Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions -  food prices in europe {SEC(2008) 2970} {SEC(2008) 2971} {SEC(2008) 2972}
Date: 2008-12-09
Institutions: European Commission
Subjects: economic consequence, economic policy, food price, price increase, price of agricultural produce, supply, trade policy

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COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 9.12.2008 
COM(2008) 821 final 

COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, 
THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND 
THE COMMITTEE OF THE REGIONS 

FOOD PRICES IN EUROPE 

{SEC(2008) 2970} 
{SEC(2008) 2971} 
{SEC(2008) 2972} 

(presented by the Commission) 

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COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN 
PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL 
COMMITTEE AND THE COMMITTEE OF THE REGIONS 

FOOD PRICES IN EUROPE 

1. 

INTRODUCTION 

In the second half of  2007,  agricultural commodity  price increases accelerated and by early 
2008 reached exceptional levels. These price hikes caused a rapid increase in consumer food 
prices, which reduced EU household purchasing power by around one percent. Low income 
households were hit even harder.  
In  response,  the  Commission1  proposed  to  better  monitor  developments  in  agricultural 
commodity  and  food  prices;  analyse  the  impact  of  speculation  on  agricultural  commodity 
prices;  and  investigate  the  functioning  of  the  food  supply  chain.  The  June  2008  European 
Council  asked  the  Commission  to  report  back  on  these  issues  by  December.  This 
Communication responds to this request.  

Agricultural  commodity  prices  have  decreased  sharply  over  the  past  months.  However,  the 
structural causes of the price hike, like the growth in global food demand and the decline in 
food crop productivity growth, remain in place. To keep the balance in the global supply and 
demand for food, continued efforts are needed to ensure that agricultural production responds 
to market signals and an open trade policy should be promoted. By agreeing the Health Check 
of  the  CAP,  the  European  Union  has  taken  decisive  steps  to  facilitate  farmers'  responses  to 
changing market conditions. Moreover, the Doha Round of WTO trade talks aims to open up 
agricultural markets to developing countries. Incentives and assistance to raise the production 
potential in developing countries could also contribute to increasing global food security.  

At the same time, there is an increased concern about renewed price volatility. The swings in 
agricultural  commodity  prices  have  been  accompanied  by  a  surge  of  investment  flows  in 
related  financial  derivatives.  This  raises  the  question  about  the  role  that  speculation  has 
played  in  determining  prices  and  whether  misalignments  from  economic  fundamentals  have 
occurred. Continued surveillance of the agricultural commodity markets is required, in order 
to assess how excessive volatility and the build up of herd like speculative positions can best 
be avoided in view of the damage that these may cause. 

Against the background of the economic slowdown, it is more important than ever to ensure 
that downwards movements in commodity prices are transmitted to consumers without delay 
and to raise the competitiveness of the agricultural, food processing and distribution sectors. 
This  is  fully  in  the  spirit  of  the  European  Economic  Recovery  Plan  put  forward  by  the 
Commission  on  26  November  2008,  which  highlights  the  need  to  swiftly  stimulate  demand 
and  boost  consumer  and  business  confidence.  Identifying  and  resolving  problems  in  the 
functioning  of  the  food  supply  chain  in  terms  of  regulation  and  competition  is  key  to 
achieving this objective.  

This Communication is organised as follows. Section 2 reviews developments in agricultural 
commodity  prices  and  provides  an  outlook  for  the  medium-term.  The  contribution  of 

1 

Communication for the Commission on "Tackling the challenge of rising food prices – Directions for 
EU action", COM(2008)321 

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speculation to agricultural commodity price developments is analysed in Section 3. Section 4 
investigates the functioning of the food supply chain. Section 5 sets out a roadmap to remedy 
problems identified and Section 6 concludes. 

2. 

DEVELOPMENTS IN AGRICULTURAL COMMODITY AND FOOD PRICES  

2.1. 

Developments in the market prices of agricultural products 

The surge in agricultural commodity prices resulted from a combination of structural 
and  temporary  factors.  Structural  factors  such  as  global  population  growth,  rising 
incomes  in  emerging  economies  and  the  development  of  new  market  outlets  have 
contributed  to  a  gradual  rise  in  world  demand.  Global  supply  was  unable  to  keep 
pace  due  to  a  slowdown  in  the  growth  of  food  crop  grain  yields  and  the 
characteristics of world agricultural markets which are thin and typically constrained 
by  the  seasonality  of  production.  Moreover,  increasing  production  costs,  due  inter 
alia  to  rising  energy  prices,  spilled  over  on  agricultural  commodity  prices.  The 
impact  of  these  structural  factors  was  amplified  by  large  production  shortfalls 
resulting from adverse weather conditions and trade restrictions imposed by several 
exporting countries. Exchange rate developments, growing speculative activity in the 
commodity  derivative  markets  and  the  close  relationship  between  agricultural  and 
other  commodity  markets,  such  as  the  oil  market,  also  affected  agricultural 
commodity  price  developments.  The  contribution  of  these  various  factors  varies 
between  sectors.  For  example,  changes  in  wheat  and  rice  prices  are  largely 
attributable  to  supply-side  factors  while  maize  and  soybean  markets  have  been 
mainly driven by a strong growth in global demand both for meat consumption and 
for industrial use. 

Commodity prices have sharply declined over the most recent months and have come 
back to levels similar to or even below those before the price spikes. Moreover, the 
global economic uncertainty raises concerns about possible renewed price volatility. 
The  effect  of  some  of  the  short-term  drivers  which  amplified  the  increase  in 
agricultural  prices  in  the  second  half  of  last  year  has  diminished  due  to  more 
favourable weather conditions, declining energy prices, lifting of export restrictions. 
Moreover,  global  supply  has  responded  swiftly  and  strongly  to  higher  prices, 
supported  by  a  relaxation  of  production  constraints  in  the  CAP,  notably  the 
suspension of mandatory set-aside of arable land and the increased milk quotas from 
2008 onwards. For example, world wheat production is projected to have reached an 
all-time high in 2008 leading to a considerable decline in wheat prices. 

2.2. 

Developments in the consumer prices of food products 

Since  agricultural  commodities  make  up  only  a  small  proportion  of  the  overall 
production  costs  of  food,  food  consumer  prices  have  increased  more  slowly  than 
agricultural  prices.  For  example,  the  cost  of  wheat  in  a  loaf  of  bread  represents  on 
average less than 10% of the final consumer price.  

Nevertheless, the increase in consumer food prices during the summer of 2007 and 
up  to  early  2008  was  significant.  Together  with  oil  price  increases,  international 
agricultural commodity price movements have had a major impact on inflation in the 
EU  over  the  past  year.  From  August  2007  until  July  2008  food  price  inflation 
(excluding alcohol and tobacco) accounted for around 1.0 percentage points (pp.) of 
total  inflation.  This  contribution  can  largely  be  attributed  to  price  developments  in 

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the  processed  food  category  (mostly  driven  by  "bread  and  other  cereals  based" 
products as well as "dairy" products).  

The differences observed in price developments between processed and unprocessed 
food  appear  mostly  due  to  "composition"  effects.  The  category  "Processed  food" 
includes food products that are produced on the basis of commodities most affected 
by  the  international  price  increases,  notably  cereals  and  dairy  products.  The  input 
costs for the category "unprocessed food" – including meat and fish – have increased 
much less. Moreover, the sharp increases in fuel prices may have had a greater effect 
on processed food prices.  

The  contribution  of  food  price  inflation  to  headline  inflation  varies  across  Member 
States  with  the  largest  contributions  recorded  for  the  new  Member  States.  Parts  of 
this  variation  can  be  explained  by  differences  in  the  weight  of  food  in  consumer 
expenditure, which is typically higher in countries that have lower per capita GDP. 
The 16% of Europeans that live below the poverty threshold appear most affected by 
the food price increases, because their choice of food products is limited and because 
food expenditure represents a significant share of their budget. 

2.3. 

Outlook for the agricultural markets and food prices 

The  sharp  decline  in  the  prices  of  agricultural  commodities  over  recent  months  is 
forecast  to  generate  a  fall  in  food  price  inflation  and  a  significant  decline  in  the 
contribution  of  food  prices  to  the  headline  inflation  over  the  next  two  years.  This 
suggests  that  the  contribution  of  food  inflation  to  headline  inflation  in  the  EU  will 
normalise over the course of 2009, with food inflation contributing around 0.6 pp. to 
headline inflation in the EU in 2009 and 0.5 pp. in 2010. 

In  spite  of  the  major  uncertainty  surrounding  future  price  developments,  structural 
factors  like  the  growth  in  global  food  demand,  the  development  of  new  market 
outlets and the long-term decline in food crop productivity growth are likely to hold 
up  prices  over  the  medium-term.  This  will  provide  incentives  for  increasing  the 
production  of  food,  including  in  developing  countries.  Prices  are  also  expected  to 
show  greater  fluctuations  than  observed  over  recent  decades  as  stock  levels  remain 
relatively  tight.  As  a  result,  any  significant  changes  to  supply  or  demand  could 
quickly result in higher price volatility.  

An improved capacity to adjust production through an increased market orientation 
combined with adequate safety nets is instrumental in facilitating farmers' response 
to  more  volatile  market  conditions.  By  agreeing  the  Health  Check  of  the  CAP,  the 
European Union has taken decisive steps in this direction, notably with the abolition 
of  arable  set-aside,  the  gradual  phasing-out  of  milk  quotas  and  the  conversion  of 
market intervention into a genuine safety net. This will help agricultural producers to 
respond better to market signals and to benefit from new opportunities. 

2.4. 

Increasing global production and removing trade barriers 

To re-balance the global supply and demand for food, agricultural production should 
respond  to  market  signals  and  an  open  trade  policy  should  be  promoted.  The 
restrictions  on  agricultural  exports  imposed  by  some  countries  last  year  did  more 
harm  than  good  because  they  cut  off  market  signals  and  discouraged  farmers  from 
producing more to meet the growing demand. The Doha Round of WTO trade talks 
promises  to  open  up  agricultural  markets  to  developing  countries.  The  EU  remains 
committed  to  reach  agreement  on  an  ambitious  and  balanced  outcome  of  the  Doha 

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Development  Agenda  and  will  make  positive  contributions  to  achieve  such  an 
outcome. 

To  increase  the  production  potential  in  developing  countries,  it  is  essential  to 
improve  the  business  environment  of  farmers,  for  instance  through  better  access  to 
credits,  inputs  and  information.  This  requires  investment  in  rural  infrastructure,  as 
well  as  reforms  in  agricultural  policies,  institutions  and  land  management  regimes. 
Long-term food security requires a more sustainable use of land and water, as well as 
the introduction of agricultural practices adapted to a changing climate. In order for 
agricultural supplies to keep pace with longer-term global demand trends, continued 
efforts to strengthen productivity growth in agriculture is also important, inter alia by 
enhancing  agricultural  research  and  innovation.  EU  development  assistance  will 
support such efforts in developing countries. This is expected to generate a positive 
supply response in the medium to long term. 

The  European  Commission  has  also  taken  a  major  initiative  by  proposing  the 
establishment  of  a  1  billion  rapid  response  facility2.  This  facility,  expected  to  be 
approved  by  the  Council  and  the  European  Parliament  in  the  coming  weeks,  will 
focus  on  supporting  an  agricultural  supply  response  in  developing  countries  in  the 
short to medium term.  

3. 

THE ROLE OF SPECULATION IN FOOD COMMODITY PRICES 

Over  the  past  decade,  the  financial  markets  for  agricultural  commodities  have  experienced 
unprecedented  growth  as  reflected  by  increased  liquidity,  wider  participation,  consolidation 
and the emergence of new exchanges and electronic trading platforms. At the same time, the 
range  of  strategies  employed  in  commodity  trading  has  broadened  and  new  derivative 
products  have  been  developed.  Over  time,  investor  interest  in  these  derivatives  has  been 
growing. 

Two  main  categories  of  participants  can  be  distinguished  in  the  markets  for  agricultural 
commodity futures: commercial players, who are the main operators involved in the purchase 
and sale of physical positions, and financial investors such as hedge funds, investment funds 
and  sovereign  wealth  funds.  While  speculation  based  on  market  fundamentals  helps  to 
facilitate risk management and price discovery, the considerable increase in the activities of 
non-commercial  players  in  recent  years  has  increased  the  risk  for  speculative  bubbles  in 
agricultural commodity futures markets.  

Since the beginning of 2006 there has been a surge in investment flows into these markets, as 
reflected in the total number of outstanding futures contracts held by market participants. In 
addition to the surge in commodity derivative markets there has been since 2007 a substantial 
increase  (in  the  order  of  30%)  of  derivative  activity  in  the  OTC  (over  the  counter)  market 
which is less transparent than the activity in agricultural commodities exchanges. The inflows 
to  the  market  for  agricultural  commodities  futures  may  reflect  an  investor  withdrawal  from 
other markets, notably for structured products, which intensified sharply with the emergence 
of the financial crisis in mid-2007. Similarly, the recent abrupt outflow of investment from the 
agricultural commodities futures market could be indicative of a bursting speculative bubble 
as investors were obliged to find additional liquidity as a result of the general financial crisis.  

2 

Proposal for a Regulation of the European Parliament and of the Council establishing a facility for rapid 
response to soaring food prices in developing countries, COM(2008) 450 

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However,  given  the  short  period,  only  a  weak  quantitative  relationship  can  be  established 
between the upward movement in futures prices and spot prices. A close examination of the 
spreads between spot prices and 12-month future prices does not provide clear evidence that 
rising futures prices have tended to pull spot prices higher.  

In  any  event,  in  recent  years  there  has  been  substantial  divergence  for  some  commodities 
(notably wheat, soya and maize) between spot and future prices, which may well have made it 
more  difficult  for  commercial  operators  to  use  future  markets  for  traditional  hedging 
activities,  raising  questions  about  the  efficiency  of  the  markets  in  achieving  price  discovery 
and hedging opportunities. 

In  conclusion,  while  the  coincidence  of  rising  commodity  prices  and  a  surge  in  investment 
flows into related derivatives is striking, not all of the analytical evidence supports the view 
that speculation has played a significant role in the price formation process. It would therefore 
seem appropriate to continue monitoring the markets for agricultural commodities futures in 
the period ahead and investigate actively how excessive volatility and the build up of herd like 
speculative  positions  can  best  be  avoided  in  view  of  the  potential  damage  that  these  may 
cause.  On  this  basis,  the  Commission  will  examine  the  possibility  of  taking  regulatory 
initiatives in this field. 

4. 

THE FUNCTIONING OF THE FOOD SUPPLY CHAIN 

Global demand and supply developments have been one of the main determinants of the rapid 
increase in food prices observed. Nevertheless, problems in the functioning of the food supply 
chain, either in terms of the degree of competition or concerning regulation may have played 
an  important  role  as  well.  In  the  present  economic  conditions,  it  is  therefore  particularly 
important  to  analyse  how  to  improve  the  functioning  of  the  food  supply  chain  and,  in 
particular, to better understand the transmission  mechanisms  linking  commodity  prices  with 
producer  and  consumer  prices.  This  would  help  identify  appropriate  measures  in  support  of 
the consumer's purchasing power and the competitiveness of the sectors involved. 

The food supply chain connects three economically important sectors: the agricultural sector, 
the food processing industry and the distribution sectors. These sectors account for 6% of EU 
value added and 12% of EU employment. As the food processing industry and the distribution 
sectors  have  many  interactions  with  other  sectors,  market  malfunctioning  along  the  food 
supply chain can have significant repercussions. The slow productivity growth in these sectors 
in comparison with the US indicates that there is room for efficiency improvements. A pro-
active  competitiveness  policy,  such  as  currently  discussed  by  the  High  Level  Group  on  the 
Competitiveness  of  the  Agro-Food  Industry3,  including  research  and  innovation  policies 
financed  through  the  Community  Framework  Programmes,  could  contribute  to  such 
improvements.  

The  shock  caused  by  the  recent  upsurge  in  agricultural  commodities  and  energy  prices  has 
been absorbed differently across Member States, as shown by the differences in national food 
price increases. This is an indication that the EU market for food products is still fragmented. 
While  in  France,  Poland  and  the  UK,  changes  in  producer  prices  have  roughly  tracked 

3 

The  High  Level  Group  on  the  Competitiveness  of  the  Agro-Food  Industry,  bringing  together 
representatives from the Commission, Member States, the European Parliament, the food industry, the 
agricultural sector, retailers and consumers, was set up by Commission decision on 28 April 2008. Its 
mandate is to examine issues affecting the present and future competitiveness of the Community agro-
food  industry  and  on  that  basis  to  formulate  sector-specific  recommendations  addressed  to  policy 
makers at the Community level 

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changes in input prices, albeit with a small time lag, in the other large EU Member States this 
seems  to  be  much  less  the  case,  which  might  reflect  the  bargaining  power  of  some  food 
producers. 

Looking  at  downstream  markets,  the  transmission  of  producer  price  increases  to  consumer 
prices  has  generally  been  faster  in  the  new  Member  States.  In  most  euro  area  countries 
increases  in  consumer  prices  started  to  lag  behind  producer  prices  from  mid  2007  onwards 
(see figure 1). This could be an indication that competitive pressures in the food retail sector 
in the euro area absorbed some of the increase in producer prices. Similar differences can be 
observed as regards price stickiness. In euro area countries,  consumer food prices appear to 
have come down rather quickly following the recent decline in agricultural price levels whilst 
slowly.  
in 

the  new  Member  States 

consumer  prices  have 

reacted  more 

Figure 1: Change in consumer and producer food prices  

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Producer price index - food

Harmonised consumer price index - food

5

10

%

15

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25

Source: Eurostat. August 2007 – July 2008 (yoy change). 

Cross-country differences in the regulatory framework also appear to have contributed to the 
fragmentation  of  the  Single  Market  along  the  food  supply  chain  and  have  hampered  its 
functioning.  In  particular,  entry  restrictions  on  large  retailers  may  have  led  to  higher  prices 
and lower productivity. Similarly, restrictions of sales-below costs have tended to set a price 
floor  which  limits  price  competition  and  increases  stock-management  costs,  even  if  such 
regulations were primarily designed to deter predatory behaviour to the detriment of smaller 
market operators. Moreover, regulations on opening hours raise retailers' costs by limiting the 
possibility to sell products and by increasing operational, logistics and infrastructure costs of 
large retail outlets. However, one needs to bear in mind that these different regulations may 
have  been  designed  to  achieve  other  policy  objectives  that  must  not  be  overlooked  when 
assessing their overall impact. 

Looking at the competitive environment, the degree of bargaining power held by the firms in 
the  respective  sectors  along  the  chain  varies  by  product  category.  Food  producers  offering 
(internationally) branded products due to the 'must-have' status of such products tend to have 

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a  stronger  bargaining  position  versus  retailers.  On  the  contrary,  producers  of  non-
differentiated  products,  for  which  brand  awareness  is  not  high,  are  likely  to  be  in  a  much 
weaker position. 

The asymmetry of bargaining power between agricultural producers and the rest of the supply 
chain has kept producer margins in the agricultural sector under strong pressure. In response, 
agricultural  producers  have  adopted  a  wide  range  of  strategies,  including  the  creation  of 
producer  groups  and  cooperatives,  the  development  of  contractual  arrangements  with 
processors  and  retailers,  and  the  development  of  high-value  added  quality  products,  for 
instance  by  participation  in  voluntary  certification  schemes.  These  schemes  are  useful  for 
producers in rebalancing the asymmetry of bargaining power in the food supply chain as well 
as  for  consumers  and  the  environment.  However,  the  lack  of  mutual  recognition  between 
some  of  these  schemes  required  by  retailers  can  create  entry  barriers  if  joining  several 
schemes  involves  excessive  financial  and  administrative  burdens,  especially  for  small-scale 
producers. 

Consolidation  is  taking  place  throughout  the  food  supply  chain.  While  production  in  some 
food processing sectors, such as processed fruits and vegetables, remains highly dispersed, in 
other  sectors,  such  as  starch,  sugar  and  dairy  products,  it  is  more  concentrated.  The  retail 
sector  is  increasingly  dominated  by  large  food  retailers  and  cross-border  retail  chains. 
Consolidation  can  lead  to  efficiency  gains  resulting  from  economies  of  scope  and  scale, 
achieved  for  example  through  lower  logistic  costs,  which  would  put  downward  pressure  on 
prices.  

Competition  authorities  at  the  same  time  need  to  make  sure  that  the  on-going  consolidation 
process does not worsen upstream and downstream competition conditions at the local level to 
the detriment of consumers and businesses. A number of practices which may merit a closer 
assessment, on a case-by-case basis, always considering the context in which they take place, 
are: 

•  Cartels  are  hard-core  restrictions  of  competition.  Recent  experience  shows  that 
cartels can occur in the food sector and that they are of varying territorial scope. 
Cartels  constitute  very  serious  anti-competitive  behaviour  which  once  identified 
should be targeted as a priority by enforcers. 

•  The  size  and  number  of  "buying  alliances"  in  the  food  sector  has  grown 
considerably throughout the EU leading to increasing concerns expressed by food 
producers. On the one hand, such agreements may lead to efficiency gains from 
economies of scale within the Single Market. On the other hand, they can be used 
as a tool for obstructing rivals' access to essential inputs at competitive conditions 
and/or for competitors to engage in collusive behaviour on downstream markets.  

•  On  a  vertical  level,  practices  relating  to  resale  price  maintenance  are  considered 
hard-core  restrictions  of  competition.  Such  practices  which  restrict  the  buyer's 
ability to determine its sale price mean that distributors can no longer compete on 
price, leading to a total elimination of intra-brand price competition  

•  Other  vertical  agreements  such  as  single  branding  obligations,  which  require 
retailers  to  sell  a  single  product,  and  certain  tying  practices,  which  make  the 
purchase of a product conditional on the  purchase of another product, may have 
either pro-competitive or anti-competitive effects. In terms of negative effects, the 
main competition risks would be the foreclosure of the market to competing and 
potential  suppliers  or  a  loss  of  in-store  inter-brand  competition.  Similarly,  the 

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increased  use  of  private  label  products  by  retailers  may  lead  to  foreclosure  of 
existing  and  potential  competing  suppliers.  This  could  reduce  the  number  of 
product items on the shelves, thereby limiting consumer choice.  

•  Exclusive supply agreements, which oblige the supplier to sell the goods specified 
in  the  agreement  to  one  buyer  only,  can  lead  to  a  foreclosure  of  other 
buyers/retailers  within  the  food  supply  chain.  Certification  schemes  can  be 
mentioned  as  an  example  of  arrangements  that  could  indirectly  compel  the 
suppliers to sell to only one buyer.  

Table 1 provides an overview of the above described practices, which may give rise to 
competition concerns.  

Table 1: Overview of main practices that may give rise to competition concerns 

Practice 
Cartels 

Purchasing agreements 

Description 
Agreements among competitors relating 
inter alia to price fixing, output 
restriction and market partitioning 

Agreements concluded by competing 
buyers for the purpose of jointly buying 
certain inputs 

Resale price maintenance 

Single branding 

Restriction of the buyer's ability to 
determine the sale price to end 
consumers 

Obligation or incentive scheme which 
makes the buyer purchase practically all 
of his requirements on a particular 
market from only one supplier, for a 
certain duration 

Main competition risk 
Maintenance of high prices and stalling 
of innovation to the detriment of 
consumers. Cartels constitute very 
serious anti-competitive behaviour 
Under certain conditions, tool for 
foreclosing rivals' access to essential 
inputs at competitive conditions; 
collusive behaviour between 
competitors on downstream markets 

Reduction of price competition  

Possible restriction of in-store inter-
brand competition and/or foreclosure of 
the market to competing and potential 
suppliers 

Private label products 

Products made by third parties upstream 
in the supply chain and sold under 
retailers' brand 

Possible foreclosure of suppliers' 
competing goods; restriction of in-store 
inter-brand competition 

Tying 

Purchase of a product (tying product) 
made conditional on purchase of other 
product (tied product) 

Exclusive supply agreements  Direct or indirect obligation causing a 

supplier to sell a good only to one buyer 

Possible foreclosure on the market of 
tied product, and indirectly of the tying 
product 
Possible foreclosure of other buyers / 
retailers  

Certification schemes 

Requirement to comply with a number 
of conditions set by individual buyers 

Potential risks of foreclosing competing 
buyers 

5. 

A ROADMAP TO IMPROVE THE FUNCTIONING OF THE SUPPLY CHAIN 

A joint effort at Community, national and local levels is necessary to put in place framework 
conditions for an improved functioning of the food supply chain. This effort is necessary to 
ensure that the integration and consolidation of sectors along the food supply go hand in hand 
with fair earnings of agricultural producers, competitive prices and improved competitiveness 
of  the  food  processing  industry  as  well  as  greater  choice,  better  affordability  and  higher 
quality  of  food  products  for  European  consumers.  Moreover,  unjustified  regulatory 
constraints holding back efficiency and limiting competition should be removed.  

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On the basis of the above analysis, this Communication proposes a roadmap to improve the 
functioning of the food supply chain. The roadmap contains a variety of initiatives and should 
evolve over time as knowledge of the food supply chain deepens. It should also benefit from a 
wide  consultation  of  relevant  stakeholders.  The  proposed  roadmap  consists  of  four  main 
components. 

5.1. 

Promote the competitiveness of the food supply chain 

A pro-active competitiveness policy would help to improve the efficiency along the 
food  supply  chain.  The  recommendations  from  the  High  Level  Group  on  the 
Competitiveness of the Agro-Food Industry expected in early 2009  should help  the 
food  supply  chain  to  improve  its  overall  competitiveness  and  thus  its  resilience  in 
response to price shocks. 

5.2. 

Ensure  a  vigorous  and  coherent  enforcement  of  competition  and  consumer 
protection rules  in the food supply markets by  the European  Commission and 
National Competition and Consumer Authorities 

In order to identify and address all types of potential anticompetitive practices which 
may lead to the malfunctioning of the food supply chain, the Commission will in the 
context  of  the  European  Competition  Network  continue  a  sustained  dialogue  with 
National  Competition  Authorities,  so  as  to  ensure  a  coherent  and  well  coordinated 
enforcement  of  competition  rules  throughout  the  EU,  to  the  benefit  of  European 
consumers.  Based  on  the  analysis  of  market  developments,  investigation  should  be 
targeted at those restrictions of competition and/or specific practices which have the 
highest potential to distort competition to the detriment of consumers (see table 1 for 
a non-exhaustive list). 

Moreover,  at  a  time  of  sharply  fluctuating  food  prices,  the  risk  of  misleading  price 
advertising  increases.  For  example,  consumers  may  be  misled  by  suppliers  altering 
pack size or contents in order to apparently maintain the same price for the relevant 
product.  It  is  particularly  important  for  consumers  to  be  able  to  compare  the  unit 
price  accurately.  National  consumer  protections  authorities  should  therefore  pay 
particular  attention  to  the  enforcement  of  the  Directives  on  unfair  commercial 
practices and unit pricing. 

5.3. 

Review at national and/or EU level, as appropriate, regulations that have been 
identified as potentially problematic for the functioning of the food supply chain  

in  mind 

Several  types  of  regulation  have  been  identified  as  potentially  problematic.  First, 
regulations  that  restrict  entry  of  new  companies  into  the  market  need  to  be 
scrutinised  and  removed  where  appropriate,  while  keeping 
their 
environmental and social goals. Such screening will be carried out in the context of 
the retail market monitoring and the transposition of the Services Directive. Second, 
regulations which restrict business' ability to compete on prices should be examined 
at a national level. Third, practices which distort the relationship between suppliers 
and retailers should be discouraged. This is for example the case for late payments, 
unjustified  or  excessive  fees  paid  by  suppliers  for  services  provided  by  retailers  or 
tempting consumers with misleading offers. In this context, the introduction of codes 
of conduct would be welcome as an expression of retailers' social responsibility and 
national  codes  of  conduct  should  be  reviewed.  Finally,  and  more  generally, 
regulations  on  shop  opening  hours  could  deserve  examination  at  national  level  in 
view  of  their  impact  on  food  prices,  based  on  consultations  of  social  partners  and 
taking into consideration their social and environmental effects.  

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5.4. 

Provide  better  information  to  consumers,  public  authorities  and  market 
operators  by  setting  up  a  permanent  European  monitoring  of  food  prices  and 
the supply chain  

This monitoring tool should address the lack of transparency of prices and improve 
the knowledge of the impact of regulation along the food supply chain. 

The continued monitoring of producer and consumer prices of a set of selected and 
comparable consumer goods would reveal price differentials across Europe and help 
identify  cases  of  market  fragmentation.  There  appears  to  be  a  lack  of  sufficient 
comparable  price  and  quality  information  that  would  empower  consumers  to  make 
better-informed  choices.  In  this  context,  the  pilot  project  currently  run  by  Eurostat 
and the National Statistical Offices to collect detailed consumer prices data should be 
evaluated and developed. 

Within  the  framework  of  its  market  monitoring  exercise  the  Commission  is 
reviewing  regulations  impacting  the  functioning  of  the  retail  markets.  The  issues 
identified above are likely to affect retail sub-sectors other than food and will thus be 
treated in more general terms. Details on the implementation and functioning of this 
monitoring tool will be developed in the follow-up of the current exercise in 2009. In 
developing  this  tool,  consideration  should  be  given  to  services  and  information 
offered  by  existing  public  and  private  price  monitoring  resources,  national  or 
international ones. 

5.5. 

Examine  measures  to  discourage  speculation  to  the  detriment  of  commercial 
operators in agricultural commodity markets  

The  Commission  considers  that  there  is  a  need  to  avoid  the  effects  that  excessive 
speculation has on food prices. In particular, the Commission is of the opinion that 
such  a  degree  of  volatility  as  the  one  observed  during  the  recent  months  benefits 
neither  producers  nor  consumers.  For  this  reason,  the  Commission  will  examine, 
together  with  the  regulators  of  commodity  markets  and  in  close  contact  with  other 
non-EU  regulatory  authorities  (in  particular  the  US  where  the  most  important 
exchanges are located), what measures contributing to a reduction in price volatility 
in  agricultural  commodity  markets  could  be  taken.  The  Commission  will  take  into 
account for this work, as appropriate, the results of the on-going in-depth review of 
the supervisory and regulatory framework that is applied to all significant  financial 
market  actors,  including  hedge  funds  and  private  equity,  with  a  particular  focus  on 
capital  requirements,  risk  management  and  transparency.  The  Commission  will 
present initiatives, as appropriate, by summer 2009. 

6. 

CONCLUSION 

The  sharp  fluctuations  in  agricultural  commodity  and  food  prices  at  a  time  of  great 
uncertainty about the economic outlook illustrate the need to improve the functioning of the 
European  food  supply  chain  with  a  view  to  enhancing  its  efficiency  and  competitiveness. 
Better  regulation  and  ensuring  a  vigorous  and  coherent  enforcement  of  competition  and 
consumer  protection  rules  will  contribute  to  limiting  price  increases  for  the  benefit  of 
European  consumers,  in  particular  lower  income  households.  Moreover,  it  will  also  help 
overcome  the  present  fragmentation  of  the  food  supply  chain  and  remove  artificial  entry 
barriers for producers, which will help European consumers benefit from the widest possible 
choice  of  quality  food  products.  Additionally,  this  could  help  rebalancing  the  bargaining 
power in the food supply chain. 

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This Communication proposes a roadmap to be implemented both at Member State and EU 
level  with  the  active  involvement  of  all  relevant  stakeholders.  On  the  basis  of  this  work 
programme  and  related  measures,  the  Commission  will  examine  the  possibility  of  taking 
further action and proposes that the European Council revisit this matter in December 2009.  

In order to re-balance the global supply and demand for food, efforts to stimulate agricultural 
research  and  innovation  and  open  up  international  markets  should  be  strengthened.  An 
improved  capacity  to  adjust  agricultural  production  through  an  increased  market  orientation 
combined with adequate safety nets is instrumental in facilitating farmers' response to more 
volatile  market  conditions.  By  agreeing  the  Health  Check  of  the  CAP,  the  European  Union 
has taken decisive steps in this direction that will help agricultural producers to respond better 
to  market  signals  and  to  benefit  from  new  opportunities.  Given  the  uncertainties  about  the 
evolution  of  agricultural  commodity  prices,  continued  monitoring  of  the  behaviour  and 
performance of markets in the period ahead will be required. 

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