Why selling food below its purchase price is a problem that should concern us all

Recently, there have been misleading interpretations in the media about what it means when retailers sell food below the price they paid to the suppliers.

The Croatian Competition Agency (CCA) wants to clarify this issue because it affects all of us – from small food producers to end consumers, including pensioners and families with children.

It must be noted that CCA supports the use of discounts in retail as a common business practice. However, it’s important that combining discounts with additional promotion practices does not lead to violations of legal provisions, especially regarding the ban on selling products below their purchase price.

What does it mean when a retailer sells a product below its purchase price?

This means that a retailer – for example, a large supermarket chain – buys a product (like milk or eggs) from a producer at a certain price, but then sells it to the consumers at a lower price, essentially at a loss.
In practice, this often happens when the retailer combines multiple discounts and incentives on already discounted products, thus lowering the retail price below the purchase price it paid to the supplier. This is usually done to attract more customers into its store.

Why is this a problem?

At first glance, it may seem like a good deal for the consumers – the food is cheaper. But when such pricing becomes a standard practice, it has serious repercussions:

1. Pressure on producers and family farms

Large retailers may eventually demand that producers (especially small family farms) lower their prices to make up for these losses. Producers often have no choice if they want to stay on the retailer’s shelves.
To meet these lower prices, they may have to cut corners – using cheaper packaging, lower-quality ingredients, or even laying off workers.

2. Small retailers cannot compete

Smaller shops cannot afford to sell at a loss. They lack the financial backing to offer such deep discounts, which drives the consumers to the larger chains. Eventually, small shops are forced to close.

3. Less choice and higher prices in the long run

Once big retailers squeeze out smaller competitors, nothing stops them from raising prices or eliminating discounts.
With fewer retailers on the market, consumers lose choice and are left with no alternatives.

4. Harm to the entire food supply chain

This kind of unfair trading practice gradually destroys local food production. Many producers give up entirely because they cannot sustain losses.
As a result, we all lose access to domestically produced food.

A real-world example:

Imagine a large supermarket chain decides to sell milk at €0.60 per Liter, even though they bought it from the producer for €0.70.
While it appears the retailer is “covering for the difference,” the reality is that in the next procurement cycle, they ask the producer to reduce their price.
If the producer refuses, it is removed from the supply chain.
If they agree, they’re forced to cut costs – likely affecting the quality of the product, the packaging, or their staff.

Meanwhile, small shops cannot match these prices. They cannot sell milk below the price they paid for it, they lose their customers to bigger stores and eventually shut down.
In the long run, only a few major chains remain – with the power to control both prices and market conditions.

Who does this harm?

• Small producers and family farms, who struggle to survive
• Small retailers, who are pushed out of the market
• Consumers, who eventually pay more and have fewer choices
• Society as a whole, as local food production becomes unsustainable

This is why the Act on the prohibition of unfair trading practices in the business-to-business food supply chain and the EU regulations aim to prevent such practices – to preserve fair competition, protect small producers, and ensure long-term fair pricing for the consumers.