Letter: No real bargains in the supermarket price wars

Sir: The scepticism apparent in your commentary 'Phoney war on the shelves' (Business & City, 6 January) about the brouhaha surrounding the annual supermarket food price 'war' is welcome; the whole charade needs putting into proper perspective. The only area where significant price cuts have been made is the fresh food sector, an area where big multiple retailers achieve quite astonishing gross margins (eg, 150-300 per cent on fresh meat; 100-200 per cent on potatoes). Plenty of room for discounting there.

Furthermore, any retail price cut in the fresh vegetable sector, which is largely supplied directly by growers, is passed directly back to the supplier: if potatoes are reduced by 10p/lb on the shelf, the grower/supplier is paid 10p/lb less, and the big multiples' generous margins and profitability are protected. The effect on suppliers is less attractive, and made more galling by the fact that as their supply contracts are almost always exclusive to one firm of retailers, alternative marketing is impossible.

In the fresh meat sector, retail price reductions do tend to produce a temporary increase in agricultural market prices, due to increased demand; here, the wholesalers' margins take the brunt of any squeeze. But the effect that even modest promotions of beef or lamb in the big multiple stores can have on farm gate prices is very instructive because it shows how overpriced these products normally are on the shelf, and how much market power the big retailers now have; keeping margins and prices abnormally high limits retail demand and helps the multiples to depress wholesale and farm gate prices. Since artificially depressed demand for beef is a significant contributor to the notorious EC beef 'mountains', taxpayers should ask why they should be paying for expensive intervention stores in order to protect ludicrous margins for the food giants.

Any increase in public demand for fresh food, stimulated by lower retail prices, dilutes the retailers' excessive market power. No doubt we shall soon see fresh food prices rising again to sustain the upward path of food retailers' huge profits, to the satisfaction of their shareholders.

Yours faithfully,

JAMES GIBSON-WATT

Hay-on-Wye,

Powys

6 January