France raises minimum food resale prices, limits supermarket promotions

February 18 , 2019

France, the European Union’s largest farm producer, has raised regulated minimum food prices and limited bargain sales in supermarkets in a bid to increase farmers’ income.

Farmers - an important constituency in French politics - have long complained of being hit by a price war between retailers, which has benefited consumers but hurt producers down the chain.

The new law implemented this year amends a 1996 ruling prohibiting the sale of any product below its purchase price. While previously, supermarkets could purchase a food item from a farmer for €1 and sell it to customers for at least €1, the threshold has now been raised by 10%, meaning that that item would have to be sold for at least €1.10.

The decision comes after a government review of the food industry concluded that the previous threshold did not ensure all of the distributors' costs, including transport, logistics and staff, were covered.

In addition, the new law limits supermarket promotions, which have increased significantly over the last couple of decades, and which farmers say reduce product value and affect the perceived value of agricultural products in the minds of the consumers.

The latest legislation cape price reductions at 34% of the item's total value, with promotions approved for no more than 25% of the retailer's total stock.

Buy-one-get-one-free promotions, which the government says can lead to food waste, have also been banned. Instead, promotions of three products for the price of two will be favored.

The rulings on minimum resale prices and promotions will be trialed for two years.

“The aim is to rebalance trade relations for the benefit of farmers’ income,” Prime Minister Edouard Philippe said has previously said on the new regulations.

Analysts say the measures will likely reduce aggressive price competition among French retailers and accelerate food inflation, potentially benefiting retailers’ profit margins in the short-term, according to Reuters.

“This should calm down the (price) game a bit but the most aggressive players on prices may be tempted to parry an attack,” Raymond James analyst Cedric Lecasble was quoted as saying.

 

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