Cities are cheaper...

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We sort of knew this I think but it's good to be reminded that the process of growing food in the countryside and transporting it to cities is a very efficient system - indeed that food in cities is cheaper:

This paper uses detailed barcode data on purchase transactions by households in 49 U.S. cities to calculate the first theoretically-founded urban price index. In doing so, we overcome a large number of problems that have plagued spatial price index measurement. We identify two important sources of bias. Heterogeneity bias arises from comparing different goods in different locations, and variety bias arises from not correcting for the fact that some goods are unavailable in some locations. Eliminating heterogeneity bias causes 97 percent of the variance in the price level of food products across cities to disappear relative to a conventional index. Eliminating both biases reverses the common finding that prices tend to be higher in larger cities. Instead, we find that price level for food products falls with city size. 

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Doctor know everything...

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Including about marketing and pricing strategies:

...citing an article from a medical journal in 2009 by a leading liver specialist which suggested supermarkets were overcharging for food to pay for cheap drink.

This is the Prime Minister - yet again revelling in his ignorance of business. Or rather his minions at No 10 digging him out from the latest hole into which he'd dived. It seems that the PM believes that offers on beer are "subsidised" by more expensive food.

This is nonsense on sticks. For two reasons - firstly we don't go to supermarkets, in the main, to buy drink we go there to buy food and other household necessities. And secondly, the price of X isn't subsidised by the margins on Y - supermarket pricing strategies just don't work like that.

More importantly however, what qualification does a "leading liver specialist" have to talk about the pricing strategies of supermarkets? None whatsoever - I'll take his advice on my liver, maybe on some other doctoring stuff but not in an area where (despite not being a specialist) I know more than he does.

But then 'Doctor know everything', he is mighty god and great know-all.

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"Energy Stealth Tax Doubles EDF Price Rise" - the headline that wasn't!

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The renewable and social obligations placed on energy providers provide a masterclass example of stealth taxation. Today we're urged to be cross with the big energy providers, calls are made for enquiries (although this is a pretty standard Miliband response these days) and even for windfall taxes.

But here (courtesy of The Register) is an interesting little statement from EDF (emphasis is mine):

The company has seen a sharp increase in costs since the start of the year, with transmission and distribution charges rising by 9%, and the costs associated with the implementation of obligatory renewable, energy efficiency and social schemes increasing by more than 50%. The cost of buying energy has also risen by 4% for next year ... The cost of buying energy accounts for around 50% of a typical energy bill. The other half is made up of non-energy costs.

Now that's pretty clear although you won't hear Nicky Campbell running a phone in on how a government stealth tax - sold to us by Whitehall as not costing us a penny - is behind the ridiculous rise in domestic energy costs. Of that 11% rise, the lion's share is down to distribution costs and "renewables, energy efficiency and social" schemes.  As The Register comments:

This system of cranking up everyone's energy bill hits the less-well-off disproportionately hard: and it's also dishonest, as politicians and energy firms alike decline to tell you bluntly why your bills keep going up.

Just remember that, then, the next time you hear a politician stigmatised as a climate sceptic. A vote for that politician is a vote against this sort of vicious price rise, this sort of stealth tax targeted on ordinary folk who find their energy bills a significant cost - the sort of hit that most of us will find pretty painful, given the current economic climate.

Worse still, by tucking this information at the bottom of its statement, EDF are complicit in the fooling of the public. It should be the headline something like:

"Energy Stealth Tax doubles EDF Price Rise"

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We are reminded by the OFT why minimum pricing for alcohol won't work...

Some while ago at the start of the minimum pricing for booze debate, I said it wouldn't work:

The most likely outcome of this surplus reducing investment is promotion targeted at drinkers currently buying alcohol at higher prices – either in pubs or for home consumption. The impact of this would be negative for the pub trade and counter to the expectations of those promoting minimum pricing.

Of course the nannying fussbuckets didn't believe me but now there's some support for this argument from - of all people - the Office of Fair Trading:

Its biggest concern is that shops will have an “incentive” to promote their cheapest ranges of drinks because they will benefit from higher margins on these products.

In evidence to MPs, the watchdog said supermarkets and the drinks industry would gain “additional profit for every unit of low-cost alcohol that they sell”. 

The OFT also looked in some detail at the wider impact of minimum pricing and concluded that there were other significant and negative potential effects - not least of which the domino effect (or 'slippery slope') that the nannying fussbuckets don't believe exists:

By legitimising intervention to control prices in a competitive market, it will be harder for the Government to resist calls for similar measures in other parts of the retail sector in future,” the OFT warned in evidence to the health select committee

So minimum pricing won't work and will encourage further interventions in free markets. And in doing this minimum pricing will - as we've said all along - make ordinary households poorer. It is just a tax on the poor.

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The parliamentary beer group should be supporting brewers not calling for minimum pricing

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I’ve just returned from the bottle bank in the village (something the council tried to tell us we didn’t need but that’s a different story) where I deposited the remnants of Sunday’s Christmas party. No I didn’t count the bottles except to note that fourteen people can get through quite a deal of booze in half-a-dozen hours – even when at least four weren’t drinking at they are either teetotal or driving.

However, according to the allegedly Conservative Member of Parliament for Burton, Andrew Griffiths, this is “irresponsible”. Not because of how much we drank but because we didn’t drink in a pub:

Mr Griffiths, chairman of the parliamentary beer group, which lobbies the Government to support the brewing industry, believes cheap drink prices in supermarkets are encouraging irresponsible drinking and destroying community pubs.

Note the sponsor of this MP – the brewing industry doesn’t give a flying fig where its beer is consumed. Except for the fact that the main promoters of the parliamentary beer group* are either the pub groups or brewers like Greene King that are mostly interested in their pubs (and, given the amount of Old Speckled Hen sold at discounted prices in supermarkets are a bunch of hypocrites).

If Mr Griffiths thinks that minimum pricing will do anything for beer sales he is the most complete idiot of an MP. Not only is there little or no evidence that minimum pricing reduces the impact of alcohol abuse but its main effect is to extract more cash from the purchasers of cheaper drinks – which is mighty fine if you’re one of those sort of drinks manufacturers (I won’t credit them with the honourable title of brewer).

That the pub industry, through its lobbying efforts, it trying to get legislation to fix the market is revolting enough (and sadly for them won’t work) but when this is achieved through collaboration with the parliamentary voice of the temperance movement, Sarah Wollaston, it is doubly revolting.

When is the drinks industry – and those who claim to advocate for it like Andrew Griffiths – going to realise that people like Sarah Wollaston, Alcohol Concern and the other priests of the Church of Public Health are not its friend. These people are dedicated to the “denormalisation” of drink, to temperance and even to prohibition.

And they must be stopped.

*£5050 received from each of the following: AB InBev, Carlsberg UK, Enterprise Inns, Molson Coors, Mitchells & Butlers (registered July 2011) and Diageo plc, Punch Partnerships Ltd (August 2011) and Greene King, Heineken UK and Marston’s (registered September 2011).

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Motorway services stations aren't there to serve you food - which is why it's so crap and expensive

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Why are motorway service stations so awful? Why do we use them when we know the experience will be unpleasant? And how do these places get away with charging us so much for the poor excuse for food and drink they serve us? I know these are matters of great importance to you all and have merited my thoughts and attention over the past couple of days (not least because I’ve been in one of two of them during a trip to and from the South West).

My initial thoughts were that there has to be an explanation – after all such service stations are universally awful. Even Italy with its slow food delights has dreadful service stations selling expensive and poor quality food. So there has to be some rational reason for the problem – why services stations are so poor and (perhaps related) why we are prepared to put up with this situation.

There are several possible reasons (and these are not necessarily exclusive) including a semi-monopoly (both at the site and in the overall ownership of the service stations), the impact of regulation and exploiting a captive audience.

To appreciate this lets look first at a similar situation – the sale of popcorn at the cinema. Here there has been some serious research at Stanford University:

The findings empirically answer the age-old question of whether it’s better to charge more for a primary product (in this case, the movie ticket) or a secondary product (the popcorn). Putting the premium on the “frill” items, it turns out, indeed opens up the possibility for price-sensitive people to see films. That means more customers coming to theaters in general, and a nice profit from those who are willing to fork it over for the Gummy Bears.

This takes us a little way towards understanding the problem except that we can’t obviously see a primary product at the motorway service station – surely selling us food and drink is their primary activity? Here’s a clue, however, from the Highways Agency regulations:

The Government specifies that all MSAs must offer:

Free short term parking for all types of vehicle
Free toilets and hand washing facilities (in sufficient quantity to cater reasonably for the traffic flow on the motorway) and baby changing facilities
Fuel
Access for up to two hours for those carrying out emergency repairs to broken down vehicles.
Access to all facilities for disabled people.
Facilities must be available for 24 hours a day every day of the year
Access to a cash operated telephone

It seems clear from this that that primary function of motorway service areas is not to sell us food and drink – that isn’t in the list above. What we are doing by paying over the odds is allowing the provision of these free facilities required by regulation. Just as with the cinemas in the Stanford study, the service station operator is using the excess profits from high-priced food and drink to cross-subsidise the regulatory requirements – the free stuff the Highways Agency requires of the operators. If users paid for parking, to use to toilets and there was no free access it is likely that food prices would be much lower. More significantly, such an environment would put a greater emphasis on maintaining facilities – cleaning tables, sweeping floors and reducing litter.

I suspect that this is only part of the explanation – we now understand the high prices. But that does not (any more than it does for the cinema) explain the poor quality of both food and food service. Part of this may lie in the actual cost of the free stuff – to maintain food prices at a ‘reasonable’ level ‘requires’ quality to suffer. However, I suspect that the captive audience problem explains much of this as does the lack of real on site competition (would a ‘shopping mall’ type approach work better or would the site owner collect the monopoly profit through higher rents).

I suspect that we will carry on putting up with the price-gouging in order to have 24 hour, 365 days a year access to service stations – for the fuel, the toilets and the chance to park and have a break. And we’ll pay over the odds for food and drink so as to have that service. We’ll also put up with poor food and crap service because that’s not why we stop!



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