Report exposes power imbalance in agri-food sector

Earlier this week the agri-food regulator released its second annual supplier survey, opening a window into what had been the relatively secret relationships between suppliers and the big grocery retailers and wholesalers.

An Rialálaí Agrabhia was set up in December 2023 with the aim of providing additional insights into price and market analysis across agri-food sectors.

A major part of achieving this goal is the supplier survey, which provides feedback on more than 1,300 trading relationships between nearly 500 suppliers and eight of the biggest players in the retail grocery sector (Aldi, BWG Foods, Dunnes Stores, Lidl, Marks & Spencer, Musgrave Group, Sysco, and Tesco).

The research looks at the supplier-retailer relationship in the context of laws around unfair trading (legislation stipulates 16 specific Unfair Trading Practices - or UTPs for short).

Some of the more serious UTPs - called unconditional black UTPs - include things like late payments, cancelling orders at short notice, and buyers requiring suppliers to pay for product losses even if the supplier wasn't responsible for the loss.

Overall, the regulator found a high level of compliance with unfair trading regulations, although one in nine respondents reported being subject to a UTP (down from one in seven last year).

However, in the anonymous study, suppliers still reported some serious issues when dealing with supermarkets and wholesalers - the main ones relating to cancelling perishable product orders at short notice, late payments, and a fear of backlash for reporting unfair trading.

The regulator's report found that while the relationships "tend to work well on the surface... beneath this, there are wider system-level pressures that shape how these relationships actually function".

Rising costs that suppliers cannot fully pass on, pricing and decision-making power sitting largely with buyers, fixed-payment processes, and limited negotiating leverage for smaller suppliers are some of the big pressures cited.

As a result, the research suggests suppliers "do not always feel they are operating on equal footing, they can lack clarity or visibility on decisions that affect them, and in some cases the financial strain makes it harder to sustain their business over time".

While noting this situation does not seem to be the norm, the regulator notes these pressures are "compounded by power imbalances, inconsistent access to buyers, and gaps in communication, which can hinder effective engagement and resolution of issues".

'Too small to complain'

Some of the specific testimony of suppliers lends more weight to the perception of a power imbalance:

• "Because their forecast system is not too great, it sometimes gives us immense pressure."
• "No communication on who buys our products so can't educate the staff."
• "Very limited contact and can be unreasonable."
• "Buyer interaction is often via email and sometimes there's no response."
• "We are too small to complain."

Pricing pressure

The supplier survey findings also reveal issues around product pricing.

Respondents told the regulator of "unrealistic downward pressure on pricing by retailers" as well as price increases due to climate change and wage increases not being accepted by retailers, leading to margins being squeezed and ultimately to staff being laid off.

"Even if there are some changes in costs over the coming year, the repercussions of the costs from 2025 will seep into 2026 with buyers looking for a reprieve," another supplier noted.

Based on the responses, An Rialálaí Agrabhia concluded that in many cases buyers control "if, when, and how prices change" and that "larger players [are] more cushioned but still impacted", while "smaller suppliers absorb greater risk and are less able to pass on inflation".

In terms of delays in buyers paying suppliers for goods, the regulator said "distributor-led models extend payment timelines further" and that this is "particularly problematic for smaller suppliers".

Larger suppliers, it said, "can push back using legal and commercial leverage and they know this" but smaller suppliers "have less buffer, less opportunity to delegate and greater financial exposure".

Because of this, the report says their willingness/need to compromise increases.

The fear factor

Meanwhile, some of what smaller suppliers in particular told the regulator point to a potential culture of fear in terms of the relationship dynamic.

In fact, An Rialálaí Agrabhia said it believes there's a fear factor that prevents suppliers from raising unfair trading practices, leading to many potential UTPs going unreported.

The main reasons cited by suppliers for not reporting unfair trading were a fear of retaliation from retailers (e.g., having their products delisted), concerns that the regulator might reach out to a buyer and reveal the reporting source and expose them, and a fear that even if the regulator doesn’t mention the supplier by name, suppliers feel it could be easily guessed.

"We can't risk losing the business at this point" and "I would be unsure of the anonymity of the process" were just some of the anonymous responses offered on the matter.

What also came up in the research was that many suppliers aren't even sure how to report an issue they're having with a buyer, as well as a lack of clarity over the process.

This - coupled with the fear of a buyer finding out a supplier has reported them for unfair trading - means reporting a UTP is "viewed as a last resort", according to the study.

The regulator said some suppliers only take action "if there’s a risk of severe commercial harm... or engagement with [a] buyer is not resolving the issue".

An Rialálaí Agrabhia: A comforting presence

An Rialálaí Agrabhia is still a relatively young State body but already it says suppliers describe it as a "comforting presence" in the sector, especially for smaller operations.

Although, some of them are still figuring out how best to make use of its processes, including the option of reporting unfair trading.

"There remains some uncertainty about how to engage in this process," the regulator acknowledges in the supplier survey report.

Chief Executive of An Rialálaí Agrabhia Niamh Lenehan said there is still much work to do to "ensure that all suppliers feel confident in raising a potential breach of the UT regulations".

The survey also said that beyond the reporting of UTPs, "wider commercial issues (such as pricing disputes, pressure to absorb cost inflation, and delisting) are prevalent and suggest that challenges extend beyond the current regulatory lens".

However, there is scope for that lens to expand in the near future.

Later this year, in December, the regulator will be granted increased powers to compel businesses to provide relevant market data to help it improve transparency across agri-food supply chains.

The changes will allow the independent State body to compel agri-food businesses to provide it with data around pricing, supply chains and salaries.

It will also be able to issue fines for non-compliance.

These enhanced powers could prove decisive in giving the agri-food regulator greater standing in terms of its oversight role, as the body has up to now repeatedly failed to get businesses to provide it with data it had requested.

It had asked the Department of Agriculture (the Government department the regulator comes under) on multiple occasions to be granted more powers to address this, and this is finally happening.

The proof though will be in the pudding, and next year's supplier survey should give an indication as to whether the added heft has the desired effect in terms of the tricky supplier-buyer relationship.