The Scottish Government has just published a consultation on a proposal to introduce legal price caps for “essential” food items, such as bread, milk and eggs.
If ministers designated a particular type of food as a “specified food product,” any large supermarket chain selling food within that definition would have to offer at least one qualifying version at or below a government-set price.
Suppose ministers designate an 800g plain white loaf of bread as a price-controlled product and set the maximum price at 50p. A large supermarket would not be obligated to stock any such loaves. But if one of its stores chose to sell any branded product that qualified, it would have to offer at least one variant for 50p or less.
All sounds simple, right? Well, not really.
The consultation paper shows, with unusual honesty, why overriding market prices soon gets extraordinarily complicated. Chapter by chapter, it reveals how much information prices contain, before setting out how government might try to recreate those signals through regulations, reporting, inspections and consultation.
Some highlights from the document:
No market failure. Recent food price increases, the paper concedes, largely reflect general inflation and industry cost increases, not a sudden winnowing of supermarket competition. So this is not a price remedy to try to see off some monopoly power. If ministers set the cap below the prevailing market price of any good, it would be an instruction to sell below a price generated by real scarcity. A price cap on bread does nothing to lower the price of wheat, wages, electricity, packaging or diesel. It merely prevents the final retail price from reflecting them fully.
What is the government trying to achieve? You might think the aim is simple: lower prices on the goods affected. Well, not quite. Ministers are certainly looking to use these price controls to improve affordability for those on lower incomes. Yet, because it’s government, they also want to consider prices’ effects on nutrition, consumer behaviour, producers, food security, trade, the environment and animal welfare. What if a 50p bread price cap encourages supermarkets to supply more budget bread with cheaper ingredients or favour white over wholemeal? The price objective may well collide with other farming, environmental and health goals. The paper calls for a “whole-system approach,” acknowledging that price controls can create trade-offs throughout the food industry. It provides no rule for how ministers should rank those competing objectives.
Those costs do not vanish. The consultation admits that any gap between the market and capped price will be “redistributed.” Suppose supplying our loaf costs 55p but the legal maximum price is 50p. The retailer might accept a smaller margin, squeeze the baker, or recover the loss through higher margins on uncapped goods. And if the controlled loaf disappears or sells out, shoppers may switch towards substitutes, increasing demand and prices for those uncontrolled products.
Defining the controlled products. “Essential food” has no universally accepted meaning. What type of bread is essential—white, wholemeal or gluten-free? What weight? Fresh, frozen or packaged? Ministers will be given extraordinary discretion to specify the size, ingredients, packaging and nutrition of goods covered. But the more specific they get, the easier it becomes to get around the controls. And there’s apparently going to be a lot of them. The consultation leaves the list open, although John Swinney, the Scottish first minister, said during the election campaign that between 20 and 50 products could ultimately be covered, including rice, cheese, and more.
Products differ along many margins. The document acknowledges that a single person and a large family usually buy items like milk in different sizes. A single pensioner might buy one pint, whereas a family may buy four or six pint containers. Yet if the government only caps the price of the larger cartons below market rates, then the pensioner sees no price cut, while the cap encourages waste. Set a single per-litre milk cap price and it may not reflect the relatively higher packaging costs of small cartons. Cover each size separately as a new price control and the rulebook grows and grows.
What happens if sub-market prices create shortages? Hold the bread price at 50p when its market price is 55 or 60p, and textbook economics in competitive markets says that you’ll get shortages. Retailers need not stock a capped product at all if they don’t want to. So perhaps you won’t see 800g white loaves. And if they do stock some but run out of the controlled product? The proposal says that if another qualifying loaf is available and on sale, the supermarket must reduce that alternative to the capped price. The consultation calls this “real-time adaptability.” So already, these controls include the possibility that retailers would have to reprice substitute stock in real time, creating uncertainty about the margins they will obtain from having alternative products on hand.
Officials will try to discover the right price to achieve its goals. How will price control levels be set? Regulators would estimate a “baseline price,” which could be an estimate of the current cheaper-end average. But suppose one supermarket chain charges 50p for the covered loaf, another 55p, while a third charges 60p—or 45p with a loyalty card. How would those prices be combined into one baseline? It’s not clear. And then, even after calculating a baseline, regulators will need to decide for each food item whether to cap the price at baseline, or below it, or slightly above it. Again, this is all an acknowledgement that the sector is very competitive already with a host of complex pricing considerations.
One Scottish price, many Scottish costs. The same price cap would apply across all qualifying retailers for covered goods, despite different supermarkets facing different rents, distribution networks, store formats, scale, and local demand. That itself will sometimes create relative price distortions between stores. Meanwhile, a chain convenience store would be covered while an independent shop next door selling the same item might not be.
And what about market prices changing over time? The document acknowledges that the price of a good over time can be affected by inflation or individual factors in its own market, such as weather, disease, energy, fertiliser prices and geopolitics. If a drought happens or pro-carb diets come back into fashion, the market price of white bread might jump relative to the price control. A cap will become “too restrictive or too generous,” the paper admits, if it doesn’t change over time. Hence the document admits the need for perpetual review, with the government chasing the market price its policy displaced.
Protecting farmers requires seeing through the whole supply chain. Because the government has so many objectives, it also wants to trace the impacts of the price controls on other parts of the supply chain. That’s tough enough for individual items. A loaf passes from farmer to miller to baker to distributor to supermarket, after all. For composite foods, tracing margins and displaced costs is more difficult still. So the document floats further monitoring of prices and margins, impact assessments, temporary exemptions and mechanisms to suspend the controls.
Policing it is difficult. Under the proposed model, local authorities would most likely appoint officers to inspect stores and websites, demand records, issue compliance notices and, ultimately, trigger fines. Checking shelves sounds easy enough. Doing the complex work to review adjustments to quality, whether a substitute was available, and whether online and loyalty prices complied is not.
Ultimately, this is a ton of hassle to scrape a few pound per week off of family’s weekly shopping bills!
The whole document is a reminder that market prices compress dispersed, changing information about scarcity, costs, quality and preferences into a simple take-it-or-leave it number that then incentivizes everyone affected to adjust to its reality. The Scottish government is proposing to suppress many of those numbers, in turn creating shortages, substitutions, lower quality, cross-subsidies, monitoring rules and lobbying.
The consultation really is an unintended paean to market prices. It’s page after page of bureaucratic proposals to recreate the signals price controls suppress, or else clean up the damage caused by suppressing them.
These people are insane and clearly not fit to run a proverbial whelk stall, never mind a government.
Yet another example of the complete failure of devolution.