It is the dream of socialism that solves complex problems easily and quickly. The state orders prices to drop so that citizens will be relieved. And boom, everyone is happy. It can be so easy. But it is precisely this planned economy, this government influence over prices that were once freely determined, which ends up emptying supermarket shelves. Now the state in France is forcing supermarket prices down.
France is forcing supermarket prices down – a big deal at first glance
According to Spiegel, 75 major food companies in France are slashing prices on hundreds of products under pressure from the government. “I’m telling the French that the prices of some products will fall as early as July,” said Finance Minister Bruno Le Maire. There will be controls and sanctions against manufacturers that do not implement falling prices. They met 75 companies that produce and sell 80% of French food. A list of products affected by the price cuts will be published.
Doesn’t that look great? Shouldn’t this be introduced everywhere? Why so bad food companies and supermarket chains, they just profit anyway? And they just used high inflation anyway to raise their prices outrageously? In some cases, this might even be the case. But there are likely to be many cases where manufacturing costs at the beginning of the price chain simply rose so much that prices to end customers had to rise dramatically. I am concerned with the basic mechanism: what happens when supermarkets and manufacturers are forced by the state to lower prices? They will also demand significant price reductions from the producers of the raw materials – for example, farmers. If the individual farmer’s production is in deficit, he stops his production or prefers to sell to large buyers abroad. This is how empty supermarket shelves are created in France, see the previous months in Great Britain, where prices fixed with suppliers prevented adjustments to real market prices.
Examples of drugs in Germany
Have you heard about it in recent months? Some medicines are not available or are only available to a limited extent in German pharmacies. Why? Here, the approach of a planned economy is clearly recognizable. Maximum amounts that are reimbursed by health insurers or maximum drug prices. If manufacturers in other countries can get freely negotiated prices, they simply won’t sell their drugs to Germany anymore, and the bottleneck already exists. “We are not the only supplier in the market and we have no obligation to produce something that we do not earn anything from”, says the head of a pharmaceutical company. The idea of a price cap is always good only at first glance! As a result of the shortage, Health Minister Lauterbach has been forced to work towards relaxing pricing regulations for children’s drugs so that the drugs are more easily available again.
the basic problem
You hear it again and again in Germany from a certain political corner. Why doesn’t the government just order supermarkets to lower prices? Then consumers will be relieved and everything is wonderful. But this dream of a planned economy, of a state economy that offers simple solutions, simply does not work. History knows countless examples of this. Venezuela, with its empty supermarket shelves, is just one example. Take France, Germany or other countries: here and there there are some “still harmless” attempts at this idea of a planned economy, which, however, cannot work. For example, let’s get a bag of potatoes that costs 4 euros in the supermarket. If the State now wants to do something good for the consumer and orders the price to drop to 3 euros, then the supermarket chain – which does not want to lose money with potatoes – will pass this price reduction on to farmers in the form of prices significantly lower purchase prices. If the farmer realizes that he is even losing money producing potatoes, he will stop production and the supermarket shelves will be empty – or the farmer will find buyers abroad who will pay fair market prices.
The alternative: the farmer refuses falling prices and wants to maintain his old purchase prices. But then the supermarket would buy more expensive than it sells to the end customer. The end result would be the same: farmers would still be willing to deliver, but the supermarket would pull potatoes out of range because it didn’t want to make a loss. In the long run, with this way of thinking, empty supermarket shelves are more often than not pre-programmed, or maybe just half-empty shelves and delivery bottlenecks, etc.
thought to the end
But wait, there’s still the big general solution. If you get everything with AZ’s planned economy, then the state can flood supermarkets, food companies, wholesalers, freight forwarders and farmers with subsidies. Yes, so supermarket prices could really be lowered for the end consumer. So are you okay with this idea? Not exactly. Because the costs of such subsidies would overwhelm the state and it would have to drastically raise taxes. What citizens save on supermarket shelves at the front, they would have to give back two or three times at the back in the form of higher taxes. No matter how you look at it: in the long run there can only be downsides in the case of state price controls or state forced prices. There may have been socialist systems where supermarket shelves were filled with guaranteed low prices. But this only works if all economic levels are fully subsidized by the state and finally the state and economy are bankrupt.
Are supermarket shelves really empty in France?
I really don’t believe that supermarket shelves in France will be empty overnight. It could be a mixture of reactions. Manufacturers and supermarket chains are likely to forfeit their own profit margins for some products. Others, on the other hand, may try to get their suppliers to lower their purchase prices, which can lead to delivery issues. Perhaps some suppliers are also increasingly switching to cheaper private labels? And maybe some products are temporarily no longer available on the shelves? Or will prices be reduced, but the amount of content in packages reduced? No one can predict the exact impact of this state coercion on France. My article is more about the basic mechanism and what might happen in Europe in the coming years. Shelves will not be empty overnight. But: The more the State intervenes over the years over the years, the more the tendency is for the shortage of individual products or for their replacement by other products, which is already very well seen with medicines.
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