of pounds, but puts downward pressure on margins for processors (and farmers!).

Can this concept be reversed, so the farmers are all in one big group for their pig sales, and the processors need to make their price bid for the week. If the processor isn't competitive, then their supplied volume is cut. Not sure if it works or not - whole load of logistical problems.

Point is though, farmers aren't generally negotiating their prices with the processors. Can this be changed for the better?

 

[Grass And Grain]

As an aside, why is British Sugar allowed to exist but the milk marketing board wasn’t?
If I remember correctly, the MMB was deemed uncompetitive and had to be disbanded.

I can’t remember exactly how the price paid to milk producers was decided, I think there was a committee with various interests represented under the overall control of the min of ag, but I do remember the howls of protest every year from the processors when the price they had to pay for ex farm was announced.

Presumably MMB was judged to be setting prices, which meant there wasn't true competition for milk pricing, so consumer could have been paying more than necessary.

BS are obviously a monopoly purchasing power for beet growers, although BS do have competition from Tate and Lyle for sugar supply.

 

[kiwi pom]

I'm unsure of the exact nature of the law, but reading the file from the OP, it seems as though consulting with others to set prices or control of supply can be illegal.

Presumably the NFU are within the law, so I was using the BS example to try and identity what is/isn't legal, then see how that can be applied to other sectors.

e.g. why haven't all the B&B pig rearers joined forces to negotiate a minimum rate per pig.

Why haven't all the egg producers who supply a named processor, got together in a group to negotiate terms.

The crisp factory negotiates with the potato merchant for the season's price, then the merchant tells the growers what the price is. Take it or leave it. Why aren't all those growers in a group, employing a negotiator to negotiate the price, rather than being a price taker.

ABP will say what price they're paying this week for beef. Why aren't the farmer suppliers in a group to negotiate this with ABP, Dunbia, etc.

Here's what Sainsbury's do for pork products...

Each month suppliers have to tender their prices for sausages, belly pork, small leg joint, medium leg joint, large leg joint, 2 pork chops, 4 pork chops, etc.

If xxxxxxxxx are cheapest for 2 pork chops, they get a 5% uplift in volume. If Karro are the most expensive for 2 pork chops, then they lose 5% of pork chop contract for the next month.

Idea being Sainsbury's find the sweet spot of the lowest price they can get, yet suppliers don't go bankrupt. But Karro now have a whole load of pork chops left over each day for the next month, so come tender day they've to be competitive. They need to sell all parts of the carcass, so not getting full allocation of pork chops puts a dent in their margins, or they've to find another outlet.

The above method saved Sainsbury's millions of pounds, but puts downward pressure on margins for processors (and farmers!).

Can this concept be reversed, so the farmers are all in one big group for their pig sales, and the processors need to make their price bid for the week. If the processor isn't competitive, then their supplied volume is cut. Not sure if it works or not - whole load of logistical problems.

Point is though, farmers aren't generally negotiating their prices with the processors. Can this be changed for the better?

IF you ever get farmers to negotiate, how do you get them all to agree and stick to a "fair price" That's the issue, there's always someone that will accept a lower price. Someone always sells out either because the bank says they have to or they have a lower COP and can make a profit with a lower price.
You're all competing against each other. Other wise it would be simple, everyone growing for BS could stand together and say no seed goes in this year until you re do the contracts.
Why doesn't that happen?

 

[Andy Nash]

No way a farmer co op to rival British sugar could exist?
Perhaps if the powers that be could see there were companies trying to compete, they would do something.

In theory, I suppose not.
The problem would be, assuming there is no statutory barrier to setting up a processing company, raising the finance to do it. And that is against the backdrop of reducing tariffs on imported cane sugar which is going to put increasing price pressure on uk produced sugar. So there is the chance that there could be nothing in the job anyway.
Having a brief read it appears that most first world countries have import tariffs on sugar to protect their domestic farmers. That bastion of free trade the US certainly does.

 

[kiwi pom]

In theory, I suppose not.
The problem would be, assuming there is no statutory barrier to setting up a processing company, raising the finance to do it. And that is against the backdrop of reducing tariffs on imported cane sugar which is going to put increasing price pressure on uk produced sugar. So there is the chance that there could be nothing in the job anyway.
Having a brief read it appears that most first world countries have import tariffs on sugar to protect their domestic farmers. That bastion of free trade the US certainly does.

I don't know what barriers there'd be and I do think there's a chance that there isn't much money in it but I do think, if farmers want more for their produce they either need to get better at negotiating and not stabbing each other in the back or own more of the chain.
Packhouse's, mills, abattoirs etc.
I don't think its a shortage of money, a quick read of TFF suggests there's plenty of diversification and money spent outside the farm gate. Why not spend it on the food chain?
Unless there really isn't any money in it and its the farming part that pays best?

 

[thorpe]

I don't know what barriers there'd be and I do think there's a chance that there isn't much money in it but I do think, if farmers want more for their produce they either need to get better at negotiating and not stabbing each other in the back or own more of the chain.
Packhouse's, mills, abattoirs etc.
I don't think its a shortage of money, a quick read of TFF suggests there's plenty of diversification and money spent outside the farm gate. Why not spend it on the food chain?
Unless there really isn't any money in it and its the farming part that pays best?

id hate the nfu to be negotiating my fodder beet prices! ill do that myself, thank you very much!

 

[wanton dwarf]

Can this concept be reversed, so the farmers are all in one big group for their pig sales, and the processors need to make their price bid for the week. If the processor isn't competitive, then their supplied volume is cut. Not sure if it works or not - whole load of logistical problems.

Quite obvious that would be illegal. It's anti competative and if it were allowed the obvious thing to do is keep increasing prices.

The only way to control excessive profits at the retail end is to become retailers - vertical integration.

You're also in the hands of processors and retailers for control of market share - they can always promote other products, even from different countries. Nor do you want to be painted as villians - which would be very easily done.

The obvious way to increase prices is to supply food at the highest prices possible - so that's gonna be fast food outlets at Sports venues, Music events, shows etc. The obvious way to supply that food is to run venues - Glastonbury etc.

The market is rigged against the lowest tier of supply. High prices are only gained during a shortage but it will never get to the levels of retail and retail has many different tiers - the best being fast food or fine dining.


I'm surprised it's even being mentioned. If you go down that route then UK farmers will end up with less market share and actively persecuted by HMG more than they are at the moment. You should be concentrating on market share - we only supply 50-60% of food, so increasing availability of UK food via storage, broadening seasonal availability and marketing. Own brands for retail using existing retailers. Retail outlets in areas of high demand - such as filling stations, railway stations, city centres, venues.

Then reinvesting some of the profits back into broadening retail outlets and eventually exports.

Quite disappointed TBH. I would say the position you are taking is music to the ears of the NFU - it will be a "Told you so" moment.

 

[Andy Nash]

I don't know what barriers there'd be and I do think there's a chance that there isn't much money in it but I do think, if farmers want more for their produce they either need to get better at negotiating and not stabbing each other in the back or own more of the chain.
Packhouse's, mills, abattoirs etc.
I don't think its a shortage of money, a quick read of TFF suggests there's plenty of diversification and money spent outside the farm gate. Why not spend it on the food chain?
Unless there really isn't any money in it and its the farming part that pays best?

Oh I think there is money in investing in processing and marketing produce, particularly if it brings the farmers and consumers closer together and removes the major multiples from the equation.
If there is something good that has come out of this pandemic it is the increase in trust that farmers are held in now rather than before, according to my observations.

To get a fair share of the value of their produce farmers have to do one of two things.
Process and market it themselves, either collectively as a co-op or an individual farm.
Sell through a properly functioning auction system where processors/ buyers compete to buy whatever it is you’re selling and the price paid is a true market price on that day.

I don’t know much about sugar beet, the sheer awesomeness of the climate on the Lancashire coast is probably too much for it.
I would say that selling to one buyer is always going to be a take or leave it situation. They will only pay enough to keep just enough farmers growing it to supply the factories and no more. There is no incentive to pay any more.
I don’t see how you can get them to pay more, unless you collectively threaten to put a certain tonnage through AD plants etc unless they pay a fair rate.

 

[wanton dwarf]

BS are obviously a monopoly purchasing power for beet growers, although BS do have competition from Tate and Lyle for sugar supply.

British Sugar is not a monopoly because farmers can always grow a different crop.

Beet Growers don't have to grow Beet.

You already have a future contract price which you can sell at the moment. You COULD theoretically setup a contracts system to link farmers to processors but that wouldn't work because commodities are traded on ships worldwide.

The only way to increase prices dramatically is to take money from further up the chain.

 

[wanton dwarf]

Sell through a properly functioning auction system where processors/ buyers compete to buy whatever it is you’re selling and the price paid is a true market price on that day.

A processor who NEEDS produce already has it grown on contract. Why would any processor or retailer put themselves in a position where their whole business is exposed to failure ?