Greedflation and shrinkflation, survey in the UK

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CMA (Competition and Markets Authority, UK) has been carrying out the investigation into the practices of determining and displaying food prices, in physical and online retail, in the smell of greedflation and shrinfkation since the beginning of 2023.

Supervision is crucial both to verify price trends and any speculation (greedflation, in fact), as well as unfair commercial practices that damage competition and consumers.

The two reports from the Competition and Market Authority (Antitrust) offer some interesting insights into a scenario that is still unclear, albeit full of clues, and the resulting consumer trends.

1) Greedflation and shrinkflation, UK scenario

UNITE, as we have seen, published a report in March 2023 demonstrating the existence of a systematic ‘bias’ between the increase in food production costs and the increase in their consumer prices (greedflation). (1) Consumer food inflation was therefore exacerbated by speculation carried out by both the processing industry and retail. This phenomenon has aggravated social inequalities, where:

– citizens have suffered a drastic reduction in spending capacity, not compensated by a corresponding increase in wages;

– some ‘Corporations’ in the food industry and large ‘retail’ groups have made millions of profits despite the widespread economic crisis.

The scenario in the UK is probably similar to that reported in other countries in the European Union. Uncontrolled greedflation and some shrinkflation operations (reduction in the quantity of products contained in the packages, at unchanged prices) instrumental to it. But the authorities of various countries have not paid particular attention to these phenomena, with a few exceptions (2,3,4).

2) Competition and Markets Authority, investigations underway in the UK

Competition and Markets Authority (CMA) has launched analyses on the food value chain in the UK at the beginning of 2023 to verify the existence of possible anomalies, distortions of competition and imbalances to the detriment of consumers.

The analysis of the Antitrust Authority was based on the comparison of unit prices of food products, at retail, in 11 supermarkets and 7 shops selling household items, with a more limited range of food products.

The method is therefore the same as that used by GIFT (Great Italian Food Trade), in the same period, to compare the prices of a basket of 102 products on 6 online food sales platforms in Italy. (5)

3) CMA, first report

The first report by CMA, published on 20 July 2023, offers a report on two months of analysis of the retail food market in the United Kingdom, with a focus on supermarkets (e.g. Asda, Morrisons, Sainsbury’s and Tesco) and discounters (i.e. Aldi, Lidl). (5) Verifying the following:

– food inflation has reachedhistorically high levels‘, but the competition between retailers was able to maintain the ‘lowest possible prices‘ and allow consumers to ‘shop around to get the best deals‘;

– retail would not havetransferred entirely to consumers‘ the increase in their costs. Also because otherwise it would not have been able to resist the competition from discounters (Aldi, Lidl), which has already gained market share;

– the weakest segments of consumers, as they are unable to go to department stores or make purchases online, remain the most penalized. It is no coincidence that Égalité and GIFT (Great Italian Food Trade) at that time proposed to Italian retail to offer free home delivery to elderly and disabled people. (6)

4) Transparency on prices

All outlets involved in the investigation, shops other than supermarkets more frequently revealed non-compliance with the Price Marking Order (PMO). That is to say, lack of transparency in the display of prices which in the UK as in the EU must follow specific rules.

Transparency must be guaranteed by displaying the price – including VAT (Value Added Tax, VAT in Italy) and any other taxes, such as excise duties on alcoholic beverages and Sugar Tax, in the UK and other countries (7) – both per unit of sale , both by unit of measurement (e.g. 1 kg, 1 L).

In England however, as GIFT (Great Italian Food Trade) also verified in Italy at the time, (8) the information is often incomplete. As a result, consumers are unable to compare prices per unit of measurement and thus identify the best offers.

4.1) Incomparable prices, some examples

The unfair business practices identified by the English Antitrust (CMA), as regards the display of prices, are summarized in three cases:

– consistency. The prices of similar products refer to different sizes. The price of tea bags, for example, is displayed in some cases per 100 grams of product, in others for each single tea bag;

– transparency. Information on unit prices is sometimes missing or calculated incorrectly, both in physical stores and in online sales;

– legibility. In several cases the prices are difficult to read in physical stores and appear only after the items have been added to the shopping cart of the ‘online marketplaces’.

More generally, the CMA calls on all retailers to provide consumers with the unit price information they need to make meaningful comparisons, particularly for promoted products, even before the introduction of any Price Marking Order (PMO) reforms.‘. (9)

5) CMA, second report

The second report of the British Antitrust (CMA), published on 23.11.23, offers further ideas to delve deeper into the phenomenon of ‘greedflation’. First of all, it clearly emerges that the analysis of the economic and financial performances of operators is based on:

– ‘information provided [by operators] in their responses to our voluntary requests for information, as well as publicly available financial statements‘;

– ‘data relating to sales in the UK of products belonging to the product categories we have chosen, rather than on the overall activity of producers, which can include numerous products and countries’.

Powdered milk for babies, canned beans, pet food and mayonnaise are indicated among the products where the increase in costs (+30-70% and +25%, on the first two products, in the two-year period 2021/2023) is more disproportionate to that of costs of production.

6) Greedflation, consumer reactions in the UK

Greedflation emerges in various parts of the analysis of Competition and Markets Authority which however, unlike that of UNITE, does not offer an overall scenario capable of expressing its actual scope. On the other hand, the CMA cannot sanction price speculation alone, it can instead:

– deepen and publish his research, ed

– exercise a moderate action of ‘moral suasion’ towards some operators, for example in the baby milk powder sector where production is concentrated in a few groups.

UK customers have reacted to widespread food inflation by purchasing more and more private label products whose prices, across almost all product categories examined by CMA, have increased to a lesser extent than those of ‘premium brands’. The advantage of ‘own labels’ reached 41% and +39%, between September 2021 and September 2023, on canned legumes and bread. The discount channel has also gained ground. Among other things, it is noted that these trends are in line with those already observed in Italy. (11)

7) Value chain, farmers at risk

The costs of chemical fertilizers in the European Union have increased to an extraordinary extent following the conflict in Ukraine and the sanctions imposed by the West on Russia, as we have seen, due to the high energy intensity and the methane required to produce ammonia (as well as in the production processes of phosphorus-based fertilizers). (11) Nitrogen fertilizers in particular account for approximately 60% of total chemical fertilizer consumption, both globally and in the UK.

The UK has no domestic ammonia production capacity and is 60-70% dependent on foreign supplies of chemical fertilizers, the costs of which have increased in recent years to 3,5 times compared to 2020 levels. Production is concentrated in three vertically integrated multinational groups (CF Industries, Yara and Origin) and its costs have in turn increased to an extraordinary extent, to the point of resulting in the closure of numerous plants in the European Union and the UK. (11)

Scarcity di fertilizzanti ha d’altra parte consentito ai suoi produttori di incrementare i margini sui mercati regionali e globale, nel 2021-2022, fino al picco di settembre 2022. La produzione è frattanto aumentata – sia in Russia che in U.S.A. – e i prezzi sono progressivamente calati, se pure a livelli superiori rispetto al 2020. National Farmers Union (NFU) Scotland aveva incontrato CMA, a settembre 2022, per denunciare (invano) l’insostenibilità dei costi dei fertilizzanti per gli agricoltori in UK, e i rischi che ne derivano anche per la ‘food security’. (12)

8) Provisional conclusions

The survey of CMA (Competition and Markets Authority) has the advantage of offering an overview of the value chain in the agri-food supply chains in the United Kingdom, from the perspective of consumers.

Inflation food and the resulting social hardship remain significant but the Antitrust can do nothing but verify the correct functioning of competition on the retail market and intervene in case of distortions.

The free market does not offer protection to the weakest social groups nor to the agri-food production chain, despite the good intentions declared by the European legislator in the Unfair Practices Directive (EU) 2019/633. (13)

Dario Dongo

Footnotes

(1) Marta Strinati, Dario Dongo. Greedflation, the super profits of corporations and supermarkets in the UK with the excuse of inflationGIFT (Great Italian Food Trade). 17.3.23

(2) Marta Strinati. Consumers against shrinkflation and other hidden price increasesGIFT (Great Italian Food Trade). 15.9.22

(3) Marta Strinati. Food inflation, the demands of SAFE Food AdvocacyGIFT (Great Italian Food Trade). 23.6.23

(4) Marta Strinati. Exaggerated profits, Greece fines Unilever and Procter & GambleGIFT (Great Italian Food Trade). 12.11.23

(5) Marta Strinati. Online shopping, prices compared on 6 ecommerce platformsGIFT (Great Italian Food Trade). 3.3.22

(6) Competition and Markets Authority (CMA). Price inflation and competition in food and
grocery manufacturing and supply. Outlook http://tinyurl.com/4p7deeea

(7) Marta Strinati. Sugar tax. 5.000 fewer cases of obesity among British girlsGIFT (Great Italian Food Trade). 28.1.23

(8) Dario Dongo, Marta Singed. Everli, Carrefour, the ecommerce that deceives. High prices and misleading labelsGIFT (Great Italian Food Trade). 28.11.20

(9) Reg. (EU) 1169/11 and PMO (Price Marking Order, in UK) in effect prescribe that all mandatory information, excluding that specifically referring to lot and ‘date marking’, be provided ‘available before completing the purchase‘, not even before their selection (Article 14). CMA therefore suggests a regulatory reform, although the practice of postponing price transparency to the phase of adding products to the shopping cart can already be classified as incorrect, pursuant to the Unfair Commercial Practices Directive (EU) No 2019/2161. See previous article ‘Unfair commercial practices, the Consumer Code in the digital age‘. GIFT (Great Italian Food Trade). 27.3.23

(10) Marta Strinati. Italians on standby. Coop Italia’s consumption forecasts for 2024GIFT (Great Italian Food Trade). 8.1.24

(11) Dario Dongo. Nitrogen fertilizers and urea, black crisis in EuropeGIFT (Great Italian Food Trade). 29.8.22

(12) NFU Scotland engages CMA in fertilizer profit discussion. The Scottish farmer. 11.9.23 http://tinyurl.com/3wew825e

(13) See paragraphs 4,5 in the previous article ‘Germany, the great farmers’ protest. Here because’GIFT (Great Italian Food Trade). 11.1.24

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Dario Dongo, lawyer and journalist, PhD in international food law, founder of WIISE (FARE - GIFT - Food Times) and Égalité.

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