The price of food

Sunday_roast_-_roast_beef_1

We come back to the price of food every now and again in this blog.  It’s not a subject I know that much about but I’m happy to go along with the general consensus that we have cheap food and that food has become cheaper over the last 40 years or so.

I read in a letter in Saturday’s Financial Times that 11.3% of our expenditure is on food and non-alcoholic drinks (and this seems to be about right) compared with about 20% of the average German expenditure.  I gather that that figure would have been closer to 25% in the 1950s but can’t find much hard evidence to back that up – does anyone out there have access to good figures?

This blog will question whether those headline figures are accurate estimates of the real cost of food and also whether we should be thanking the CAP very much for cheap food.

Farming is a very different industry from most – and that’s why I am supportive of public money going in to agriculture.  What makes farming so different is that it doesn’t only produce goods that can be sold in a market (eg milk, meat (whether horse or cow), wheat) it also produces a whole bunch of things that the producer (farmer) can’t easily sell.  These are ‘public goods‘ such as wildlife, landscape, flood protection and clean water.  If a farm has lots of skylarks the farmer can’t easily sell these to me even if I am very interested in them.  Other industries don’t have the same production of public goods – newspaper production, making cars, making clothes etc do  not have the same output of public goods.

It’s the safeguard of those public goods – things we value but cannot buy directly – that is the reasonable basis for the huge payments to farming as a whole (and some individual farmers in particular).

However, looked at in this way, and I think it is a good way, shows that we pay for food in at least three different ways.  The easiest to appreciate is that 11.3% of our money that we spend in actually buying food.  That’s what we think of as the price of food and it does make up a very large part of the price.  However, before we get to the shops you and I have already paid farmers once for food.  The income support part of the CAP means that each household in the UK has already handed out something like £55 in CAP (Pillar 1) payments before they go shopping.  Those payments also push up the price of land for all of us and feed a little into housing costs etc.

And then there are those public goods.  If skylark numbers were shooting up under current agricultural practice then farmers would be entitled to point this out as a bonus for our money.  Given that wildlife has not done well on farmland as a whole we, the people who pay, are entitled to point out that our money isn’t even leading to the maintenance of wildlife but we are losing some of the things that we love.

When you add in the increase in water bills caused by water companies having to remove agricultural pollutants from water (and passing the price on to  water consumers), the loss of carbon stored in soils (and therefore stuck up in the atmosphere causing climate change), the land drainage that increases flood risk (and therefore pushes up house insurance costs), the nitrous oxide (another greenhouse gas) that comes from fertiliser use and a few other things too then the costs mount up.  Then there are one-off costs of food production systems such as closing down the countryside because of foot and mouth disease.

Whether food is cheap or not when you take these matters into account is difficult to know – but it clearly isn’t as cheap as it first appears at the till.

I was struck when reading Roger Scruton’s book Green Philosophy (which I keep meaning to review here but have not yet got around to it) that he states, amongst other criticisms of the CAP, that it has cost the average family around 1500 euro per annum and marginalised small farmers.  There isn’t much that I agree with Scruton about (although his book is stimulating because of that), but I do agree with that analysis.

It’s noticeable that aid and development organisations aren’t great fans of the CAP either. OXFAM don’t have many good words to say about it (see here and here), nor do CAFOD (although this is a rather old document) or Action Aid (click here).

My last fragment of information comes from my reading of a Christmas present – the book of 60 New Elizabethans produced from the BBC Radio 4 series of last year.  In the chapter about Alan Sainsbury (of supermarket fame) it describes the removal of resale price maintenance by the Conservative government (of Sir Alec Douglas-Hume) in 1964.  RPM was a form of price fixing that meant that prices couldn’t be reduced or undercut.  With its removal supermarkets were able to compete strongly and deliver reductions of prices through just the type of mechanism of efficiency and competition that the government had envisaged.  This seems to have been an important driver of the reduction in food prices of which I had been completely unaware (having been aged 6 at the relevant time).

I apologise for the rambling nature of this blog. If it were an undergraduate essay then it would lose marks for not having a strong enough thread of an argument running through it.  However, it may shake out some useful comments from you clever readers.

The points are: food prices shouldn’t just be measured by what you spend in the shops, the CAP system doesn’t work very well for the environment, poor people or many farmers or consumers and it probably isn’t a reason for ‘cheap’ food.

But what do you think?

 

 

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16 Comments

  1. I'm not sure after reading your link to wiki' that you can count Skylarks as public goods more likely to fall into common goods category. Their definiton for public goods "...in that indviduals cannot be efficently excluded from the use of" and "require special government incentives to be producded, but can't be classfied as public goods since they don't fulfill the above requirments" but knowing me I've probably misread that.
    However I'm shocke at the figures on the Oxfam site Nestle £158 million, Queen £6.4 million and Prince of Wales £1.17million from CAP. I wonder how her Maj' would feel if the UK did pull out of the EU and lost that CAP payment?

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  2. John Miles says:

    Add on all the MPs including Labour and the members of the House of Lords who own land not to mention Conservative voters and nothing will change. I do remember my old Sunday lunches though. Several plates of Yorkshire pudding with thick gravy to start with so that you filled up on that so you would not need so much meat!! Thing of the past I am afraid to say. Little meat eaten in this house hold now but I still get my Yorkshire pudding with Horseradish sauce!!

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  3. Peter Cosgrove says:

    Reading the latest Private Eye last night and your blog today Mark, I was reminded of the second of the original objectives of the CAP as stated in Article 39 of the Treaty "ensure a fair standard of living for the agricultural community". After a consultation in England and Wales last year, Defra plans to abolish the Agricultural Wages Board, which sets fair terms and conditions for 154,000 (lowly paid) farm labourers. According to Defra this will save employers £279 million over 10 years. Being one of the most dangerous occupations in Britain, landowners currently have to pay farm labourers sickness pay and provide paid holiday and overtime. All this is to go.
    Private Eye interviewed a spokesman from the Countryside Alliance, who are conspicuously quiet on this destruction of a traditional countryway of life. Apparently they are not interested in the peasantry, just the lairds and take a lead from the CLA and NFU, who want the board abolished. It seems to me that this second aim of CAP is being deliberately ignored in the name of cheaper food and greater profits for the supermarkets and large landowners. Apparently the pressure to ignore CAP's second aim comes from the "independent" Farming Regulation Task Force, members who include the main supermakets and their suppliers. Quelle surprise!

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  4. MK says:

    To be fair Mark, you'd probably gain a few marks for raising a number of important issues and a distinctive and thought provoking 'take' on the subject.

    A not very clever and very anecdotal point - the impression I have from the twenty years or so I've been buying food 'at the till'. For about the first eight to ten years prices were remarkably stable (and, I guess, 'cheap'). In the second ten years they've been rising noticeably.* I'd suspect rising cost of fossil fuels and rising tide of (suspected climate change related) bad weather to be among the culprits.

    The other price we pay of course is that we pay to have food produced only to throw it away or have it thrown away for us. Up to a third of the food produced if I remember rightly? And to add to the "few other things" there is the greenhouse gas from the fossil fuels used in harvesting, transporting, storing, refrigerating etc. the food between production and consumption - a massive amount. And you can be sure it'll be the poor old consumer who picks up the tab for this, not the sloping shoulder government or corporation. As well as the smaller farmer who doesn't fit this business model and can no longer afford to take their more sustainably produced goods to market.

    I apologise for the rambling nature of this comment, and indeed all my other comments. If they were undergraduate essays then they would lose marks for... (etc.)

    * After that I went into a bit of a decline (how much does it cost to dine at the Restaurant at the End of the Cheap Food Universe?)

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  5. ralph says:

    Great to see CAP being discussed in a more accessible way but think we could make it even clearer by not using CAP at all - perhaps public expenditure on farming (as this is what it is). It is a debate that impacts everyone and making it boring and complicated has been a way of keeping people at arms length.

    The economic focus on everything is depressing, sure there are many poorer people that will be impacted by food and energy reflecting their real environmental costs - but these are never the people on the media discussing it, the middle classes are worried about their disposable income and so is the gov as this is the source of growth. I feel strongly that all goods should reflect their environmental costs and that safeguards should be put in place by gov (rather than dismantled at present) to provide a safety net for those that will really be impacted by such changes- rather than those who will just have to take 1 holiday rather than 2 in a year.

    Sorry this comment is more rambling and less structured than the blog by a big margin!

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  6. Jonathan Wallace says:

    It is clearly true that what we spend at the shops on our weekly grocery bill is only a part of the overall price of food and I agree that if we are funding subsidies to agriculture it is reasonable that this should have strings attached with respect to minimising the environmental impact of farming. Unfortunately, I suspect that many farmers would nevertheless disagree that because they receive Pillar 1 payments we are entitled to complain that our money is not leading to improvements in skylark numbers. As far as they are concerned this money is given to them to subsidise food production/farm incomes and only money paid through agri-environment schemes should be expected to boost wildlife abundance (the cross compliance requirements for SPS money do not really go beyond compliance with existing legal requirements as far as wildlife is concerned). We cannot expect people given money for one thing to spend it on something else that we believe to be beneficial to the public good so the challenge is to bring about reform in agricultural subsidies so that less is spent on keeping barley barons in rangerovers and more is spent (and is more effectively spent) on maintaining skylark numbers, wildflower and invertebrate diversity, etc.

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    • Mark says:

      Jonathan - but we can make clear what we expect for our money. Giving people money is usually as charity (because we feel sorry for them) or to influence them.

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      • Jonathan Wallace says:

        I quite agree. The problem it seems to me is that at present the money (or most of it) is not given in a way that does influence a change, in the direction that we would wish, in the way in which farmland is managed . It's a question of who we tax payers need to make it clear to what we expect for our money and in the first instance I think we have to make clear to the politicians that we want them to ensure that the appropriate and sufficiently rigorous strings are attached (if there is such a thing as a rigorous string!) to farm payments. Some farmers do great things for wildlife on their land but probably a majority will only do what they understand to be necessary to receive the cash.

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  7. Joe W says:

    “….food prices shouldn’t just be measured by what you spend in the shops, the CAP system doesn’t work very well for the environment, poor people or many farmers or consumers and it probably isn’t a reason for ‘cheap’ food”

    I agree Mark; the problem is that the current system is adept at disguising its externalised costs, both financial and environmental. Many of the externalities (both negative & positive) can be incredibly difficult to assess and quantify and this leads to food appearing superficially cheap and is many cases undervalued by the consumer, for example the amount of good food we regularly throw away.

    One of the most interesting and informative books that I have read on this subject is ‘Agri-Culture – Reconnecting people, land and nature’ by Jules Pretty. http://www.julespretty.com/Agri-Culture.html. I highly recommend this book to your readership.

    ps - Not impressed by the picture, as I now have an insatiable craving for roast beef with all the trimmings. My cheese and pickle sandwiches will now not cut the mustard!

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  8. Dennis Ames says:

    Well thought it was a very good blog Mark and agree with almost all of it.Seems unfortunate that someone cannot devise a scheme where these very large well off land owners do not get fantastic amounts from the scheme.
    Your figure of each household putting in something like £55 into Pillar one would only raise that 11.3 % spent on food by very small amount so lets celebrate that cheap food figure and this bit about farmers putting pollutants into water etc etc and us having to pay to clean it up is not really that different to all the oil and other pollutants from cars and lots of pollutants from industry that we have to pay to clean up.
    11.3% is fantastic figure for what is probably the thing we need most in our life and I bet there are lots of households where that figure is larger for non essentials that also pollute in some form or other such as electrical goods,computers,phones,leisure in general.That 11.3 % figure all down in the long run to lots of small farmers and farm workers getting a raw deal.
    Why on earth in general farm workers get 66% as much as a unskilled factory worker seeing as probably hardly anyone more skilled than that farm worker.
    So pleased we more or less agree Mark.

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  9. David Norman says:

    Figures for household expenditure have been compiled annually in the UK since 1957, as the Family Expenditure Survey (FES) and National Food Survey (NFS) to 2001, becoming the Expenditure and Food Survey, then from January 2008 the Living Costs and Food Survey (LCF). In principle anyone can get the data from the Office for National Statistics website (starting at http://www.esds.ac.uk/government/efs/) but in practice I have found it far from straightforward.

    The official figure was that food and non-alcoholic drink took 33% of the average household budget in 1957 and 11.3% in 2011.

    One other snippet on food costs, and not surprisingly from a Cheshire reader it's about milk, whose retail price has dropped phenomenally. In 1938 it took an average worker more than 20 minutes to earn the price of a litre of milk; by 1970 this was down to 8½ minutes and the 1994 deregulation of the milk market saw another large drop. Now, supermarkets sell a litre of milk for less than 4½ minutes of a worker’s time at today’s minimum wage, and bottled water at twice that price!

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  10. Roderick Leslie says:

    Mark, I monitored the 'big figures' quite closely when I was working and they are very, very interesting. Farm gate incomes rose fairly steadily till the late 1990s, since when they have actually fallen. Not so the food industry - from processors to supermarkets - where the line continues to rise steeply and is completely detached from what the farmers get. Its not just food that has gone down as a proportion of our incomes - so, surprisingly, has housing and even cars - the one expenditure line that continues to rise is 'leisure'. Worldwide, there seems a very strong trend for primary producers to lose out - during my career the market value of wood fell by a spectacular 5 times in real terms ! The rest of the countryside (farming) didn't suffer the same way because they were protected by CAP, trade barriers etc etc.

    The big question, however, is around your statement that you support farmers because of the other things they produce - fundamentally, I agree - but surely the money we pay out should go to buy the things we want and need - the European agricultural deal was right for 1947, fundamentally wrong for 2013. This is public money and the fact much of it comes from the EU is no excuse for simply accepting the status quo - it is time we started paying land managers for what we really need - and surely that means accepting the floodwaters so many have suffered with as a legitimate land use - and getting paid for it; and, in the same way taking the money to NOT pollute our drinking water - and that extends to wildlife and open access countryside - why does noone ever question the rights and wrongs of inaccessible, forbidding intensive farming coming right up to the garden fence, most especially in rural areas like where you live in Northants.

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  11. It's funny after reading the Oxfam links I'm surprised some aren't shocked how much money companies such as Nestle (£158million) have received from CAP or if we're talking milk how the Danish firm Arla has recieved and how their powder milk has harmed those in less developed countires......

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  12. Phil Espin says:

    Roderick notes farm incomes have been falling since the late 90s and thats true of 90% plus of working people in this country. Most of us must realise that our incomes are under the cosh. It seems that the big players like Nestle, supermarkets, the energy industry, banks etc have organised the "globalised" economy so that they take a bigger and bigger share while we take a smaller and smaller one. Subsidies are just one till they have their hand in.

    The question of how many birds per acre we get for our contributions to the EU is just a small subset of the question for me which is: when are we going to have the opportunity to elect politicians who have the interests of the people at heart rather than the interests of the 1% and global corporations. I guess the answer is when we open our eyes, get off our fat arses and organise ourselves to make the political system work for us. Not expecting that to be any time soon until food prices take up more than 50% of our income. Then we'll be asking questions about where are food comes from, growing our own and buying local.

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  13. Diapensia says:

    Food prices cheaper? Not in Sainsburys.

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  14. Julian says:

    Find myself agreeing with the vast majority of the points made by everyone. Quite encouraged that there seems to be a good level of understanding on the subject. Roderick's comment about the proportion of the overall take by retailers and how it has increased in the past two decades is really the most important point to grasp. CAP subsidies support not only the direct recipients but also retailers further up the chain since prices paid, especially in the veg sector and dairy/livestock sectors, are worked on a cost plus basis. Retailers such as Tesco are quite open about this and say for their milk price scheme they pay a higher price if suppliers join a cost plus scheme. All costs and income are declared (including cap support payments) less costs and the price is paid on a margin over cost of production basis. In other sectors such as veg or potatoes retailers are more than aware of the levels of support paid and this is part of their price calculations.

    The point to understand here is that to say each household has an indirect cost via the CAP which goes only to the producer is not correct. It is spread through the supply chain with retailers taking an ever increasing share.

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