Taking into account the aggravated situation in the food sector and rising retail prices, the Competition Council (CC) has concluded the market surveillance on the market for grain and bread as Part II of the market surveillance on the market for eggs, fish, dairy, meat, grain and bread products. For certain bread and grain products (rye bread, white bread, wheat flour, spaghetti pasta and buckwheat), there were shortcomings in the price transmission from one stage to the next in the production and marketing stages, with price changes occurring late or disproportionately. At the same time, within the market surveillance the CC concluded that goods produced in Latvia are periodically subject to a higher mark-up than goods produced outside Latvia at the retail stage of the supply chain. The CC has urged retailers to be vigilant and not to violate the fair trade practices set out in the Prohibition of Unfair Trading Practices Law with regard to their suppliers.
Pricing of Latvian and non-Latvian products
The CC has found that within the bread and grain product groups, a number of goods produced in Latvia are subject to different pricing policies than goods produced outside Latvia at the retail stage of the supply chain. For example, wheat flour produced in Latvia had a higher average mark-up than flour produced outside Latvia. Also, buckwheat produced in Latvia was priced on average more expensive than buckwheat produced outside Latvia. On the other hand, rye bread produced in Latvia was priced cheaper than rye bread produced outside Latvia from February to November 2022, but after December 2022, rye bread produced in Latvia was priced more expensive than rye bread produced outside Latvia at the retailer level.
However, for some bread and grain products, goods produced directly in Latvia have been priced lower at the retailers’ stage than goods produced outside Latvia. White bread produced in Latvia was on average 21% cheaper than white bread produced outside Latvia. The CC found a similar situation for spaghetti pasta produced in Latvia at the retail supply chain stage, i.e. spaghetti pasta produced in Latvia was priced cheaper than spaghetti pasta produced outside Latvia.
Pricing of retailers’ private label and branded goods
The CC found that goods in the bread and grain product groups, i.e. wheat flour, buckwheat, spaghetti pasta and bread, were set at a lower purchase price when produced by the producer for the retailer as a private label product of the network.
Often the supplier produces both the retailer’s private label goods and the producer’s own brand goods at the same time, which are identical in composition. The production costs of such goods are identical, but their purchase prices differ significantly. The production stage accounts for all production, packaging and other costs of the product, while the retail stage accounts for sales and related costs. However, the CC found that an even more increasing share of the mark-up is generated at the retail stage. Thus, fair trading practices and good faith and fair dealing by retailers are becoming increasingly important as this stage of the supply chain becomes more and more influential.
Consequently, retailers need to be particularly careful to ensure that they treat their suppliers fairly in situations where the same supplier produces both private label and own brand products, which are also identical in composition, and do not engage in prohibited practices under the Prohibition of Unfair Trading Practices Law or practices that do not comply with the requirements of good faith and fair dealing.
INFORMATION:
The market surveillance of grain and bread products is part of the CC’s comprehensive market surveillance of eggs, fish, dairy, meat, grain and bread products launched in spring 2023. The study covers the period from January 2021 to May 2023. The CC assessed cooperation between suppliers and retailers, as well as the correlation of price changes along the supply chain and retail price variability. In total, data were requested from 28 retailers and 40 producers/suppliers based in Latvia and abroad. Altogether, more than 100 000 data units from the first round of the conducted study and more than 70 000 data units from the second round of the study have been analysed.
Read more on the market surveillance of eggs, fish, dairy, meat, grain and bread in Part I of the study on the dairy market HERE. Summary https://www.kp.gov.lv/en/article/competition-council-examines-dairy-prices-raw-milk-market-shelves