The prices of all products, from oil to pasta to eggs have risen sharply in France in recent months. They are subject to a negotiation between distributors and manufacturers before being fixed on the labels. Bruno Le Maire, Minister of Economy, has declared that he will launch a mission of the General Inspectorate for Finance (IGF) to make sure that farmers don't lose.
Olivier Salomon is a partner at AlixPartners. He explains that the cost of raw materials and production, as well as transport costs, all contribute to the construction price. These factors are "in constant change," he says. The industrialists transform the products from the farms of the farmers before they reach the shelves at the supermarkets.
Throughout the chain, all costs are "amortized", which strongly limits the impact of fluctuations on consumer prices. This was said by Philippe Chalmin (president of the Observatory of Price Formation and Margins (OFPM) during a hearing at The National Assembly.
Distributors must maintain a sufficient margin, which is the difference between the sale price of the product and the purchase cost. They can adjust this depending on the economic environment. "They can vary depending on the department," explains Yves Marin (partner at Bartle), a consulting firm.
The OFPM published data showing that margins for food products are often very low, at 3% for fruits and vegetables and 0.9% for dairy products. For brands selling them, the margins can even be negative at -0.3% for meat products. Salomon says that in an environment of high inflation, brands take extra care to limit price increases for "essential products" such as butter, cereals, and yogurts to show that they are trying to control the increase.
Manufacturers and distributors negotiate prices every year. This will eventually affect the consumer. "The game between the different actors is there for there to be no abuse" of prices, Salomon explains, even though the margin system remains "fairly opaque".
The "Egalim laws", which were created to increase farmers' incomes, require distributors to sell food products at least 10 percent above the price they purchased them from suppliers. They regulate promotions, which are limited to 34% for food, and prohibit the operation of "buy two products, get one" deals. Professor of Economics at Paris-Diderot University Philippe Moati sees limitations. "It doesn't cover all products and brands have had to let go of their margins in order to compensate."
