GIVEN THAT five supermarket chains control around 80% of all organised food retailing in France, the authorities there may seem justified in probing how competitive the market really is. Too competitive, apparently: on February 1st a new law forced retailers to raise prices of food staples lest consumers be unduly profiting from shops trying to lure them with good deals.
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The aim of the new “Loi Alimentation” is to ensure better pay for French farmers and for small-scale food producers, who currently earn little. Its flagship measure aims to stymie price wars by ensuring no food can be sold with less than a 10% profit margin. But the immediate impact is not to raise prices of vegetables, meat and other products sold by French farmers to supermarkets: margins on those are already far higher than the mandated floor. Rather, newspapers have been full of horror stories about the rocketing price of pastis, a boozy staple (up by 9.9% in one retailer, according to Le Parisien), Nutella (up 8.4%), Président camembert (8.6% dearer) and Coca-Cola (5%), which were previously sold more or less at cost to attract penny-pinching shoppers.
How consumers paying more for Coke will result in higher milk prices for France’s farmers is unclear. Proponents of the law argue that retailers making fatter margins on pots of Nutella will have more money left over to pay farmers higher prices. They fall short of mandating exactly how this might happen.
Sceptics abound. Michel-Édouard Leclerc, chief executive of E. Leclerc, France’s largest supermarket chain, says that the idea pennies added on to junk food will trickle down to farmers is “a scam”. Farmers complain that in spite of the new law they are still at the mercy of supermarkets whose hypercapitaliste behaviour has prompted the need for legislation in the first place. Consumer groups think shoppers will be €1.4bn a year out of pocket as a result.
Supermarkets are already finding ways of circumventing the spirit of the law. Offering steep discounts on food, such as buy-one-get-one-free deals, is now banned, but retailers have simply promised to push the savings onto loyalty cards instead. Forcing up the cost of Nutella and Nescafé is an opportunity for them to promote their own-brand equivalents, where margins are well into double digits already.
The agriculture ministry says the average family will pay just 50 cents per month more as a result of the law, as long as its shopping basket is not stuffed with the wrong kinds of food. It understandably wants to find more ways for France’s 400,000 farmers to square up to an ever-more concentrated retail sector. But trying to put more money in farmers’ pockets means someone else losing out. The new law was due to come into force late last year, but was pushed back after gilets jaunes protesters drew attention to the many ways that government meddling was pushing up the cost of living.
This post was originally posted at https://www.economist.com/business/2019/02/09/a-new-law-decrees-french-supermarkets-must-get-greedier.