Government intervention to protect suppliers

Government protection against abuse of monopsony power.

What abuses of monopsony power exist?  These results – despite the supermarkets' endless price wars – are achieved largely by getting farmers to reduce their prices. Most sectors of British farming, from eggs to fruit, vegetables and pork, have seen farm-gate prices drop in the past year, despite record increases in costs. "Supermarkets have handed the risk back to us: they charge ever-increasing markups, force us to take part in promotions," one vegetable farmer said. "The farmer takes all the risk, pays all the costs and gets virtually nothing above the cost of production."  Discounts such as "buy one get one free" are not a generous gift from the supermarkets. What they mean is that the farmer will be paid less – but he or she has no ability to change or even be informed if their crop is put on special offer. If a crop has been over-ordered and doesn't sell, the supplier may have to pick up the cost of disposal.

 The supermarkets, often working through agreed processors and packagers, offer binding contracts that do not specify prices. These tend to lift the brakes on how much is ordered, because the shop will not suffer if produce is not sold. This is particularly painful for soft fruit and salad growers, whose entire year's income can be ruined by a couple of rainy summer weekends when people don't want to buy summer produce.

What can be done?

 Laissez faire – let matters proceed without interference.  If the monopsonist pushed price down too much, the supplier goes out of business. And if that happens to thousands of separate carrot farmers, for example, the price of carrots consequently rise.  It is in the monopsonist’s interest not to be too abusive with their monopsonist power.

What can be done?  However, too optimistic.  If thousands of carrot farmers are pushed out of business - …………………. ……………………..  Also, it is unlikely that the profit maximising monopsonist (or their share-holders looking for dividends) takes such a long term view. They will seek to get their carrots as cheaply as possible so that their quarterly bonuses are as high as possible.

Minimum Prices for producers  At the moment there is an unfair share of risk between the supermarkets and the farmers. By introducing a minimum price scheme, the farmer keeps risks associated with weather, climate change, rising costs – but at least the price of the kilo of carrots is guaranteed.

However:

 1. governments unlikely to introduce such minimum price schemes if it will ultimately push up the price of food.  2. Supermarkets have the resources and legal strength to lobby governments so as to prevent this from happening.  3. Excess supply – milk lakes and butter mountains.  4. Supermarkets buy from other countries.

However:  2. Supermarkets have the resources and legal strength to lobby governments so as to prevent this from happening.

Local sourcing of products  This could be a government and a pressure group idea…….

 Insist on locally produced meat/milk/vegetables

Local sourcing of products  This does not necessarily eliminate the problem of monopsony – but at least it increases demand and therefore price of the locally produced product.

However…  The UK, for example, is a member of both the EU and the WTO and so discriminating against French milk farmers or Brazilian beef farmers can be quite difficult.  But not impossible – health and safety concerns (real or imagined) can be raised to limit the import of certain goods.

Protecting workers from exploitation

Pressure groups and government.

Pressure groups – trade unions  Through collective bargaining they can make sure than wages do not fall in real terms.  Trade Unions tend to have a very strong stance on non-discrimination.  As trade unions are organised in a specific profession, they can highlight concerns that a more generalist government cannot do

 Governments can also protect the rights of workers through  1) NMW  2) employment protection legislation  3) mandatory overtime for any work above 40 hours a week