15 February 2019

The French government is deliberately increasing the price of food


In the name of supporting farmers, the French government is further increasing consumer taxes. The yellow vests hardly have a reason to stop protesting.

The “Loi EGalim

Last October, the French legislature passed the “Loi EGalim,” the long-form description of which reads: law for the balance of trade relations in the agricultural and food sector and healthy, sustainable, and accessible food for all. The goal of the bill is essentially to re-establish fairness between food producers and retailers, seen by lawmakers to be using unfair trading practices in order to enrich themselves on the backs of ordinary farmers. The legislative process began in 2017 and has gone through over 3,000 amendments. The bill seeks to achieve the following:

  • Price determinations based on production and market cost indicators
  • Facilitation of the implementation of renegotiation clauses
  • Clarification of the notion of excessively low transfer prices and an extension of the ban on what will be defined as “excessively low transfer prices”
  • A two-year experiment to increase the resale threshold to a loss of 10 per cent
  • A two-year trial of a framework for promotions in terms of value (34 per cent) and volume (25 per cent)
  • Enhanced mediation
  • Promoting safe and healthy nutritional lifestyles through education

The key issue here is that the government is opening the floodgates to legislative and even administrative price controls on food. The two-year experiment on an increased margin of 10 per cent on the net price of food means that the net price of food will increase by 10 per cent. The idea that the retailer has to meet the producer’s margin without increasing the retail price is just utopian, which legislators know perfectly well. They may argue for increased margins on the basis of fairness, but the reality is that they are asking consumers to pay more in order to support farmers.

Consumers are right to ask questions about this. After all, the European Union’s Common Agricultural Policy (CAP), of which France is the largest beneficiary, already subsidises farmers at the expense of taxpayers and to the competitive disadvantage of non-EU producers. If you add other government assistance programs, such as those activated during natural disasters, as well as welfare programs for the individuals in the production business, it becomes readily apparent that consumers are paying for their food multiple times before they even reach the register. And now they’ll be asked to pay 10 per cent more on the net price.

The reason why this was chosen as the preferred option is obvious.

The Self-Interest of the Treasury

It is clear that the French state, virtually bankrupt and in search of new tax resources, will recover taxes on margins increased by force through VAT at rates of 5.5, 10, or even 20 per cent (the latter rate applying to many products, including alcohol, confectionery, and all sugar-based products, margarines, and vegetable fats). Additional tax revenue here is significant and will be paid by, you guessed it, the consumer.

One day, we raise the price of fuel to save the planet; the next day, we raise the price of the shopping basket to save farmers… Hopefully, no one will tell the yellow vests.

It is readily apparent that the people making this decision are not those for whom food represents a significant proportion of the family budget, depending on whether you earn €1,200 or €6,000 or more per month (explaining the success of discounter retail stores). Lawmakers have decided, in a purely ideological way and without any proof of the effectiveness of such a measure, to increase product prices at the expense of the population’s poorest.

In this case, one must bear in mind that mass distribution serves here as an outlet for the inability of politicians and the administration to solve the problems of agriculture and farmers. Furthermore, there is no doubt that, as usual, the minister of the economy, in the face of the grumbling that will inevitably arise, will soon summon representatives of mass distribution to lecture them about the unintended consequences that the government’s policy produced.

We’ll probably hear that they have to reduce their margins in order to restore the purchasing power of the French, which has been damaged by excessive taxation. Minister of Agriculture Didier Guillaume has already hinted at that, saying he doesn’t want Michel-Edouard Leclerc (CEO of a large retailer brand in France) to have margins of 40 per cent on food products. You get the gist of what is going to happen next.

As soon as the République introduces this new rule, it will be obliged to go even further, continuing the cycle. The unintended consequences (or intended, as I don’t believe lawmakers were intellectually capable of ignoring the real-life consequences) of this public policy necessitate even more intervention in the eyes of advocates of big government. It is the task of a lifetime to get them to stop.

This article was first published by the Foundation for Economic Education.

Bill Wirtz is a Policy Analyst at ConsumerChoiceCenter.