By Sean Poulter
Last updated at 1:13 AM on 26th September 2011
Farmers are demanding that supermarkets fund the cuts promised by today’s launch of the biggest price war in a generation, amid fears the cost will be passed on to suppliers.
Tesco has announced a £500million ‘Big Price Drop’, promising significant savings across 3,000 shopping basket essentials.
Its rivals in the ‘big four’ – Asda, Sainsbury’s and Morrisons – will make their own reductions amid pressure to match and beat Tesco.
However, farmers fear supermarkets will protect their profits and force suppliers to finance the cuts.
Lee Woodger, of the National Farmers’ Union, said: ‘The supermarkets are the ones which have been making huge profits.
‘They should be looking at their profit margins and how they should be financing price cuts.
‘Farmers have seen significant increases in costs in recent years. They have precious little margin or scope to take any cuts.’
Tesco ran up record annual pre-tax profits of £3.4billion last year, a figure that was up by 10.1 per cent, confirming its position as the UK’s richest retailer.
Richard Brasher, Tesco’s UK chief executive, said the cuts – which he described as the biggest in 25 years – will be paid for by reducing the value of its Clubcard rewards, making savings within the business and increasing sales.
How the cuts could affect you
The ‘big four’ have been involved in a phoney war in recent years, promoting price cuts while still generating big increases in profits.
However, City analysts said the Tesco initiative represents a real shift in prices against the background of the biggest squeeze in living costs for more than 60 years.
Mr Brasher added: ‘The price drops, I believe, will be on things that are essential…the things people buy every day, especially on areas such as fresh food.’
Among the popular goods seeing price cuts is a four-pint bottle of semi-skimmed milk, which is down by 16 per cent – or 24p – to £1.25. Others include a 2.5kg pack of Maris Piper potatoes, which is down by 20 per cent – 35p – to £1.39, and a Tesco Italian pepperoni pizza, down 21 per cent to £2.85.
Richard Lloyd, Which? executive director, said: ‘Any price cuts will be welcomed by hard-pressed consumers. Tesco’s price cut is a challenge to other supermarkets to offer better value that helps people in tough times.’
Asda claims to be sticking to a policy of being 10 per cent cheaper on a basket of goods than rivals.
Sainsbury’s claimed its price-matching policy had forced Tesco into cutting prices. ‘It’s business as usual,’ said a spokesman.
Waitrose said: ‘We check our prices against Tesco as part of our commitment to match Tesco on 1,000 everyday brand goods.’