European supermarkets such as Kaufland, Metro, Ahold Delhaize and Edeka are cooperating as part of ‘international buying groups’ (IBGs) to expand their buying power, with potential negative consequences for suppliers and farmers says new research by SOMO. Eyes on the Price, reveals for the first time how IBGs have been operating behind the scenes since the 1980s.
“It has been a difficult issue to research,” says Gisela ten Kate. “We wanted to hear from suppliers about the situations they encounter when negotiating with IBGs, but only one manufacturer dared to speak to us, anonymously,” she says.
“Apparently, suppliers do not feel free to talk about their relationships with supermarkets for fear of losing customers. Our conclusions, however, are clear: retailers are increasing their leverage on suppliers through the IBGs, and negotiations are increasingly difficult for suppliers.”
IBGs represent a potential consumer turnover of up to € 178 billion annually, and their main focus is on obtaining discounts and benefits from suppliers. “IBGs particularly source basic, private-label products such as pasta, canned tomatoes, olive oil and fruit juice – products that can be bought in bulk and which are relatively independent of national tastes,” adds Gisela ten Kate. The considerable discount that IBGs negotiate may have numerous direct and negative effects on suppliers, and eventually on primary producers and workers in the agricultural sector in the Global South.
Unfair trading practices?
IBGs begin from a strong negotiating position because they are able to demand detailed information from suppliers about the production processes and prices. In addition, negotiations are complex. “This way of working increases the risks of unfair trading practices, including leakage of business sensitive information to competitors,” says Gisela ten Kate. “European competition laws are currently too much in favour of low prices for consumers, and not on unbalanced power relations in the supply chain. EU policymakers should address concentrated supermarket power and its potentially harmful consequences.”