Thursday, November 27, 2008

The value shackles

"For more than a year, food manufacturers have been shaving package sizes and raising prices, declaring that they had little choice because of unprecedented increases in the cost of raw ingredients like corn, soybeans and wheat.

Now, with the price of grains and other commodities plunging, it may seem logical that grocery prices will follow. But while prices for some items like milk and fresh produce are dropping, those of most packaged items and meat are holding firm or even increasing. Experts warn that consumers should not expect lower prices anytime soon on most items at the grocery store or in restaurants." (Thanks Rania)

This cannot be accurate: the prices of raw material should minimally affect the shelf prices of food. This is issue is not talked about enough, and the result is that people blame farmers and farming for high food prices. Today I attended a talk on food trade, and the figures shown by the speaker, who is himself very involved with the food industry, indicate that the cost of raw ingredient is less than 10% of the final price of manufactured food. Transformation accounts for something like 16% and retail for... nearly 50%. So even a doubling of the prices of raw commodities should be passed on only as a 10% or less increase in shelf price. I will link to the presentation by the speaker as soon as it is uploaded. But meanwhile look towards greed for an explanation. The value chain: they should rename it the value shackles.

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