FARMERS selling direct to supermarkets are distorting the market and threatening prices, according to the Livestock Auctioneers' Association (LAA).

Selling animals directly to producer groups set up by supermarket chains is damaging livestock values for other famrers because this reduces demand around the auction ring, say the LAA.

Multiple retailers like Tesco and Sainsbury’s have producer groups that contract directly with abattoirs to supply them with lamb, beef and other products.

LAA executive secretary Chris Dodds said: "With the major retailers seeing profits drop by hundreds of millions of pounds it will surprise nobody if they start to pass more cost-cutting down the food chain.

“While a direct contract with an abattoir supplying a supermarket might seem like a good idea under certain circumstances, providing stability for a business, it would soon become a bad idea if that stability comes at a low price.

“Similarly the retailers are not necessarily getting the best product the market has to offer. By limiting themselves to their direct contracts they are automatically discounting some of the best quality livestock, which is sold through auction marts, and leaving it for specialist retailers and butchers.”

The LAA also claims that direct contracts are potentially damaging to the overall market, distorting both the live and dead-weight price through limiting demand.

“Markets thrive best when demand outstrips supply. If all farmers sold their livestock through the live auction system, then the retailers would have no choice but to buy stock through the markets. This would create more demand as there would be more buyers around the ring. More demand would, of course, lead to better prices.

“In effect, the farmers selling direct to abattoirs are limiting the way competitive trade works for the industry.

“Despite this, auction marts are thriving, as our latest figures show. For example two-thirds of lambs that go to slaughter are sold through auction marts – the highest proportion in 20 years.”