Leading article: A case that confirms some of our worst fears about supermarkets

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Two of the country's biggest supermarket chains, Asda and Sainsbury's, have admitted fixing the price of dairy products to the detriment of consumers. So, too, have several dairy processing companies. They will all be subject to multimillion-pound fines, after the Office of Fair Trading accepted what amounts to a plea bargain. Tesco and Morrisons, which are resisting similar charges, will face much higher fines if the case against them is proven.

The accusations relate to arrangements to fix the price of milk, butter and cheese during 2002 and 2003. According to an OFT inquiry, retail prices were raised by as much as 60p for a pound of butter and 30p for a pound of cheese. Customers were told that these hefty increases were a response to suppliers' complaints that they were being short-changed.

It was an explanation that, it now transpires, was all too readily accepted. The time was the aftermath of foot and mouth. Sympathy for farmers was running high. There was also a growing awareness of just how little farmers were being paid for milk; the number of dairy farmers leaving the business every year had escalated. Supermarket customers were thus encouraged to feel good about paying more, believing that they reflected fairer prices for producers.

It will come as little surprise to those more cynical of big supermarkets' motives to learn that much of the money raised from these higher prices found its way into the pockets of the supermarkets and the intermediaries. Precious little, if any, found its way to the hard-pressed farmers.

Consumers, in effect, were caught in a trap of ignorance. On the one hand, the supermarkets concerned had fixed prices on a whole range of staple food products, so shoppers had no choice but to pay the higher prices. On the other, they were told that price rises reflected higher producer prices and a more enlightened attitude towards farmers, neither of which was true. The brutal reality is that they we were being overcharged.

In the light of this, yesterday's statement by Sainsbury's chief executive, Justin King ever an articulate spokesman for his company seemed particularly brazen. He said that what he called the "price initiatives" of that time were "designed to help British dairy farmers at a time of considerable economic pressure" and he expressed disappointment that the company had been "penalised for actions that were intended to help British farmers".

Whether or not the motive for the price-fixing agreement was noble and sincere people can perhaps differ about this the evidence unearthed by the OFT is that it did not help British farmers. Given that it certainly did not help consumers either, the case for punitive action is conclusive. There was here a clear breach of the 1998 Competition Act.

The OFT's findings confirm many of our worst fears about the might of the big supermarkets and the potentially malign effects of their vast buying power on producers. Six weeks ago, an interim report by the Competition Commission seemed to come to a rather different conclusion when it found them not guilty of killing the high street.

The watchdog suggested that, if there was a problem with Britain's supermarkets, it was that there were not too many, but too few. It warned of the growth of uncompetitive local monopolies. Now, it appears, we have the worst of both worlds: not only do individual chains exploit local monopolies, but they collude among themselves when it suits them. If the big chains want to win back our confidence, we could do with some real "price initiatives", based on local sourcing and demonstrated benefits for the farmers.

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