Milk and Supermarkets

Topics: Milk, Supermarket, Marketing Pages: 5 (1536 words) Published: August 9, 2011
In recent years, the relationship between supermarkets with UK farmers that called oligopsony is a heated topic in the society. Some people hold the view that the advantages of oligopsony overweigh those disadvantages. Nevertheless, others believed that it is one way that UK farmers controlled by the supermarkets. It is natural that people come from different backgrounds will have various attitudes to the same issue. In the report, the advantages and disadvantages of oligopsony for both supermarkets and UK farmers are discussed. In addition, nowadays the supermarkets in the UK in order to increase the profit, they use different types of marketing methods. Such as intense price competition, loyalty schemes and provides non-food products and service. The smaller retailers were influence by those marketing methods also reported as follows.

1.0 Oligopsony
Oligopsony is “similar to an oligopoly (few sellers), this is a market in which there are only a few large buyers for a product or service. This allows the buyers to exert a great deal of control over the sellers and can effectively drive down prices.”( A good example of an oligopsony would be the UK supermarket industry, in which a small number of large buyers (such as Asda, Tesco, and Sainsbury’s) control the UK farm market. Such control allows these supermarkets chains to dictate the price they pay to farmers.

1.1 The effect on supermarkets
According to the BBC news (, Tesco account the UK supermarkets share is 31.6%, Asda took over 17% in the UK supermarkets share, which is ranked second. The third biggest one is Sainsbury’s, which accounted 15.8%. (Appendix 1) The total percent of big three supermarkets took over more than 50% in all the UK supermarket industry. These supermarkets owned market power in two ways which are selling to consumers (oligopoly power) and buying from producers (oligopsony power).in another words, It means that the few firms have considerable market power in paying low price for inputs and makes it more difficult for the farmers to make a profit. For example, a big supermarket could contract with a dairy producer that the big one will buy all of product. The farmer agreed with the contract and started to supply the dairy to the big supermarket. Nevertheless, maybe the supermarket pay less and less later, and the farmer just can accepted lower price because the farmer produce too much dairy to supply to the big supermarket and it is not too easy to find a new buyers. Farmers who produced milk, vegetables, or other agricultural products have limited choice range, because in the UK, most of agricultural goods are bought by the big supermarkets. Oligposony gives the big supermarkets bargaining power in use lower prices with farmers. In this relationship, the big supermarkets have the absolute advantages over the farmers. They can made it possible that lower the price of agricultural goods, so that these supermarkets can give a reasonable price for the customers which will help the big supermarkets improve the competition with others competitors. In addition, they also can ask the special requirements for the product quality, the farmers are controlled and forced to accept a lower price of their product.

1.2 The effect on the farmers
Oligopsony this relationship between supermarkets with UK farmers is ensures the agricultural goods can sell to the big supermarkets. Famers have the fixed buyers so they are need not worry about to find new buyers. However, due to most agricultural goods are bought by big supermarkets, the farmers have less choice. Famers used to have some bargaining power on the basis of seasonality. Because there are other competitors, they do not know what price has been offered by other producers and this forced them to offer their produce at a low price to ensure a sale. Especially the perishable foods. The supermarkets “dictate not only how much they will...
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