Cheap food in the UK has always been seen as a Government-driven policy. However, given the recent activity of the established supermarkets in the UK, there is a huge push back against price increases of any kind as they try to shore up the business against the twin threats of the growth of discounters and the ever increasing move to online shopping. For example, the German discounters Aldi and Lidl have taken 13% of the UK market over the last 10 years.

Meanwhile, Amazon’s move into food retail is disrupting the established model of grocery retail in the UK.

The recent announcement that UK supermarket giants Asda and Sainsbury’s will merge will create a single supermarket entity controlling over 30% of the UK market, or £14bn in buying power overtaking Tesco, which controls 27% of the market.

But the key concern for Irish suppliers is that the proposed merger has been flagged as delivering £500m to shareholders combined with major savings to UK consumers without any supermarket closures or the loss of a single supermarket job. This delivers a very clear message that the savings will be provided by suppliers, producers and farmers through increased efficiencies, otherwise known as supplier supports.

The evolution of supermarkets in the 1960s and 1970s represented a similar challenge to the then existing routes to market. The growth in one-stop-shop supermarket buying meant the eventual end of daily deliveries by bread vans, fruit and vegetable suppliers, butchers and, eventually, the milk man.

This was hailed by the supermarkets and their competition champions at the time as the inevitable onward march of progress. However, over the last 20 years, this buying model has insisted that suppliers pay for discounts and promotions.

In a competitive and economically efficient grocery market, the current buying model would embrace change. But given the Asda-Sainsbury’s merger the intent seems to be to use dominant buying power to shore up what may well be becoming an outdated business model.

This anti-inflationary strategy is primarily a defensive one against the discounters. The Aldi/Lidl model is very much based on everyday low prices which has given them a big market share in cheese, liquid milk and beef. Indeed, recent price drops by the discounters in the Irish liquid milk market demonstrate this policy of discounting even when global and local markets are rising.

The supermarket businesses are in battle with each other to protect their market share.

None of them can afford to increase prices at the expense of footfall and losing customers. So the cheap food policy is driven by local factors of competing businesses driving for market share.

From an Irish agri-food sector perspective, the huge concern here is that the ongoing weakness in sterling versus the euro will not be compensated by increased prices in a UK grocery market dominated by consolidation moves and anti-disruption low price strategies.

The UK market is internally focused and is not as lucrative as it once was. Irish suppliers are getting a hard Brexit even if they don’t formally get one. The hope was that when the British left the EU, sterling would weaken and that inflation would protect suppliers (assuming no tariffs, etc). This is not the case. Even if we don’t get trade tariffs, transaction costs would go up by 5% to 7% through admin and customs costs.

The key takeaway from an Irish agri-food perspective is, that over and above sterling weakness and a hard or soft Brexit, trading conditions in the UK are likely to get more difficult if UK supermarkets are allowed to use dominant buying power to force Irish and other suppliers to fund supermarket resistance to evolving market forces and disruption.

While this will be spun fearlessly on the side of the consumer, it is abuse of buying power and, clearly, market failure.

Brexit responses at EU and Irish national level require a solution that recognises this real market failure and responds with real interventions.