renegotiations at loggerheads between distributors and suppliers

The weeks pass, without the tensions between farmers and manufacturers on the one hand, and distributors on the other, defusing. Two months after the government’s decision to bring food chain players back to the table to update the results of the annual trade negotiations on national brands concluded a fortnight earlier, on March 1, the dialogue seems to stall.

“It is not acceptable (…) that the brands continue to gain time so as not to complete the negotiations”, denounced the National Federation of Farmers’ Unions (Fnsea) in a press release on May 11, on the eve of the meeting of yet another follow-up committee to these negotiations, supposed to put pressure on distributors and facilitate mutual understanding. “The time is over for discussions, we must act on the renegotiations (…)”, concludes the union, which sets the headlines “non-negotiable deadline” at risk “-if it is not respected – to endanger all our sectors and consequently the supply of the French”: the end of May.

Negotiations concluded in February already lapsed

Struck by the rise in the prices of raw materials and manufacturers, food processors were indeed asking distributors, from the end of last year, to increase their prices by more than 6%. On average, they finally obtained only about 3%, according to a still temporary estimate of the Ministry of Agriculture. A result certainly unprecedented, given that these negotiations had ended for years with price cuts. But clearly insufficient for manufacturers hit by rising costs that have amplified with the surge in inflation since the start of the war in Ukraine, which has amplified inflation.

According to a document from the National Establishment for Agricultural and Seafood Products (FranceAgriMer), consulted by La Tribune, presented during the Trade Negotiations Monitoring Committee held on May 12 under the chairmanship of the mediator of agricultural trade relations, Thierry Dahan, the prices of agricultural raw materials thus increased by 9% between February and March 2022, while those of energy and fertilizers rose by 18% and 30% respectively. And despite a gradual slowdown in these increases, prices “should remain permanently high, provides the establishment”, until 2023-2024. Non-agricultural industrial costs had already increased significantly before the war: between March 2021 and 2022, by 13.2% for plastic packaging, 20.5% for cardboard packaging, 68.5% for aluminium, according to the same document.

An exceptional situation

In mid-March, the government therefore asked manufacturers and distributors to get back around the table. And according to a major retailer, since then, requests from manufacturers have continued to flow, offering increases “double digit” which can reach up to 25%. According to the National Association of Food Industries (ANIA), the main agri-food organisation, which published a press release on 28 April, nine out of ten manufacturers are experiencing supply difficulties, both for agricultural raw materials and for industrial inputs such as packaging.

“The requests for increases are reaching unprecedented levels. The exceptional situation calls into question the usual benchmarks”, we recognize at the Ministry of Agriculture.

However, despite this unprecedented context, not everyone plays the game, we denounce on both sides. And this despite the signature by the representatives of all the players concerned, at the beginning of April, of a charter promoted by the Ministry of Agriculture, committing distributors to reopen negotiations even when they are not obliged to do so, as well as to accept a moratorium on logistical penalties in the face of the difficulties caused by the disorders in the international supply chains, and the manufacturers, in return, to greater transparency concerning the increases in their production costs.

A “question of survival” for the industrial link in the food industry

“With the exception of a few sectors and brands, negotiations on national brand products are not progressing”, deplores Jérôme Foucault, president of the Association of Food and Processed Products Companies (Adepale), for whom companies processing fresh products are beginning to lose money, and those of dry products are depleting their stocks.

“Some of our members tell us they are losing a million euros per month. The risks of a stoppage of deliveries and a drop in activity leading to partial unemployment are concrete”, he warns.

While we know that the inflation of production costs will last for several years, the challenge is therefore to support the industrial link of the French food sector, pleads the president of Adepale.

“For manufacturers, whose margins, 2-2.5% on average, are already low, obtaining these increases is indeed a question of survival”, estimates the Ministry of Agriculture, which fears production stoppages. and layoffs.

The risk would then also be that of an increase in imports, with the consequence, in addition to job losses, of a deterioration in the trade balance as well as in the French carbon footprint, underlines the president of the Fnsea, Christiane Lambert.

Inflation more contained in France than elsewhere

The only solution is therefore, according to farmers and manufacturers, to assume a rise in prices on the shelves.

“In March, in France, inflation of food products over one year only reached 3.4%, against 5.8% on average in the euro zone”, notes Christiane Lambert, quoting FranceAgriMer.

She laments a “dysfunction of the French food chain leading companies to bankruptcy”. Especially since “the levels of price increases necessary to ensure sufficient income for producers would be far from unbearable”, adds Christian Lambert, recalling the example of the brand C’est Qui Le Patron which, for milk, has calculated them at a few euros per year.

In order to help the less well-off households to cope with these increases, the Fnsea also advocates the establishment of a food check of 3-4 euros per day intended for 5.5 million people in precarious situations. A proposal also supported by Emmanuel Macron, and on which the government has been working for almost two years, but whose model and implementation methods remain to be defined, and whose costs could exceed 4 billion euros.

Distribution worries about its sales volumes

But the distributors, who for years have engaged in a price war and appear as defenders of the purchasing power of consumers, fear that high inflation – generalized in addition – will cause a drop in their sales. “For two months, we have seen a drop in the consumption of food and hygiene products. And sales of our first prizes have increased by 20%”, notes the aforementioned distribution actor, who also notes “a strong acceleration of the phenomenon” throughout the past few weeks. A phenomenon corroborated by the rise of discount brands, which continue to nibble away at market share.

“However, whereas today the prices on the shelves have only increased by 3-4%, from September inflation could reach 10%,” he predicts.

And “what makes the strength of the distribution, it is the volumes”, explains the same source, recalling that, if according to the Observatory of prices and margins, the gross margins of large retailers amount to 25%, those net (after costs of personnel, logistics, etc.) are 1%. “Without these volumes, we will not succeed”, he fears.

“While with SMEs the discussion is very simple, with the largest groups, we are also struggling to obtain more transparency on the causes of these increases”, he adds. A request for transparency which, according to the Ministry of Agriculture, however aims to accept these increases as late as possible, and which according to Jérôme Foucault is often abusive, since it involves a breach of business secrecy.

The worst expected in the fall

Whatever advances that industrialists and farmers will be able to obtain in the coming weeks – and which will be difficult to quantify, underlines the Ministry of Agriculture, because if the law imposes a response to requests for renegotiations within the month, those -these are not subject to a collective timetable like the first negotiations which ended on March 1-, everyone is however aware that this site of renegotiations of industrial tariffs will remain open for a long time.

“We will have to renegotiate every month or every two months”, estimates Christiane Lambert, for whom we have now entered a “war economy”.

“The hardest part will come in the fall” recognizes our retailer, also evoking the effects, still difficult to estimate, of drought, avian flu and the aftermath of the war in Ukraine.

The government monitoring committee should also continue to follow the file at least until then, according to the Ministry of Agriculture, regardless of the configuration of the new executive.