Controversy over Rising Food Prices in France
|17 March 2008 |
With its publication in late February of the results of a survey showing a 5 to 48 percent increase over the past three months in the price of most everyday foods (butter, yogurt, pasta, cereal, crackers, white bread, rice and ham), 60 millions de consommateurs1 magazine set off a bona fide debate on the causes for this dramatic rise.2 One question, however, remains unanswered: What or who is to blame for this price hike?
Manufacturers and distributors blame farmers, because they are at the base of the value chain.
However, two arguments refute such a claim:
› The prices of certain basic agricultural raw materials (pork, milk, etc.) are falling just as the prices of food products (ham, dairy desserts, etc.) are rising.
› On average, the price of agricultural raw materials only accounts for 3 to 5 percent of the final consumer price. This is confirmed by the European Commission when it states, "if you see the price of a loaf of bread, you also have to see that the price of the cereal only adds up to about five per cent of the total price... Some of the price hikes we have seen are not justified by the price hike in the raw materials." Indeed, if agricultural raw materials prices rose 50 percent and everything else remained equal, the final price paid by consumers would increase 1 to 2 percent, a far cry from the observed 48 percent price hike.
Other explanations have therefore been advanced:
For Thierry Pouch, head of the Economic Studies Department at France's Permanent Assembly of French Chambers of Agriculture, "The current spike in prices is the eternal problem of evolving rates among producers, intermediaries and distributors: each one takes their margin."
In France, five large purchasing centers share the distribution market, whereas there are thousands of producers who depend on them. This situation of oligopsony3 very often hurts producers. French President Nicolas Sarkozy, speaking at the Salon International de l'Agriculture, also stressed the imbalance in the power relations between producers and distributors, and emphasized the need to find a solution to the problem of "back margins" (marges arrières).
For the time being, the French government is calling for greater transparency in operations. Finance Minister Christine Lagarde is also hoping to organize a round table bringing together producers, distributors and consumers "to come up with some real proposals."
In the meantime, and because of this controversy, there is a tendency to forget that agricultural prices are highly volatile and that the recent hikes are coming after several years of low prices, which were often below production costs. What's worse, there is an assumption that agricultural raw materials prices will remain high – whereas the MOMAGRI model, the first results of which were presented at the FNSEA4 stand at the Salon International de l’Agriculture showed just the opposite – and that prices will become even more volatile as markets are liberalized without regulation. We will provide more information on this subject at our press conference to be held at the European Parliament on April 9.
1 The survey, published in the March 2008 issue, compared the prices of 1,055 dairy and grain products quoted on the websites of the major supermarkets.
2 The surge in prices was also confirmed by France's General Directorate for Fair Trading, Consumer Affairs and Fraud Control.
3 An oligopsony is a market where there are a small number of buyers (demand) and a large number of sellers (supply).
4 [National Federation of Farming Unions]