The journey of a food product, from farm to table, involves several interconnected steps. This process, known as the value chain, encompasses all the activities that contribute to the final product we consume and here the inflation and food products its prices.
The value chain depicted consists of three primary
stakeholders:
Farmers: The initial producers who supply raw agricultural materials.
Manufacturers: Entities that process the raw materials into consumable products.
Retailers: Businesses that sell the final product to consumers.
Breakdown of Retail Price
The infographic breaks down the retail price of a liter of UHT 1/2 skimmed milk, priced at €0.83, into four main
components:
Cost of Agricultural Raw Material (€0.28): This is the cost to manufacturers for purchasing the raw materials, not the remuneration for the producers.
Gross Industrial Margin (€0.33): This covers the costs and profits of manufacturers.
Gross Retail Margin (€0.18): This includes the costs and profits for retailers.
VAT (€0.04): Value-added tax added to the final price.
Response to Specific Shocks
Each link in the value chain reacts to distinct external
factors:
- Farmers are affected by weather events and prices of agricultural inputs.
- Manufacturers face changes in energy prices.
- Retailers respond to demand trends.
- Market Power and Price Transmission
The infographic also highlights how market power varies across these stakeholders, influencing price transmission:
Farmers: Generally have limited market power due to small farm sizes and limited opportunities for product differentiation.
Manufacturers: Possess variable market power, with some industries being highly concentrated and having opportunities for differentiation.
Retailers: Typically have high market power, characterized by a concentrated sector with large buying groups.
Conclusion
This infographic provides valuable insights into the economics of food pricing, illustrating the intricate interplay between different stakeholders in the value chain. Understanding these dynamics is crucial for policymakers, businesses, and consumers alike, particularly in the context of inflation and its impact on food prices. By shedding light on the distribution of costs and market power, the infographic emphasizes the need for balanced approaches to ensure fair pricing and sustainability within the food industry.
Infographic Designed By: parisschoolofeconomics.eu
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