Sainsbury’s, the UK supermarket, has agreed to take over Walmart’s subsidiary Asda in the UK. The deal would create the UK’s biggest grocer with a market share over 30%. Walmart will receive almost £3bn in cash and 42% of the combined business.

As part of the deal, both the Sainsbury’s and Asda brands will be maintained, with Sainsbury’s insisting there will be no store closures. However, it is likely Sainsbury’s could have to sell off as many as 70 Asda stores to competitors to win the blessing of the UK competition authority.

Even with these store sales, the combined group will have more than 2,700 stores and almost a third of the UK grocery market share, overtaking Tesco for the first time. In effect, the merger could mean that two businesses – Tesco and a combined Sainsbury’s/Asda – will account for 60% of the £185bn UK grocery market.

In the last decade, the traditional big four UK retailers (Sainsbury’s, Tesco, Asda and Morrisons) have all come under increasing pressure from German discount chains Lidl and Aldi, and are now facing the threat of fresh disruption from e-commerce retailers such as Amazon.

The combination of the second- and third-largest retailers in the UK market looks like a defensive move against the growing threat of Amazon, particularly after the US internet giant made its intentions clear last year with the $14bn acquisition of Whole Foods.

However, the Asda-Sainsbury’s merger is bad news for agribusinesses and farmers alike. The merged entity is looking to deliver on promised price cuts of 10%. As we have seen before, the easiest target for such savings are suppliers.

This deal feeds into the power held by already mighty retailers. The lure of lower food prices, particularly for shoppers on a budget, can seem attractive, but it could lead suppliers and producers to cut corners around environmental regulations, green initiatives and food safety.

The industry’s biggest problem has been that it has continually expanded capacity in a market that is essentially flat. This merger will not reduce capacity or correct this. Instead, it will increase buying power for one player to reduce prices and drive increased sales.

And that is assuming competitors of Sainbury’s and Asda don’t react. It will be especially interesting to see how the German discounters Aldi and Lidl respond to the changing retail landscape. Some predict the discount stores will dominate 25% of the market within 10 years – up from their current combined market share of 12%.

Aldi is set to increase its number of branches in the UK to 1,050 within five years, while the number of Lidl stores is set to increase to 1,000.

Data published earlier this week shows that Lidl is currently the fastest-growing retailer in the UK with a massive month on month rise in sales of 9%, while Aldi’s sales growth stood at 8%.

With €4.5bn of Irish food and drink exports, or 35% of the total, destined for the UK market every year, a concentration of retailer power in that market will only add to the mounting challenges posed by Brexit.

The UK is already an intensely competitive retail market to do business in for Irish exporters, particularly since the collapse in the value of sterling. A contraction in retailer competition will only add to concerns and may force further diversification away from our nearest trading partner.