French Food Fight

Governments often find creative ways and reasons to intervene in markets. As an example, The Economist magazine reported on a new law implemented by the French government effective Feb. 1. The new law sought to force “retailers to raise prices of food staples lest consumers be unduly profiting from shops trying to lure them with good deals.” The law mandates that food cannot be sold with a profit margin of less than 10 percent. The goal of the law is to support small farmers and small-scale food producers by requiring consumers to pay more for food. It is hoped the additional dollars paid at the retail level will trickle down to higher prices paid to farmers and food producers.

As is often the case, markets don’t quite react as officials had hoped or expected. The Economist reported that with the implementation of the new law the price of Coca-Cola rose 5 percent and the price of Nutella rose 8.4 percent, but the retail prices of vegetables and meat supplied by small farmers have not risen. This is because the margins on these goods exceeded 10 percent prior to implementation of the law. Consumer groups in France estimate the new law will cost consumers $1.2 billion. Food retail, Foodfight. The Economist, February 9th, 2019.