‘There’s something wrong with the market’

‘Unhealthy’ packaged food is priced at ‘close to marginal cost’ while fixed costs in the fresh fruit and vegetable supply chain play a much larger role in the price of produce.

The shelf price of a product incorporates fixed costs associated with its manufacture and distribution. Fruit and vegetables have particularly high fixed costs as they are perishable products which requires them to be restocked more frequently. This drives up the price of fresh produce compared to other shelf-stable foods, which are sold close to their marginal cost.

This situation distorts the relative price by of fruit and veg by ‘at least 40%’, according to economists from the University of Warwick.

Their study, published this week in the journal Science Advances, set out to quantify distortions in the price of fruit and vegetables due to market imperfections, and their impact on our diets. The researchers found that, on average, consumers buy 15% less fruit and vegetables than they would if the items were sold at marginal cost. This 15% under consumption accounts for a third of the gap between the average amount of fruit and vegetables consumed and the recommended intake.

Under consumption is due to a ‘market imperfection’, the paper argues. The fixed costs prevent the ‘invisible hand’ of the market from allocating more fruits and vegetables to consumers.

“The food retail market is very competitive, so if there weren’t any fixed costs you would expect food to be sold close to marginal cost. And the fact that they are not affects diets,”​ explained Professor Thijs van Rens, one of the authors of the article.


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