Producers were struggling to pass on the increased cost of chicken feed and fuel for their farms, said Tom Vesey, chairman of the British Free-Range Egg Producers’ Association.
“We are actually worse off than we were in December 2006. If the retailer had said we’ll increase the producer price or the packer price by 26% and we’ll take the same amount, that would seem fair. But to increase the percentage seems wrong. What offended me was I felt consumers were being asked to pay more than perhaps they should have done.”
Barry Jackson of egg marketing body EggSell said he did not think supermarkets were profiteering, but they were still taking too much of a cut. “Some producers feel very aggrieved that their increases are not in line with retailers.”
And the managing director of one egg processing company added: “We daren’t alter our prices because we know we will be kicked out in favour of someone doing it cheaper,” he said.
Nor is this limited to eggs. One ambient goods manufacturer told The Grocer he asked one of the big four for a price increase. “The buyer refused but still increased the retail price.” Another added: “They put you in the position where you are forced to say ‘As of Monday I will not supply you’. You need cast-iron balls to say that. They take you to the precipice and make you look over before they will consider increases.”
As manufacturers struggle to pass on costs, the number of insolvencies of supermarket suppliers was likely to shoot up over the next year as more companies struggled with rising costs, predicted Duncan Swift, a partner at accountancy firm Grant Thornton.
Thirteen food and drink manufacturers went out of business in the second quarter of 2008, up from eight in the first quarter.
“The inability to pass costs on to the supermarkets, irrespective of what they then actually charge the consumer, is squeezing food manufacturers’ gross margins,” he said. “We are currently seeing an increase in food supplier viability reviews being undertaken and this suggests that a discernible increase in supplier business failures is not far away.
These accusations come following a report by OC&C (The Grocer, 5 July) showing that food and drink manufacturers passed on £3.5bn in raw material cost increases to the supermarkets (while swallowing a further £0.8bn) while supermarkets passed down £3.7bn in costs to consumers.
The multiples continue to deny they are profiteering. Asda said it had increased the retail price of a dozen eggs by just 27% over the last year.
“Retailers are cushioning consumers from the impact of commodity price rises across the world,” a spokesman said. “We are doing a fantastic job of helping the consumer.”
Sainsbury’s said it was committed to treating all its suppliers fairly. “The cost price has risen about the same as the retail price, so it is wrong to suggest the two differ in a significant way.”