國際時事跟讀 Ep.K645: The Challenge of Lowering Supermarket Prices in France
France's Finance Minister, Bruno Le Maire, is engaging in discussions with the country's top supermarkets and suppliers to address the rising cost of food and essential goods. Despite efforts to reduce prices, the cost of living continues to strain consumers' budgets. This article explores the factors contributing to France's struggle to lower supermarket prices.
Supply disruptions caused by Russia's invasion of Ukraine last year led to increased commodity costs worldwide, contributing to global inflation. However, even after energy and agricultural commodity costs decreased this year, food prices in France and other countries continued to rise. In June, Le Maire secured a commitment from 75 leading food companies to lower prices on hundreds of products starting in July, aligning with reduced raw material costs. Unfortunately, only around 40 companies followed through on this pledge, highlighting the challenges in the industry.
One key obstacle to aggressive price cuts in France is the way retail prices are determined. Unlike most countries, France has a legal framework that restricts price negotiations to a specific three-month window—between December 1st and March 1st each year. Prices remain fixed for a year unless individual agreements include review clauses. This system has caused retailers and industrial groups to forecast that significant price reductions will not occur until March of the following year. They argue for more frequent negotiations to adapt to changing economic conditions.
France's EGAlim legislation, introduced in 2018 and updated in 2021, aimed to boost farmers' income by requiring contracts between suppliers and retailers to include automatic price revision clauses based on commodity price fluctuations. However, these revisions are limited to certain agricultural inputs like grains, milk, sugar, and meat, omitting other essential factors such as energy, labor, and packaging. A Senate report from the previous year revealed that revision clauses covering raw materials applied to only 20% of contracts, with most prices locked in yearly negotiations.
Additional factors affecting prices include regulations limiting product discounts and promotional offers. Retailers are prohibited from discounting products by more than 34% of their value and from selling more than 25% of a product's volume in promotional deals under the EGAlim legislation. A new law, the Descrozaille law, extends the 34% limit to beauty, hygiene, and care products. Critics, such as Carrefour's CEO Olivier Bompard, argue that this law restricts retailers' bargaining power and ultimately benefits multinational corporations rather than small producers.
Reference article: https://www.reuters.com/markets/europe/why-is-france-struggling-lower-supermarket-prices-2023-08-30/