Food producers and retailers do not have equal market power in Latvia, said Head of the Agricultural Market Promotion Division of the Institute of Agricultural Resources and Economics (AREI), leading researcher Ingūna Gulbe in an interview to Latvijas Radio on Wednesday, the 3rd of April, commenting on the findings of the Competition Council in regards to the pricing of food products made in Latvia.
She said that food producers in Latvia are not in an equal situation when speaking with retailers, and this is not just Latvia’s problem.
“Producers are not equal when speaking with retailers, because there are many of them, and if retailers don’t like them, they can always find better suppliers. Products are not accepted or producers have to accept retailers’ conditions. But there aren’t as many retailers, and this situation is more pronounced in Latvia than in other countries – we have only two major chains,” said Gulbe.
She said that the state should step in and create favourable conditions for a business environment across the entire country.
It is also necessary to support local producers, but the Ministry of Agriculture cannot do this alone.
“The business environment we have is not entrepreneur-friendly. This is why this could be a task for the government – to improve the business environment to make large chains to want to enter Latvia’s market,” said Gulbe, adding that the state could provide more support to local producers so that they can compete with foreign producers.
The Competition Council performed a market study of egg, fish, milk, meat, grains and bread. It was found that on average, retailers apply a higher mark-up on goods produced in Latvia than goods produced outside Latvia. Deficiencies were found in cooperation agreements between retailers and suppliers.
Competition Council invites buyers and retailers to not abuse their purchasing power, be observant and respect the Prohibition of Unfair Trading Practices Law.
The Competition Council found that doctoral sausage, fresh chick and fresh fish produced in Latvia are subject to an average higher mark-up at the retail stage than equivalent goods produced outside Latvia. For example, sausage produced in Latvia was on average priced 16% more expensive than the same type of sausage produced outside Latvia. On the other hand, the mark-up applied to a domestic fresh chick at the retail supply chain stage has been on average 2.9 times higher compared to imported chick.
At the same time, Competition Council found in its market monitoring that the purchase prices of private brands for products manufactured by the manufacturer on the order of the retailer as a network private brand product were significantly lower than the equivalent purchase prices of independent branded goods of the producers.
The council notes that often the supplier produces both the retailer’s private brand of products and their own independent brand of goods, but the products are identical when looking at their ingredients. Production costs are the same, but their prices tend to differ greatly.
It is at the production stage when all production, packaging and other costs are accounted for, while at the retail stage, sales are provided, where the costs associated with it are formed. However, KP found that an increasing share of mark-ups is formed precisely at the retail stage.
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