Tesco says it will absorb euro 10m cut in food prices

Tesco, the supermarket chain, said yesterday it would absorb the €10 million in food price cuts in its 77 stores in the State this year.

It was responding to a warning from the president of the Irish Farmers Association (IFA), Mr John Dillon, that farmers would not fund a supermarket price war that was started by Tesco this week.

He said he was referring specifically to Tesco price cuts announced on milk, potatoes, chicken and dairy spreads.

"I am publicly warning all co-ops, food processors and packers supplying Tesco and any other supermarkets concerned that farm incomes are already on the floor and there is no room for cuts in prices to farmers to fund this latest price war," he said.

"I am glad to see consumers benefiting from food price cuts at retail level and this is long overdue provided it is funded by the supermarkets themselves," said Mr Dillon.

"There is plenty of scope in the supermarkets' inflated margins for prices to be cut to consumers without putting pressure on farmgate prices, which are already depressed in most cases," he said.

But last night a spokesman for Tesco said it had full empathy with the farmers and Mr Dillon, and it would be funding the price cuts out of its own margins.

"While I do not accept Mr Dillon's assertion that we have inflated margins, we are cutting margins dramatically to put in place these cuts," he said.

"I am saying to you that we are carrying the risk of these reductions, which will not just last for a week or a specified period of time, these prices will continue," he said.

He said that Tesco had a record of sustaining low prices for its customers from which a great deal of market research was being generated.

He said that Tesco customers had told the company two-and-a- half years ago they wanted sustained cuts on basic food items and the company had introduced these.

"We have sustained the same prices for two litres of milk, sugar, bread and butter for the past two-and-a-half years," he said.

"You can be assured that these cuts we are now announcing are not going to be a one-week wonder," he said.

He said the company, with 24 per cent of the Irish grocery retail market, had already been in touch with the IFA to reassure farmers that the price cuts would not be forced on them.

An IFA spokesman said last night he was delighted the consumer would be offered lower prices from the supermarket margins.

"We will be keeping a very tight eye on this one because if the rival companies start cutting, they may want to have farmers fund their war," he said.