The surprise £12 billion merger deal between Sainsbury’s and Asda, has raised fears that it will force suppliers to cut prices further. The combined business will overtake current market leader Tesco, representing around 30% of UK grocery sales which will give it increased power.

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Promises that the Asda-Sainsbury’s merger will reduce the price of core household goods has angered the National Sheep Association (NSA). The organisation says that while the comments by Sainsbury’s Chief Executive Mike Coupe do not specifically mention lamb, the overall message of retailers expecting more (product and quality) for less (money) from its food suppliers means the squeeze will get tighter.
 
NSA Chief Executive Phil Stocker says: “This loss of competition in the marketplace, and an increased imbalance in the supply chain, cannot be in the long term interests of food producers, nor in my mind of society at large. It may result in reduced prices, but all this will lead to is less realisation of the value of food and a host of things being lost that may be invisible today but will become very visible at some stage in the future.
 
“If we end up putting pressure on the bulk of our sheep farming families and businesses we will end up with a very different countryside and rural community – and the danger is that it won’t be noticed until it is lost.”

Vicki Hird, Sustain’s Farm Campaign Coordinator said,

“The Asda Sainsbury’s merger will create more grief for farmers trying to get a fair deal from an ever shrinking set of buyers – lower prices and few market options is the last thing they need with the uncertainties of Brexit ahead. In the long run, it will mean reduced choice for consumers with farmers squeezed and fewer outlets as the mega corporation combines its stores and high streets go into further decline.

A competition probe seems inevitable given the size of the two chains and the UK's competition watchdog,has already stated that it was "likely" to review the merger.

As a result NFU President Minette Batters said:

“The NFU will be examining the details of this proposed merger between Sainsbury’s and Asda carefully and the further concentration of retail power it creates within the food supply chain. We will also seek clarity on what the structure of any merger will be. 

"We will be requesting a meeting with Sainsbury's and Asda to ensure that the commitment of the new business to British sourcing will not be affected. First and foremost the NFU will be seeking to understand what potential impact a merger would have on our members - both those farmers who are directly part of these supply chains and those who could be affected by wider connotations.

“With just over 31% of the market potentially being held by one company the Competition and Markets Authority (CMA) is likely to consider the impact on shoppers - but that must also take account of changes to supply arrangements that could give rise to a reduction in choice and availability over the long term. The impact of the whole supply chain, all the way down to farm level, needs to be carefully assessed. 

“The NFU supports any investigation by the CMA and we would aim to feed into this if approached.” 

Labour's shadow business secretary Rebecca Long-Bailey told the BBC earlier that she was concerned at the impact on suppliers of the proposed tie-up.

The combined group "will have immense purchasing power, giving them an opportunity to bargain very hard with suppliers," she warned.

Mike Cherry, national chairman of the Federation of Small Businesses, said the firms should explain how they plan to merge their supply chains fairly, and reassure people that cost savings wouldn't be achieved "simply by milking their small suppliers for all they're worth".

“A merger of this size will concentrate a lot of power in the hands of one giant company, and it’s important that power isn’t misused to coerce small suppliers into accepting unfair contracts and poor payment terms.

“Those at the top of Sainsbury’s and Asda should explain how they plan to merge these two supply chains fairly, and give reassurance that cost savings won’t be achieved simply by milking their small suppliers for all they’re worth.

“When investigating this proposed merger, the Competition and Markets Authority should be looking for cast-iron commitments that a positive standard will be set for working with smaller suppliers.”

NFU Scotland Chief Executive Scott Walker said: “If allowed to proceed, this merger will concentrate a lot of retailer power into the hands of one company. 

“In a statement from the retailers on the merger, it was made clear that a primary objective will be to lower prices by "around 10 per cent on many of the products customers buy regularly".  That will set alarm bells ringing, not just for primary producers, but for other parts of the supply chain as well.

“If the merger goes ahead, there is an opportunity here for potentially the biggest player in the UK’s retail sector to put in place a system of responsible sourcing and to end the spectre of Unfair Trading Practices (UTPs) by supermarkets that blights the sector by delivering a fair share of risk and reward all the way back to the farm gate.

“If it goes ahead, then farmers and shoppers will also want to see the strongest commitment from the new retailer to sourcing more Scottish and UK produced food than they currently do.  NFU Scotland’s Shelfwatch work in 2017 and 2018, where secret shoppers looked at supermarket offerings of lamb, pork and bacon, showed that both Asda and Sainsbury’s could be doing much more to support the nation’s primary producers.”

MEP Molly Scott Cato said:

“The UK’s food retail market seems to be on a conveyor belt towards increased concentration and reduced competition. I hope the EU Competition Commission will checkout this proposed merger and force Sainsbury’s and Asda to shelve their plans.

“It cannot be right for just two retailers to hold almost 60% of the market. This cannot be in the interests of UK consumers or food producers. We know that the larger these companies become, the more ruthless they are in seeking to eliminate competition and pressure producers, leaving them struggling to remain viable.

“The EU has taken a lead in challenging unfair practices in the food supply chain so I hope that the Competition Commissioner will conclude that the concentration of power into the hands of a small group of titans leads to unfair contracting practices with farmers and food suppliers. The fact that the UK imports a large percentage of its food from the EU should also focus minds at the Commission because such a merger could have far reaching implications for European suppliers.

“The EU has acted where the UK authorities have often failed to. If the UK does not show itself willing to block such mega-mergers, farmers, food producers and small independent retailers will rightly be worried about what sort of business and economic environment they face post-Brexit.”