Let’s be polite and just call Ed Davey – ‘ignorant’

Dr Clive Black

May 4, 2023 8:50 am
Let’s be polite and just call Ed Davey – ‘ignorant’

The local authority elections provide the platform for politicians to say stupid things. Some are more consequential than others, of course, and in the case of Ed Davey, leader of that minority sport that is The Liberal Democrats, backers of the Student Loan Scheme when in power, easy to ignore.

However, the crass stupidity of his comments, that UK supermarkets should be investigated for profiteering amidst currently high food inflation, merits some consideration and deconstruction. Indeed, Davey et al are looking at the UK food system through the wrong end of the telescope; the British do not pay enough for their food if they want it to be secure, safe, wholesome, kind to animals and from a sustainable source.

Amidst falling living standards stating that ‘we’ do not pay enough for our food is, of course, political suicide; but the facts do not support his bluster and the narrative much change if the industry is to constructively evolve.

Firstly, food prices in the UK tend to be low compared to the EU, which the Liberal Democrats would like to re-join, largely due to market forces. Indeed, the competitive intensity of the British food system, which is not all about supermarkets but includes big institutional and foodservice buyers too, means that few make super normal profits.

Aldi GB delivers c£15bn of sales per annum with profit before tax of under £100m after investing c£500m per annum for much of the last decade. That is an atrocious return on capital employed and sub-optimal to say the least, but a key driver of value transferring from the food system to shoppers since 2012, noting that food as a proportion of household income has fallen from close on 35% at the end of WWII to c10% presently. The industry has driven incredible value for society through innovation and concentration, which politicians would do well to acknowledge.

Sainsbury and Tesco reported return on capital employed of c7% excluding billions of pounds of write-offs, so adding them back a much lower sum still – to suggest supernormal returns is insane. The late Jack Cohen and John Sainsbury would most likely not have built the stores that we somewhat take for granted for billions of pounds if such terrible returns were known at the time, making a total mockery of Davey’s shallow comments. If Mr Davey thinks Waitrose is super profitable then he needs his head examined!

Most food manufacturers in the UK have seen margins squeezed too by rising cost of goods, energy, and labour prices, which they have understandably passed onto the supermarkets, pubs, and cafes. What are the distributors of supermarkets supposed to do with such massive inflation?

There may be an argument that Tesco’s chairman, John Allan, somewhat clumsily, to say the least, sought to elucidate about tier 1., international manufacturers over recovering inflation. However, what does he suggest doing given a Competition & Markets Authority, a real law unto itself where Davey would be in good company, investigation would most probably lead to product withdrawals and lower investment into the UK market. International collaboration between regulators would be required and who is to say what the right price of Heinz baked beans should be given cheaper alternatives that the supermarkets sell? Shoppers have notably shifted out of proprietary brands in the present inflationary cycle too, so the market is working.

Has Mr Davey not noticed the closure of cafes, restaurants and the like due to business cost inflation? Would he like to see supermarkets withdraw investment and go bust too, noticing that Asda, Iceland, Morrison and Waitrose are barely breakeven and now with leverage pay no tax? Prices at chip shops have also increased by 20%, should the CMA investigate the chippy? Farcical, eh?

The reality is that if the British want the food that the Guardian reading Liberal Democrats desire, of which there is much to like, then a discourse needs to commence that discusses the safety, security, and sustainability of our food system. The CMA has overlooked the development of the British grocery industry for two decades, it is partly a construct of the regulator. To suggest another hugely costly CMA investigation is completely insane. There again, maybe technocrats and bureaucratic spongers’ form a major part of Davey’s constituency.

Davey et al should be engaging to understand the food system and not engage in megaphone nonsense. Indeed, the Government would do well to appoint a Minister of the Food System that reports to the Prime Minister and so fulfil this great industry.

Dr Clive Black

Senior Advisor

Coriolis Consulting

May 2023

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