California and Arizona fresh vegetable producers have had enough and are speaking out about what they consider unethical and illegal business practices by some of the nation's largest supermarket chains that are not only costing farmers millions of dollars, but denying consumers economic access to healthy produce.
David Moore, the irascible president of Western Growers Association, Irvine, Calif., and himself a Bakersfield, Calif., farmer, went before the U.S. Senate Committee on Small Business recently to complain that retail food chain consolidations have given a handful of retailers too much power, and they are abusing it by extorting off-invoice fees from produce suppliers.
They also are wielding too much power over the price paid to produce farmers, Moore said, driving prices down to farmers yet not passing on those lower prices to consumers. Instead, they are marking up wholesale prices by 400 to 1,000 percent.
Moore called on Congress to initiate an investigation into the nation's supermarket industry much like the federal government has done in the oil industry
"In Southern California, only three large supermarket chains hold about two-thirds of the market," said Moore. This is a market of more than 20 million people. Moore said retail food consolidation has gone "too far."
The anti-competitive practices Moore cited are:
- Pay to play and pay to stay fees.
- Rejection without reasonable cause of perishable commodities, a violation of the Perishable Agricultural Commodities Act (PACA).
- Advertising and promotional allowances.
- Slotting fees.
- Interview fees.
- Category management fees.
- Warehouse construction/new store opening fees.
- Indemnification/hold harmless agreements.
And, often these demands from retailers come without guarantees that they'll buy from the person paying the off-invoice fees. Some of the fees are running into the five and six digit numbers.
Slotting fees are being layered atop of large price spreads, added Moore
Retail consolidation is also adversely impacting basic prices. "Too much retail consolidation is forcing an overall downward pressure on prices paid to growers; decreased movement of produce volume; fewer markets for price sensitive commodities; erosion of payment terms and demands for promotional fees without any clear link with a specific promotional effort."
Moore cited several specific examples of these practices, including one retailer who demanded a $30,000 promotional allowance for a one-inch by three-inch ad for the commodity he was selling.
Moore said consumers also are being hurt. They have historically benefited from fresh fruit or vegetable surpluses through lower prices. Today, however, Moore said it is often the large retail chain stores, rather than consumers, realizing price savings from any surpluses maintaining a significant price spread of produce.
"We are not talking about luxury items, but rather the availability of an affordable supply of fresh produce necessary to maintain a healthy diet," Moore pointed out.
Moore admitted that the cost of speaking out against these practices could be "extremely high. Growers have been reluctant to voice their concerns publicly out of fear of angering their only customers.
"However, I would like to assure the committee that there is widespread concern regarding anti-competitive practices by large retailers among family farmers."
WGA called on the appropriate federal authorities to closely scrutinize retail consolidation and to enforce all federal anti-trust laws.