The 2003 Conference on the Food Economy

On February 6-7, 2003 the conference “Changing Dimensions of the Food Economy; Exploring the Policy Issues” was organized by the OECD, in collaboration with the Dutch Ministry for Agriculture, Nature Management and Food Quality. The aim of the conference was to identify the challenges that the changing global food economy presents for industry, society and governments. The conference was structured so as to identify major changes underway in the food economy and to explore the emerging issues and paradoxes often linked to changing lifestyles and societal expectations.

The conference was attended by over 200 persons from government, academia, non-governmental organizations as well as from the food industry and retail sector.

The conference was organized around three themes:
1. Balance of power in the food supply chain
2. Food lifestyle, in particular diet and health
3. Transparency and Corporate Social Responsibility

The presentations on these themes were complemented with general introductions and discussions on paradigm changes arising in the food supply chain. 

Balance of power in the food supply chain
The discussion on the balance of power focused on four issues:
• Concentration in the food supply chain;
• The role of branding in the balance of power;
• The impact of shifts in the balance of power on pricing;
• Implications for competition policy. 

Concentration
There is an increase in market concentration throughout the supply chain, both in developed and developing countries, but especially at the retail level. Concentration in food retail is especially pronounced on the buying side, because retailers form buying groups. Moreover, both individual retailers and retail buying groups increasingly go multinational. Ongoing globalization processes are likely to lead to further increases in market concentration. Globalization spurs both price competition and promotional activities such as advertising. Both types of competition will spur further increases in the size of food retailers.

Branding
Branding plays a key role in the balance of power among retailers and between retailers and their suppliers. By establishing retail brands leading retailers strengthen their position vis-à-vis other retailers, but also vis-à-vis their suppliers. Vertical competition (buyer-supplier) is extended to horizontal competition (supplier-supplier). Leading processors are only able to maintain their bargaining position vis-à-vis retailers if they are able to maintain the A-status of their brands. Due to mutual competition retailers and suppliers still keep key information private and compete rather than co-ordinate in order to maintain their respective bargaining positions. This fact may be detrimental to value added creation in food supply chains.

Pricing
Improvements in the bargaining position of food retailers may lead to abuse of market power. However, so far, there is no evidence that food retailers abuse their dominant positions and obtain substantial profits on food. On the contrary, concentration induced cost efficiency and price reductions. For this reason, many speakers stressed that concentration does not imply abuse of market power. This does not imply that price formation is perfect. Moreover, market power may also be performed through other mechanisms, in particular slotting allowances and buy-back requirements.

Competition policy
Governments may address possible market power through competition policy and possibly dependency laws. The presenters concluded that present competition law suffices to address possible market power issues, but that enforcement may be an issue. There is little action against food retailers, among other things because suppliers do not complain. In some European countries, dependency laws are introduced as an additional protection for suppliers. Their effects are limited so far, again because suppliers typically do not complain.

Food lifestyles

Worldwide, there is growing concern about the impact of current food consumption on human health. This concern refers to both developed and developing countries. The rising prevalence of obesity explains the predominance of non-communicable diseases such as cardio and cere-brovascular diseases, cancer, diabetes and obesity. Food consumption patterns may be explained by sociological developments (urbanization, labour participation, household composition and the impacts on out-of-home consumption and convenience food) as well as economic developments (income growth and developments in relative prices). Responsibility for the problem is shared by consumers, the food supply chain and govern-ments. How the responsibility is and should be shared is one of the most urgent policy questions. An even more important question remains how to fight obesity and how to promote the health of the world population

Transparency and CSR
Policy makers from agrifood business, government and non-governmental organizations (ngo’s) all praise the role private initiatives increasingly play in enhancing Corporate Social Responsibility (CSR) and transparency. Companies increasingly apply CSR practices, but ngo’s stress that compliance may be an issue. Introduction of CSR by private companies causes a shift in private versus public responsibilities. This shift gives rise to the basic question: what is the role for government in the food supply chain, if any.

Website: Conference on Changing Dimensions of the Food Economy: Exploring the Policy Issues, February 6-7, 2003 - The Hague, Netherlands