The prices of meat, egg and fish products are studied under the supervision of the KP market

KP Chairman Juris Gaiķis: “Along with the increase in the cost of food production caused by the Russian war in Ukraine and the lack of raw materials, the energy crisis and inflation, the final prices of food products in stores also rose rapidly, the impact of which was felt by every consumer. Therefore, in 2023, the Competition Council launched a study on the market of egg, fish, milk, meat, grain and bread products. With this published final market surveillance report on meat, eggs and fish, which constitutes the third part of the extensive study, we have obtained comprehensive data on price formation and transfer from farmer to producer and from producer to trader, while assessing whether unfair practices have been observed in the sale of these products trade marks or other conditions unfavorable to competition. We have discussed the obtained data both with the responsible authorities of the industry, as well as with producers and traders, and we hope that it will serve policy makers as a reliable source for data-based decision-making and the participants of the food supply chain for honest cooperation.”

Pricing for products manufactured in Latvia and outside Latvia

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 196% 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 1.64% 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 140% more expensive than produced outside of Latvia.

However, the observed differences in the mark-up 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.

Pricing of retailers’ own brand and independent manufacturers’ products

During market monitoring, KP found 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 purchase prices of the products of the independent brand of the manufacturer .

It is not uncommon for a supplier to produce both the retailer’s private label products and, at the same time, the manufacturer’s independent brand products, which are identical in composition. The production costs for 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.

Consequently, retailers, taking into account their influence on the market, must be especially careful to treat their suppliers accordingly in situations where the same supplier produces goods of its own independent brand as well as own-brand goods, which are also identical in composition. fair trade practices and would not engage in prohibited activities specified by NTPAL or activities that do not meet the requirements of good faith and honesty in transactions.

Gaps have been identified in cooperation agreements with suppliers

In the final part of KP market monitoring, all available contracts concluded between buyers of egg, fish, milk, meat, grain and bread products and their suppliers were analyzed.

Analyzing the contracts submitted by buyers and suppliers, the KP found that in some of them, the buyers erroneously indicated the criteria for the settlement deadline for agricultural and food products. Therefore, KP invites buyers to set the date of delivery of goods and not the date of issuance or receipt of accompanying documents as the starting reference point for the payment term of agricultural and food products in the terms of contracts with suppliers.

KP established that buyers have the right to unilateral amendments to contracts when agricultural and food products of inadequate quality are delivered, when suppliers do not adequately fulfill their obligations and cannot prevent violations of contract provisions, as well as buyers have the right to unilaterally amend the price lists of marketing or marketing services. KP calls on retailers to carefully evaluate the information provided to suppliers on procurement forecasts regarding new and unknown agricultural and food products in order to avoid cases of return of agricultural and food products and thus not to transfer economic risks to the supplier.

In certain contracts, the KP found that, compared to suppliers of agricultural and food products registered outside Latvia, the contracts of suppliers registered in Latvia provide for significantly higher contractual penalties for non-compliance with quality and safety requirements and for violations of trade secret regulations. KP calls on retailers to review the terms and amount of contractual penalties for non-compliance with quality and safety requirements and for violations of trade secret rules set out in contracts with suppliers of agricultural and food products registered in Latvia, in order to balance the economic risks between suppliers of agricultural and food products registered in Latvia and outside of Latvia. Also, the KP reminds that in connection with the assessment of the proportionality of the amount of the contractual penalty in the daily cooperation of the market participants, they can use the self-assessment tool developed by the KP for buyers to evaluate fair trade practices and apply justified contractual penalties.

FOR REFERENCE:

Market monitoring of meat, egg and fish products is part of the comprehensive market monitoring of the egg, fish, milk, meat, grain and bread products market launched by the KP in the spring of 2023. The study covers the period from January 2021 to May 2023. KP evaluated the cooperation between suppliers and retailers, as well as evaluated the correlation of price changes in the stages of the supply chain and the change in retail prices. In total, data was requested from 28 retailers and 40 manufacturers/suppliers from Latvia and outside Latvia. In total, more than 100,000 data from the first round and more than 70,000 data from the second round were analysed.

• Part I of the study on the dairy market HERE. Summary HERE.
• Part II of the study on the market of grain and bread products HERE. Summary HERE.
• Part III research on the market for meat, egg and fish products HERE.