Spanish lessons

A new law in Spain prohibiting sale of food below the cost of production has potential lessons for all of us, says Simon Wright.

According to FoodNavigator.com the Spanish government have passed a law which prohibits the sale of food below the cost of production with the government introducing sanctions for retailers that continue the practice. Regulators will now be able to issue fines from 3,000 – 100,000 Euros, and even up to 1m Euros in very serious cases for repeat offenders under new modifications to the Ley de la Cadena Alimenteria (Food Chain Law).

Sale at a loss is banned in all but two scenarios: discounts of perishable products that are damaged and promotions applied by distribution chains that assume the associated cost themselves. The Spanish government is also increasing penalties for operators who fail to provide suppliers with written contracts.

The driving force behind the legislation appears to be Spanish farming union UPA (Union de Pequenos Agricultutores y Ganaderos). They have made a series of demands and orchestrated a “farmers revolt’ over several months “to avoid the bankruptcy of more farms”.

Consumer organisations have expressed concerns that the policy could result in increased food prices. Speaking at a press conference on March 4th the Minister Luis Planas downplayed this possibility, insisting that if everyone “takes responsibility for the food chain” it is “perfectly possible” retail prices will not rise.

Clearly there are major implications for suppliers and retailers under this new regime. Policing this new legislation is going to be interesting as it is not clear how below-cost selling will be identified and monitored. Will retailers have to disclose full financial details of their supply arrangements ? This is unlikely to be welcomed.

Could something similar happen in the UK? The NFU are doubtless watching developments in Spain very closely but in the current social and political climate in the UK it is not a great time to be attempting to introduce such a radical change. Nor is it likely that UK farmers would launch a lengthy public protest campaign over such issues.

However the concept of banning below-cost selling has its attractions. Selling food below the cost of production undermines the entire fixture. If a value 100g bar of chocolate is on sale for £0.35 ie below-cost it is then harder to persuade consumers that £1 or £1.50 is actually a fair price for a similar product. Producers who supply below-cost items to supermarkets in the hope of making a profit through other lines are vulnerable to an unexpected increase in the sales of the loss-making SKUs.

Clearly anything that adds to the cost of food in these uncertain times is not going to be popular. But it is depressing to look at a “value” carrot and realise that nobody – farmer, packer, supermarket – has benefitted financially. And maybe if we paid a price for our food that reflected the true cost of its production we might value it more and throw away less…

Main image: The Spanish farming union UPA has organised mass mobilisations of members across Spain. UPA