Traders apply a higher markup to food products produced in Latvia, says Gulbe

Traders apply a higher markup to food products produced in Latvia, says Gulbe
Traders apply a higher markup to food products produced in Latvia, says Gulbe

In Latvia, food producers and traders do not have equal market power, Ingūna Gulbe, head of the Agricultural Market Promotion Department of the Institute of Agricultural Resources and Economics (AREI), said in an interview on Wednesday, commenting on the findings of the Competition Council (KP) that traders apply a higher markup to food products produced in Latvia. .

She pointed out that food producers in Latvia are not in an equal situation when talking to traders, and this is not only a problem in Latvia.

“The manufacturer is always not so equal in negotiations with the dealer, because there are many manufacturers and if the dealer does not like someone or if he can find better delivery conditions, the product is not taken or the conditions have to be compromised. On the other hand, there are not so many dealers, and in Latvia this situation is still more pronounced than in other countries – we practically only have two very serious chains,” said Gulbe.

She expressed the opinion that in this case, the involvement of the state would be necessary, creating favorable conditions for the business environment throughout the country, and it would also be necessary to support local producers, but the Ministry of Agriculture could not do this alone.

“Our business environment is not favorable for entrepreneurs, so it could be a joint task of the government to promote the business environment, so that even large retail chains would like and be interested in entering the Latvian market,” said Gulbe, adding that the state could also support local producers more so that they would be able to compete with producers from foreign countries.

It has already been reported that in the final section of the market research of egg, fish, milk, meat, grain and bread products carried out by the KP, it was found that retail chains apply an average higher markup to egg, fish and meat product products produced in Latvia than products produced outside of Latvia, as well as retailers gaps have been identified in cooperation agreements with suppliers.

KP calls on buyers, including retailers, not to abuse their purchasing power, to be vigilant and not to violate fair trade practices against their suppliers as stipulated in the Unfair Trade Practices Prohibition Act (NTPAL).

During market monitoring, KP found that doctor’s sausage, fresh chicken and fresh fish produced in Latvia are charged an average higher markup at the retail stage than equivalent goods produced outside of Latvia. For example, doktordesa produced in Latvia was on average 16% more expensive than doktordesa produced outside of Latvia. On the other hand, the markup applied to local fresh chicken at the stage of the retail supply chain has been on average 2.9 times higher compared to imported chicken.

Also, the KP study concluded that retailers priced certain local meat, egg and fish products cheaper on average than products produced outside of Latvia. Namely, during the considered period, fresh pork produced in Latvia was priced on average 1.6% cheaper than that produced outside of Latvia, while in the period from January to April 2022 and from April to May 2023, fresh pork produced in Latvia was priced 2.4 times more expensive than produced outside of Latvia.

However, the observed differences in the markup of imported and local meat, egg and fish products are not as significant as KP found in previous studies for dairy products, bread and grain products.

At the same time, the KP market monitoring established that the purchase prices of private label products – fresh pork, doctor’s sausage, fresh chicken, eggs, fresh fish – produced by the manufacturer on the order of the retailer as a private brand product of the network, are significantly lower than the equivalent independent purchase of the manufacturer’s brand products prices.

KP points out that often the supplier produces both the retailer’s private label goods and at the same time the manufacturer’s independent brand goods, which are identical in composition. The production costs of such goods are equivalent, but their purchase prices differ significantly.

It is at the production stage that the product forms all production, packaging and other costs, whereas at the retail stage, sales are ensured, where the costs associated with it are formed. However, KP found that an increasing proportion of the markup is formed precisely at the retail stage.

AREI is an institution supervised by the Latvian University of Agriculture. The institute was established in the reorganization of the State Priekuļi Field Plant Breeding Institute, the State Stendes Cereal Breeding Institute, the Latvian State Institute of Agrarian Economics and the Latvian State Fruit Growing Institute.

The article is in Latvian

Tags: Traders apply higher markup food products produced Latvia Gulbe


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