relationship with suppliers

The wallet has been a bit lighter over the past 10 years if new figures are anything to go by with food prices both in New Zealand and Australia rocketing up more than 40%.

And experts say it's because New Zealand has only got two major supermarket chains, with a stranglehold on prices.

Statistics prove the cost of food in New Zealand has increased more than almost anywhere else in the 30 countries that make up the developed world.

The OECD figures show Korea had the biggest grocery price hikes over the past decade, 48%. In New Zealand, they went up 42% and Australia was close behind on 41%, all significantly higher than the OECD average of 33%.

A competition expert at the University of New South Wales, Frank Zumbo, says it's not fair on consumers on both sides of the Tasman. "We're paying more than competitor countries and the reality is consumers are being ripped off," he says.

He says consumers are being ripped off because both in New Zealand and Australia two supermarket heavyweights have a stranglehold on shoppers' wallets. Zumbo says Coles and Woolworths control 80% of the Australian grocery market.

In New Zealand, Foodstuffs owns Pak 'n' Save and New World, and Progressive Enterprises runs Foodtown, Countdown and Woolworths.

Hamish Wilson of Consumer New Zealand says this does lead to a lack of competition. "There've been some attempts by people like The Warehouse to try and break into it but it's pretty difficult," he says.

And it seems the increases are not going all the way down the food chain. Ken Robertson of Horticulture New Zealand says vegetable and fruit growers probably have not seen any real price increases in the past 10 years.

ONE News approached both chains. Progressive would not appear on camera but says consumers are getting a fair deal. Foodstuffs agrees. "It is an intensely competitive industry. We certainly don't meet with Progressive and agree price increases or nothing like that," says Tony Carter of Foodstuffs.

In Australia, the government says it's going to take its "competition blowtorch" to the industry. Until that happens in New Zealand, the advice to consumers is to shop around.

Consumer Affairs Minister Heather Roy says the Australians have their blowtorch and National and the Act Party have their regulations bonfire. She says she wants more competition and they are working on taking out some of the red tape and compliance costs to encourage more competition for New Zealanders' dollars.

Zumbo is advocating a marketplace similar to Britain's where four or five big players share about 60% of the market. He says letting rivals such as Aldi have a greater market share is the only way consumers will get a fair go.

New Zealand businesses often have a tough time competing against larger Australian rivals.

Our corporate history is littered with failed New Zealand attempts to break into the Australian market, while large Australian companies have done well here, often buying and running dominant companies in New Zealand and increasing their profits.

The Warehouse, Telecom and Air New Zealand are the most recent examples of our corporate failures across the Tasman. Only Michael Hill comes to mind as a success.

Australian-owned media companies Fairfax (the owner of Stuff, TradeMe and the former INL chain of newspapers), APN (New Zealand Herald) and the banks (ASB, ANZ, BNZ, Westpac and National) have all done extraordinarily well since buying into New Zealand, particularly over the last five years as they profited from dominant positions in a relatively fast-growing economy.

So most assumed that when Woolworths bought the Progressive supermarket operation in 2005 it would monster the apparently outdated cooperative structure of New Zealand’s Foodstuffs operation.

There was plenty of swagger in Woolworths’ early approach in New Zealand. It flexed its muscles as a massive purchaser to drive down prices and margins for suppliers in new “Trans-Tasman” bulk purchasing arrangements. This made a lot of local suppliers very grumpy and lost it an enormous amount of goodwill with the supplier community. New Zealand is still a small place and many have not forgotten these tough negotiating tactics.

Then in August and September of 2006 Woolworths locked out workers at its Palmerston North distribution centre for almost a month to show them who was boss after they went on strike for fairer and higher pay. After a couple of weeks, gaps began to appear on shelves. Customers joined the queue of grumpy parties, alongside workers and suppliers. Eventually Woolworths settled, but the damage to its reputation was significant with customers used to well-stocked shelves.

This early robust approach may well have worked in Australia, but it just got a lot of people’s backs up here. There is definitely a difference in business cultures between New Zealand and Australia. New Zealand managers tend to be more consensual and less confrontational than those in Australia. They don’t like criticising rivals and tend to be much more careful before deciding to “burn” a supplier or rival or union.

Australian business leaders tend to be more brash, more willing to criticise rivals and debate issues publicly. Their approach is much more about a good stoush and a beer afterwards. Here we’re a little more reticent. There’s something about our national character which is more conservative and unwilling to confront rivals. We try to avoid open confrontation if we can. That means we can sometimes get monstered in negotiations.

This, of course, is a crass generalisation, but many New Zealanders would recognise it. I worked in Australia as a business journalist for five years and found it a much easier place to report business issues because leaders there are more direct and uncompromising, although ultimately had a more outward-looking and more optimistic view of the future. I admire it, but I know it’s different.

Toll Holdings is still patting itself on the back for the amazingly high price it managed to extract from a vote-hungry Labour-led government after years of arm twisting. People I talk to in Australia still can’t believe our government rolled over for this price. They just chuckle and count the money.

So the failure of Woolworths to win the battle with Foodstuffs is unusual. We like to beat the Australians in any battle and this win is particularly sweet.

Woolworths expected to “turn around” the business it bought for NZ$2.5 billion within three years by bringing in the Woolworths Australia model of using massive purchasing power and highly centralised distribution systems to pass on lower costs to customers while increasing margins.

Yet the three years is nearly up and the business, which includes the Foodtown, Countdown and Woolworths chains, is seeing its sales growth and profit margins dropping.

Figures from JP Morgan analyst Shaun Cousins show that Woolworths’ market share has dropped to 43% from 45% in New Zealand, while Foodstuffs’ share has risen to 57% in the last couple of years.

Woolworths’ results for the financial year released on Tuesday lay bare the scale of the failure in New Zealand.

Woolworths’ profit margin (earnings before interest and tax to sales) in New Zealand actually fell 4 basis points to 4.19% and its overall profit growth was up only 6.4%. This compared with 18.8% profit growth and a 5.52% profit margin in the Australian supermarkets.

So Woolworths is a full 133 basis points less profitable in New Zealand than in Australia. That may not sound a lot but for a tight-margin, high-volume business like groceries this is a big deal. Comparable sales growth (after taking into account the different number of weeks in the financial years) fell to 3.5% in the fourth quarter of the 2008 financial year from 9.9% in the first quarter.

This is shockingly weak when overall supermarket and grocery sales reported by Statistics New Zealand rose 5.3% in the June quarter from the same quarter a year ago. Woolworths itself said food price inflation ran at 4.6% for the year so a 3.5% rise actually implies a fall in volumes.

Foodstuffs, which owns the Pak’nSave, New World and Four Square chains, is winning the battle.

So what went wrong for Woolworths and right for Foodstuffs?

Woolworths’ robust approach to heavying suppliers and workers was not popular, but the problems run deeper. Woolworths believed it could make significant gains by imposing a centralised distribution system on Progressive and introduced big “Homebrand” ranges that are made under contract for Woolworths. It is also rolling out its own Select, Naytura, Organics and Freefrom brands for various specialist foods.

This sounds like a good idea, but other suppliers get nervous when the supermarket chain starts stocking and promoting its own brands in precious shelf space at the expense of real brands. Suppliers also seem to prefer Foodstuffs’ decentralised approach in New Zealand where the supermarket is itself the warehouse (stack ‘em high and sell ‘em cheap).

It’s easier to take the supplies direct from the factory to the supermarket than to some intermediate depot. Suppliers also like dealing direct with supermarket managers rather than with warehouse managers. It means they’re one step closer to the customer.

The latest clash between New Zealand suppliers and Woolworths was revealed last month by The Independent. Woolworths wanted to penalise suppliers who were selling goods on discount through Foodstuffs at the same time as through Woolworths. It’s no surprise suppliers don’t love Woolworths.

There’s also something more fundamental going on. Foodstuffs is essentially a collection of owner-operated supermarkets who share purchasing and marketing costs, but are often fiercely independent and “local” in their approach.

That means the individual supermarket owners are intensely motivated to run good supermarkets because they keep the profits and tend to guess right what the population around their supermarkets wants to buy.

The corporatised Woolworths model has lots of employees but not many owners.

The final (and probably key) factor is Foodstuffs’ dominance in the discount grocery area. Pak’nSave has become The Warehouse and TradeMe of the grocery world all wrapped into one. It is cheap and cheerful with great ranges.

That’s what New Zealanders want right now. We are feeling the pain from higher food and fuel prices and want to find a bargain whenever we can. Pak’n'Save is simply bigger and better at it than Woolworth’s Countdown brand, as can be seen in this report from The Press.

Woolworths is trying to turn this around by converting some of its Foodtown stores to Countdown stores (Greenlane in Auckland is one that comes to mind) and rejigging its ranges to take them down market.

I think of my own family’s buying habits in recent months. We have a great collection of Pak’nSaves around us in Auckland and quite a few Foodtowns. When we need something unusual such as gluten- and dairy-free stuff we go to Foodtown, but it’s less often than it used to be. The strike/lockout in 2006 and the shortages it caused were the trigger point for us to start looking elsewhere. A visit to a supermarket is useless if you can’t get everything in one visit.

We’re now doing our big shops now at Pak’n'Save. We reckon we can save up to $100 a week.

Kiwis love a bargain and right now we seem to love the Kiwi grocery chain a bit more than the Aussie one.

Questionable supermarket policy needs investigation: Greens

Allegations that supermarket giant Progressive Enterprises is applying pressure to its suppliers adds further impetus to the Green Party's call for a Commerce Commission inquiry into industry practices, and a code of conduct for supermarkets, Safe Food Spokesperson Sue Kedgley says.

According to a news report, grocery suppliers will be penalised for having their products promoted in rival supermarkets at or around the same time as Progressive's own advertised promotions. If this occurs, suppliers would be charged for the differential on the price offered in the opposition supermarket.

"These are precisely the kind of tactics that penalise small independent growers and suppliers who are already struggling in a highly competitive environment," Ms Kedgley says. "Progressive allegedly wants details of suppliers' supermarket specials with trade competitors - in advance - and will not accept promotions for inclusion in its mailers where there is a clash with a competitor's promotion arranged by the supplier," Ms Kedgley says.

Ms Kedgley says she is alarmed at reports that, while suppliers are furious about these practices, they fear if they don't play ball, their products would be left off supermarket shelves.

"Why should a farmer who grows and supplies broccoli to Progressive and the local New World be punished by a retrospective cut on their payment from Progressive because New World decides to have a special on broccoli in the same week?

"Most farmers and manufacturers have nowhere else to sell their produce than the two supermarket chains that control 96 percent of New Zealand's grocery market. An investigation would clarify whether there is any truth to the allegations that Progressive may be misusing its position to force small farmers and business people to take cuts in their margins.

"It would also determine whether this practice breaches the restrictive trade practices under the Commerce Act.

"New Zealanders spent $16 billion in supermarkets last year. They are a huge business, and it is essential that there are clear rules governing the trade, which prevent unfair trading practices occurring in the sector. That's why we need a Commerce Commission Inquiry into the sector and a code of conduct for supermarkets, such as exists in the United Kingdom," Ms Kedgley says

Supermarket giant Progressive Enterprises is turning the screws on its suppliers with a "no clash policy" imported from Australia. The policy financially penalises grocery suppliers for having their product promoted in rival supermarkets at or around the same time as Progressive's own advertised promotions. Should a clash happen, suppliers will be charged for the differential on the price offered in the opposition supermarket.

Progressive also wants details of suppliers' forward promotion plans with competitors. The practice so worries the Food and Grocery Council, it went to Auckland barrister John McBride for an opinion.

The council told its members to seek their own legal advice, but says it would counsel against accepting the policy. It has recommended they decline the request to share forward promotion plans.

Progressive's managing director Peter Smith said in a written statement yesterday that the company was not breaching any law when indicating to suppliers it would not accept promotions for inclusion in its mailers where there was a clash with a competitor's promotion arranged by the supplier. But nowhere did Smith address the policy's punitive element dropping the price of a product in a Progressive store to match that of a competitor, then back invoicing the supplier for the price difference. Nor did he address the cost to the supplier of having a product dropped from a promotions mailer at the last minute.

Smith said it did not make commercial common sense to enter into a promotion arrangement with a supplier at the same time or immediately following the same or a greater promotion by a competitor arranged by the supplier. "Having the same or a greater promotion in competitor's stores immediately before or at the same time defeats the purpose." Smith recognised the policy might require suppliers to revise marketing plans and said he was happy to work through concerns with suppliers.

In documents obtained by The Independent the grocery council's commercial director, Lindsay Davidson, told his 158 members that Progressive risked breaching restrictive trade practices under the Commerce Act.

The policy could also be seen as a prohibitive price fix when Progressive had "Select" or "Home Brand" competing in the same category, or horizontal pricing, in which it could be seen as trying to influence the retail prices of a competitor.

Progressive told suppliers the week prior and the week of a promotion in rival supermarkets such as New World would be deemed a "no clash" period. This means there must be no advertised clash on the same product or assortment of products as between a Progressive mailer and a competitor's mailer for the week of and week prior to the promo. In the event a supplier had a promotion at New World with prices lower than in Progressive stores, Progressive would lower the retail price immediately on the same product in its store. It would then back invoice the supplier for the difference, based on items scanned at the checkout.

Progressive runs Foodtown, Woolworths and Countdown New Zealand-wide and Fresh Choice and Super Value supermarkets in the South Island. Foodstuffs runs rival New World and Pak'nSave.

Foodstuffs managing director Tony Carter said he had heard about the new Progressive policy on promotions but his company did not practice it, nor had it ever been practised in New Zealand before. He warned suppliers if they breached confidentiality by tip-ping Progressive about its promotions "we would view it very seriously".

Suppliers spoken to by the Independent are furious about the practice and don't want to co-operate with it, but fear if they don't play ball their products will be left off the supermarket shelves.

The Commerce Commission said it had not received a complaint about Progressive Enterprises' 'no clash policy' and did not have sufficient information to determine whether or not the behaviour breaches the Commerce Act.

RUNNING A RULE

Auckland barrister John McBride has run his legal ruler over Progressive's "no clash" policy.

Remember, the policy means that if New World, owned by competitor Foodstuffs, runs a promotion on a product a week before one planned by Progressive's Woolworths stores, Progressive would not only pull the product from its promotional mailer, but would lower the product price to match the competitor, then deduct from its next remittance the difference for what it costs Progressive to match a lower promo price.

The key issues raised were:

Supplier volumes could be reduced because a supplier's product is removed from the Progressive mailer, damaging the benefit of going to the lower price point. If Progressive had ordered the product before it was left out of the mailer it could mean the product didn't sell, forcing Progressive to delay re-ordering.

A contract cannot unilaterally be varied unless by agreement, so it is unlikely Progressive could legally enforce a back invoice that reduced the pre-agreed supply price of promo goods. It would also breach this contract by removing it from the mailer.

Section 30 of the Commerce Act prohibits a price-fixing arrangement between competitors. "There is no cartel hatched in a smoke-filled room or secret phone calls between CEOs of competing businesses," says McBride. But the likely effect is a regime to make sure New World doesn't have a promo price when Progressive does.

There is a risk of a prohibitive price fix if there is no Progressive house brand in the product market. But it would be difficult for the Commerce Commission to demonstrate individual suppliers' vertical agreements with Progressive also amounted to horizontal understanding between those suppliers.

On a possible breach of Section 36 of the Commerce Act covering the misuse of market power, McBride said it was hard to bring home a case against a powerful supermarket over alleged "bullying" of suppliers. The supermarket could convincingly say it was enforcing the policy in the interests of delivering benefits of price, quality and choice to consumers, therefore it was not anti-competitive. But McBride said it would be very difficult for Progressive to characterise a "no slash" policy as being in the interests of consumers.

Little Jack Livingstone is bouncing back after suffering severe burns when his flannelette pyjamas - labelled low fire danger - caught fire.

The three-year-old Waikato boy was watching TV in front of a heater on July 8 when his pyjamas ignited. He suffered burns to 15 per cent of his body, spent three weeks in hospital and needed skin grafts from his leg. He had surgery on his right arm and shoulder, has to wear a pressure suit 23 hours a day for two years to reduce scarring and gets a daily sea-salt bath before soothing lotions are applied.

Now back at daycare, he likes playing on the trampoline and reading about dinosaurs. "He doesn't complain," father Mike Livingstone said. "He's a good little kid and he's just getting on with life." He remembers his 13-year-old daughter screaming "Jack's on fire, Jack's on fire." Mr Livingstone suffered superficial hand burns trying to smother the flames. His seven-year-old daughter was also burnt when a piece of clothing flew off and hit her leg.

He had not heard of the one metre from a heater rule the Consumer Affairs ministry recommends, and said the warning should be on pyjamas instead of "low-fire danger" if it was so important.

Competition concerns are likely to prevent Fletcher Building from buying all of the wood products assets put up for sale by Carter Holt Harvey (CHH), analysts say.  However, Fletcher Building could end up with most of the New Zealand businesses, paying around $800 million and staying within its debt comfort zone.  Auspine, Hyne or Weyerhaeuser are the likely buyers of the Australian assets.

CHH's wood products businesses, put on the block by Graeme Hart's Rank Group, have a price tag of $2 billion to $2.5 billion.  The Commerce Commission and its trans-Tasman counterpart, the Australian Competition and Consumer Commission, would balk at Fletcher Building swallowing all of the operations on sale - Wood Products NZ, Wood Products Australia and the Carters retail chain, First NZ Capital analyst Andrew Mortimer said.

Fletcher Building owns the Placemakers chain, which buys more than half of CHH's domestic lumber. It therefore has a strategic opportunity to lock in security of supply, Mortimer said.  But the potential for vertical integration would worry the Commerce Commission.

A bigger hurdle was the particle board market which would be 100% owned by Fletcher Building if it subsumed CHH.  The companies dominate the medium density fibreboard market between them and Mortimer said a combination of these assets was unlikely to be allowed.  Combining CHH and Placemakers presented fewer problems as consolidation would comprise only 36% of the building supplies market.

Fletcher Building might also not want to see CHH fall into a competitor's hands. The combined sales in the trade market, however, "might aggregate to around 45% within acceptable levels so as to not substantially lessen competition".  "Of more concern might be the consolidation of market share in certain product lines, including timber, insulation and wallboard."  The company faces a big hurdle if it wants to own both CHH's manufacturing and distribution businesses.

Nevertheless, Fletcher Building should be interested in the New Zealand wood products and distribution businesses, given the improved distribution capability and the ability to secure supply, Mortimer said.  More margin might be available in the supply chain under Fletcher Building ownership.  However, there was little value for Fletcher Building in CHH's Australian assets. "Fletcher would have no particular distribution advantage and would acquire only a modestly attractive market share."

US firm Weyerhaeuser, which has just sold its New Zealand forestry interests, was a more natural candidate for the Australian business. CHH, Weyerhaeuser and another company, Hyne, command around 60% of the softwood lumber market across the Tasman and the acquisition of CHH would present both with an excellent consolidation opportunity.

The Australian market is fragmented and the CHH sale presents a chance for one of these three players to consolidate. Interested parties are understood to be conducting due diligence and indicative bids for CHH are expected this week. Final bids are due by late November.

Christchurch businessman Ken Anderson looks set to expand his Lane Walker Rudkin clothing manufacturing empire.

His takeover of Auckland textile manufacturer Pod is almost home and hosed. Anderson had secured 87 per cent of Pod shares by yesterday with only 3% left to reach the 90% threshold at which he can compulsorily acquire the rest of the shares. A key shareholder with 6.4%, Aucklander Hemat Lal Patel, who had considered the bid too low, told the New Zealand Exchange (NZX) yesterday he had sold to Lane Walker Rudkin.

Anderson, an accountant by training and chairman and chief executive of Lane Walker Rudkin Industries, has a week more up his sleeve with the 50c-a-share Pod takeover offer deadline next Thursday.

Anderson owned LWR and there were no other shareholders, he confirmed. He bought LWR in 2001 except for the Canterbury brand. He keeps a low profile and will only say the LWR business has a turnover of several hundred million dollars. Pod will add about another $65 million in sales and about 250 staff.

LWR Manufacturing has more than 1000 staff in New Zealand and Australia. About 600 staff are in Christchurch at LWR's site in Sydenham where it has a textile manufacturing and hosiery and underwear making plants. LWR manufactures hosiery and underwear for other companies including Pacific Brands.

LWR has two sock factories, one in Timaru and one in Melbourne, and three smaller hosiery and underwear factories in the central North Island, one in Greytown (135 employees), Levin (130) and Pahiatua (25).

In Brisbane, LWR owns a sport apparel factory which makes sports team uniforms under licence for Adidas. It also owns the Stirling Sports and Champions of the World sports clothing retail chains. He said he was confident of reaching 90% in the next week, because of indications from other shareholders that they would sell.

Since buying LWR six years ago when it had about 400 staff, he had about doubled the business. About 60% of sales are in New Zealand, 30% in Australia and about 10% in the United States and other countries, Anderson said. In its heyday the company employed about 4000 staff, he said.

Pod would add more scale to the business. Savings existed in delisting Pod and in product rationalisation, he said. "There's a lot to be said for manufacturing close to the market," he said. About 90% of the firm's sales are from Australasia.

Goodman Fielder has bought a small milk producer in New Zealand and scored top shelf space for its existing milk brand, plus a home brand supply agreement, in almost half of Kiwi supermarkets.

Australia's biggest listed food group announced yesterday that it had bought Independent Dairy Producers, for an undisclosed sum.  A Goodman Fielder spokesperson later confirmed the IDP buy was a "relatively small" transaction.  In March, Goodman Fielder announced the acquisition of Adelaide-based dip maker Copperpot, its first dairy buy in Australia, as part of a goal to develop a transtasman dairy business.  At the time, chief executive Peter Margin, who is a former head of Australian dairy producer National Foods, said Goodman Fielder was looking for acquisitions below the A$100 million ($110 million) mark.

IDP processes and supplies town milk under the Cow and Gate brand to dairies and small retailers in Auckland, Wellington, Tauranga and Hamilton.

Goodman Fielder already owns the Meadowfresh milk brand in New Zealand, and has just won a contract to supply about 30 million litres of house brand milk to supermarkets run by Progressive Enterprises.  Progressive is owned by Australia's Woolworths and runs the Foodtown, Woolworths and Countdown supermarket chains.

Goodman Fielder also announced that it had entered into a partnership with the Grate Kiwi Cheese Company, to supply cutting and wrapping for its cheeses.
- AAP

NZX minnow Pod, a fashion management company with the likes of entrepreneur Sharon Hunter on its board, is in demand, yesterday announcing a second takeover offer in as many weeks.  Leading shareholder Christchurch-based apparel maker Lane Walker Rudkin is understood to have offered shareholders in Pod, which has a market capitalisation of $21 million, 50c a share for all ordinary shares.

Shares in Pod closed yesterday up 3c at 47c. Pod has three main operations: Design Textiles International, which makes fabrics including from fine merino wool; MicheleAnn, a garment designer for retail chains including Farmers, and Max Fashions; and Mollers Homewares.  Last week's offer was for one of them, but it was not made clear which. Pod chief executive Malcolm Walkinshaw was not available for comment.

In February, the company said Design Textiles International was finding it hard to profitably manufacture and export merino fabric with a strong kiwi dollar and intense competition from lower-cost overseas manufacturing.  Pod, which was Designer Textiles (also NZX-listed) until 2004, has been ramping up moves to take its manufacturing base overseas.

Although sales were strong, the company said in its interim report in February that profit contribution from Design Textiles was well down on previous years, a trend the company expected to continue through to the end of this financial year.  The subsidiary plans to sell and lease back its Otara property.

The low prices enjoyed by shoppers at British supermarkets are paid for by poor wages, job insecurity and a denial of basic human rights for workers in some of the world's poorest countries, a report has concluded.

The growing power of big supermarkets is the driving force behind a mode of doing business that is made possible by exploiting workers, particularly women, in developing countries, the report says.

The document, produced by the development agency ActionAid, accuses the supermarkets, who take £7 out of every £10 spent on the high street, of using their vast market power to drive down prices at their overseas suppliers.

The investigation found that supermarkets were paying wages of as little as 5p an hour in some Bangladeshi garment factories, while in India some workers processing cashew nuts were being paid just 30p a day.

ActionAid, which works in more than 40 countries, urges the Government to set up an independent regulator and calls on supermarkets to acknowledge publicly the damaging impacts of buying practices on workers and suppliers, and take concrete steps to address them. It calls for "binding legislation" to help protect workers' rights as voluntary initiatives are not working.

"Labour rights abuses in supermarket supply chains remain systematic, and in fact they are becoming more severe. It is becoming painfully obvious that a decade of voluntary attempts to curb the negative impacts of these practices has failed, and that only binding legislation will have sufficient teeth to make inroads," the charity says.

The report comes mid-way through the Competition Commission's inquiry into the £120bn grocery sector. The watchdog is keen to investigate the relationship between supermarkets and their suppliers but is struggling to persuade suppliers to speak out. It has said it has "concerns" about how the supply chain works in the UK.

ActionAid claims that shopping could become a "tool for poverty reduction" if supermarkets treat their suppliers better so that more of the millions of pounds spent every day on grocery shopping in the UK flowed back to the workers producing what Britons buy. "This is how development happens," it says.

An investigation into how bananas are grown in Costa Rica found that workers' rights, pay and conditions have suffered from the intense price war that rages between UK grocers. Suppliers are forced to absorb the costs of the banana price battle because they need the business: supermarkets typically take between 70 per cent and 90 per cent of a banana supplier's stocks.

In response, wages have dropped to as low as 33p per hour and job insecurity has increased, with women being forced out of permanent jobs into casual, piece-rate work. The charity welcomed recent moves by some UK grocers to stock more Fairtrade-certified bananas, such as Sainsbury's decision to sell only Fairtrade bananas, but said there was a danger that "corporate goodwill to respect people's rights can be reneged on when market conditions get tough".

In the Indian cashew growing industry, ActionAid found that for every pound shoppers spent on the nut in UK supermarkets just 1p went to the women workers who processed the nuts. Another 22p was shared between Indian farmers, traders, processing companies and exporters, leaving 77p for importers, roasters and supermarkets in the UK.

Sainsbury's said it was working hard to address the issues related to labour in the Costa Rican banana industry. "We have invested considerable resources into addressing them," a spokesman said, pointing out that, by July 2007, all of the farmers providing Sainsbury's with bananas would receive a Fairtrade price premium for their crops. "This ground-breaking move has led the industry, with other retailers now following suit," Sainsbury's said.

Tesco defended its relationship with suppliers, saying it worked with them and non-governmental organisations to solve any problems. "It's no secret that conditions in developing countries can be difficult. But these countries and their suppliers believe, like we do, that trade is the best route out of poverty," the group said.

'I suffer from severe pain in my toes and knees'
Bindi, a 58-year-old mother of six, from Kerala in India, works for a large processing company that exports cashew nuts to the UK market. "I have severe pain in my toes and knees and sometimes back pain. But I have to work to fend for myself and my family," she said.

Bindi's hands are covered in blisters. Asked why she does not wear protective gloves, she said: "We have to buy the gloves ourselves; the management does not provide us with gloves. Besides, I will only be able to shell five kilos if I wear gloves instead of the usual 10."

She said: "The managers use malpractices and underweigh the shelled nuts.". A survey found that 45 per cent of cashew workers experience respiratory illnesses, compared with 9 per cent of the wider population. "They will make us sit in the smoke-filled sheds where they fry the nuts and it causes suffocation," said Bindi.

Cashew workers' main concern is their earnings and, in Kerala, most women want their unions to bargain for higher wages.