The media reports that large commercial chains under the auspices of the Competition Council have launched a so-called “voluntary agreement to reduce the price of milk”, after the commercial mark-up in the processing-marketing chain reached values ​​without historical precedent: purchase prices at the farm gate 1.5-2 lei per liter and shelf prices over 8 lei.

In an economically enlightened mind, some red light bulbs immediately light up. First, why have prices and markups increased so aggressively? Of course, everyone knows that this is inflation, but it is only the name of the aggregate macroeconomic process. At the level of an individual product or market, prices do not rise “due to inflation”, but have specific local reasons: due to the drought, raw materials have become more expensive by x%, say salaries have increased by y%, energy by z%, etc. and all together force the entrepreneur to raise prices to the level at which he will maintain economic returns in a competitive market. These individual decisions, aggregated at the national level, lead to “inflation,” a decline in everyone’s purchasing power. The concept of a competitive market is the cornerstone of this reasoning, an entrepreneur can raise prices only to the extent that he expects to still have sales of his products. If, on the other hand, the market is non-competitive, the entrepreneur does not need to calculate costs to raise the price: he will raise it from the beginning to the value that maximizes his income and pocket the profit.

Back to the product in question, there is no sign of a reduction in milk supply from producers, on the contrary, we seem to be in an overproduction situation where farmers are dumping milk on the fields in protest at the low prices they are getting. receiving from processors. Other reasons for the increase in prices can be found, as we have already indicated, in energy or wages, but none of these chapters recorded an increase of hundreds of percent to explain the evolution of this scale in the commercial margin in the milk processing chain. Thus, the price of milk has not increased due to inflation, but on the contrary, milk and other products are among the factors contributing to the rise in inflation and the rapid rise in prices throughout the economy.

In short, the answer to the first question is painfully obvious: we are dealing with anticipatory price growth. Somewhere between the farm gate and the store shelf, someone has decided to raise prices quickly ahead of current costs, either because they expect hard times and high inflation (inflationary expectations) or because… they just can. Actually, a combination of both. Developing in a weakly competitive market, as explained above, an external energy price shock was caused perfect cover to increase real profit, without attracting the attention of the authorities or the hostility of consumers. And consumers can only shut up and swallow, because they are “price takers”, they have no alternative, except for milk from the corner of the street, poured by a reliable old woman in PET.

Second question mark: If the big chains can enter into a “voluntary agreement” to lower the price, isn’t that a tacit admission that… the market doesn’t work and the prices aren’t set competitively, that the big chains are, in fact, not competing with each other , when it comes to the selling price of products like milk? If competition were real, the price would already be at a minimum, and we simply don’t expect a supermarket to sell milk (or any other product) at a loss in the long run. At most, they can support short-term promotions aimed at attracting customers to the store and building consumer habits, then return revenue that covers the costs of previous promotions.

So the “voluntary agreement” is, at best, rainwater, a trickle-down excuse that would have come anyway, and at worst, a tacit admission that Romania’s regulators have lost control of the big grid electricity market. All the Council can do is to ask retailers to reduce the price of one product by 2 lei, out of the generosity of a large international corporation, at least for 6 months there. It’s kind of the cat’s way of showing off: we know we can’t make you compete, but we can give you trouble, so throw us a bone to make it look like we’re doing something.

Comparing the performance of the Competition Council in the fuel market, where we have an interchangeable product, much more mobile consumers and a large number of outlets, transparent prices and low transaction costs, etc., leads us to this prospect of powerlessness in front of retailers. All of these conditions put us in a naturally competitive market, but that didn’t stop the Council from imposing a record €200m in fines for a fuel divestment deal in 2012, all of which were upheld by the courts. So it wasn’t even a price-fixing cartel like we might have here and the action continued until recently, look at the fuel hysteria last March for example, which quickly subsided. So the Competition Council knows how to bite when it wants to – or stays.

In comparison, we have known for many years that we have a problem with abuse of market dominance in retail. Producers and processors scream at every opportunity that they are being ripped off for advertising and placement fees, that supermarkets operate as small local monopolies that attract consumers from large areas at the expense of small retail and agri-food markets, and that the big chains and their processors are the only ones who still makes a profit (and a big one) from the food trade.

The recent announcement of the acquisition of Cora by Careffour, subject to review and approval by the Board, will be a test of the Romanian state’s ability to control the field. An example can be the concern of the British authorities about the consolidation of the market … computer games, refusing to allow Microsoft to buy Activision Blizzard. If the UK is concerned that the price of computer games may go up at the expense of consumers, I think perhaps we should also be wary of staple foods doubling or tripling their prices for economic reasons that are hard to justify. hitting the shopping cart hard. the most vulnerable Romanians, simultaneously with the reduction of competition and the consolidation of players. Real attention, not a PR-style “voluntary agreement” mercilessly thrown on the increasingly empty table of consumers and only on the political pressure of milk producers. Read the whole article and comment on Contributors.ro