The Scottish Government has acknowledged that a proposed cap on essential supermarket food could put pressure on farmers if retailers seek to recover lost margin further down the supply chain.
Ministers have opened consultation on potential statutory price controls for a basket of essential food and drink items, with bread, milk and eggs among the examples cited.
The proposal is intended to make food more affordable for households facing continued cost-of-living pressure, particularly those on lower incomes.
But the government’s partial Business and Regulatory Impact Assessment (BRIA) makes clear that the impact of a cap could extend well beyond the large supermarkets which would be directly covered by the scheme.
Under the proposed model, the legal obligation would apply to grocery businesses with more than 250 employees, annual turnover above £250 million and more than half of turnover coming from grocery sales. The proposal would cover both physical stores and online grocery retail.
Qualifying retailers would be required to offer at least one product line in each specified category at or below a maximum price set by ministers. The final food basket, cap levels and implementation arrangements have yet to be decided.
The government has suggested that the basket could contain between 20 and 50 staple products. It says the policy would complement wider action on household costs rather than resolve cost-of-living pressures on its own.
Farm businesses would not be subject to the direct legal duty. However, the BRIA identifies farmers, crofters and fishers as indirectly affected, alongside food manufacturers, processors, wholesalers, distributors, packaging suppliers, transport operators and logistics businesses.
It acknowledges that a binding price cap could reduce the revenue or margin associated with capped products, and that the cost could be absorbed by retailers, passed through the supply chain or offset through other commercial decisions.
The assessment identifies several possible retailer responses: renegotiating with suppliers and intermediaries, changing sourcing arrangements, adjusting product ranges, reducing availability or quality, and increasing prices of products outside the capped basket.
It states: “Primary producers may be particularly sensitive to changes in commercial terms where they have fewer opportunities than larger downstream businesses to negotiate prices or contractual arrangements.”
The assessment says stakeholders may be concerned that 'a disproportionate share' of commercial adjustment linked to a food cap could occur at the production stage.
Ministers say they want to design any scheme in a way that protects Scotland’s primary producers in farming and fishing communities.
Business and fair work minister Tom Arthur said farmers and fishing communities were central to Scotland’s food security, economy and way of life.
He said: “I am committed to taking action to address food affordability in a way that protects them, and I intend to work directly with them to understand how best to do this.”
However, the consultation proposes that producer protection should be dealt with through future policy interventions rather than specific legal provisions in any future Bill.
The illustrative draft legislation would require Scottish ministers to have regard to the likely impact on producers, retailers and other affected businesses when choosing which foods are capped and setting price levels.
More News
-
Carmichael speaks on food supply chain fairness at Royal Highland Show
-
Scottish ministers warned greening rules could cut fodder and livestock
The consultation does not yet propose a farmgate price floor, mandatory supplier-margin protection, a ban on retrospective price cuts, or compensation where farm businesses lose income because of a cap.
The government says it needs more evidence before deciding on a final approach.
It acknowledges that tracing the impact of a retail price cap through a modern food supply chain will be difficult. Farmgate prices are shaped by numerous factors including domestic and international markets, production costs, contracts, input costs and relationships between processors, manufacturers, wholesalers and retailers.
It notes that ministers may be able to use existing powers under the Agriculture (Retained EU Law and Data) (Scotland) Act 2020 to require relevant businesses in, or closely connected with, the agri-food chain to provide information about their activities.
The risk to domestic sourcing is also flagged.
The BRIA says retailers or suppliers may seek lower-cost alternatives to protect margins. That could reduce demand for Scottish food and drink and increase reliance on imports, with potential implications for Scottish producers, food security, environmental outcomes, animal welfare and production standards.
NFU Scotland said it supported the objective of helping people, particularly those on lower incomes, afford a healthy and nutritious diet.
However, it said direct intervention in food prices carried 'significant risks' for the viability and resilience of the domestic food supply chain.
NFU Scotland director of policy Jonnie Hall said: “Those risks must not simply be transferred down the supply chain to farmers and crofters.”
He said the government was right to recognise that primary producers had less influence over prices and contracts than larger downstream businesses, and that the eventual impact of retail controls could be felt at farmgate level.
But he said the proposed safeguards were inadequate.
“The Scottish Government proposes primary producer safeguards principally through policy interventions rather than putting specific safeguards in the Bill,” Mr Hall said.
“The draft legislation merely requires ministers, when setting or changing the products or price caps, to ‘have regard to’ the impact on producers, retailers and others.
“That is not, in our view, a sufficiently robust safeguard.”
Mr Hall said the proposed duty did not give farmers and crofters 'a meaningful guarantee' that they would not absorb costs arising from a policy intended to reduce prices for consumers.
No final decision has been made on what goods would be included, the level of the caps, or the measures that would protect farm businesses and suppliers.
The consultation runs until November 24.
Share