Michael Mooney

In October 2023, the supermarket chain Lidl rolled out price reductions store-wide for various produce items, frozen foods, and snacks. The price cuts are a beneficial change for shoppers, who experienced an average grocery cost inflation of 20% in early 2023, but may impact the income farmers receive when selling the goods. 

Background

In the last 6 months, Lidl has shown its commitment to taking the ‘cheapest supermarket in Ireland and the UK’ title from its competitor Aldi. Therefore, despite the continuously rising costs of living in Ireland, grocery prices are falling.

Aldi and Lidl have historically kept grocery prices at similar levels. According to Which? Magazine, in October 2023, there was only an average price difference of 17 pence between the two stores. However, despite the narrow margin, Aldi held the “cheapest supermarket” label for the previous 11 months of the year. 

To ensure customer loyalty and satisfaction, both grocery giants are inclined to not only keep prices low but to keep them the lowest. Aldi mirrored Lidl’s cuts in October of last year, meaning consumers saw “the cost of almost 50 products fall by an average of about 7%.”. Soon after, Lidl responded and “significantly reduced prices of more than 600 products” through the end of 2023. The year concluded with Aldi cutting prices on 170 more goods, alongside a statement that there will be “no impact” on producers. 

Where Cost Cutting Hurts: Supply Chain

While these newly affordable prices are beneficial for consumers, there also needs to be awareness of the supply chain implications stemming from the reductions. In December, Darina Allen, founder of The Ballymaloe Cookery School said “stores are forcing farmers to keep prices low”, thereby threatening the financial stability of farmers. 

However, in January 2024, both Lidl and Aldi announced additional price reductions. Aldi cut grocery prices up to 23%, stating that customers would “see the price of a typical trolley of the most popular goods reduced from €121 to €106.” One day later, Lidl cut prices for 100 items. 

Despite Aldi’s claim that price cuts will not affect supplier margins, farmers are acutely aware of the continued price cuts. In January, the Irish Farmers Association stated that farmers “will not tolerate any reduction in the margin they receive”.

As of March 2024, the supply chain has not yet felt the effects of these price cuts, but the threat of reduced income still looms over the industry. Additionally, despite current price reductions and dropping income, the average subsidies provided to farmers is only €18,274 (which is less than in 2012, when it was closer to €20k per farmer, according to the Irish Independent). 

Farmer Concerns: What Next?

Farmers are in a delicate situation, with a lack of effective financial support from both grocery companies and the government in light of potential income cuts. Even the establishment of “An Rialálaí Agraibhia” (The Agri-Food Regulator) in late 2023 has not resulted in improvements. They were declared in charge of enforcing regulations regarding Unfair Trading Practices, but have not commented on Lidl and Aldi’s consistent price reductions and farmer concerns. 

Fortunately, Teagasc, the Irish body related to agricultural research, advisory, and training services, predicted an upturn in income again in 2024 by up to 30% for farmers in sectors such as dairy products, beef, and cereal. This year is predicted to be a “more normal year for weather” and farmers will benefit from expected “reduction[s] in fertiliser, fuel and electricity prices in 2024”, according to Trevor Donnellan, a chief Teagasc economist. Overall, the food production industry appears stable. 

Lidl and Aldi’s effort to maintain affordability despite inflation rates is commendable, particularly in the context of growing cost-of-living issues in Dublin and other cities. However, their responsibility to sustain their producers financially should be better managed by the government and related regulatory bodies. 

With any amount of luck, Ireland has seen the end of Lidl and Aldi’s price-cutting war. Stabilization of food prices in 2024 will allow for a more stable supply chain and will ensure the prosperity of producers alongside consumers in the months to come.