How do you determine a fair price for food?

There is a social desire for farmers to produce safe, high-quality food while taking into account animal welfare, the environment and the climate. And they must have a fair price for that, is the idea. But what is a fair price? And can you realize the reasonable price?

Social needs are becoming increasingly important in food production

The agricultural sector must not only produce food, but the sector must also meet other social requirements. For example, consideration must be given to animal welfare, limiting ammonia emissions, preserving biodiversity, ensuring a clean environment and reducing greenhouse gas emissions. If farmers want to meet these demands, it means that they have to bear higher costs.

The benefits, not the burdens?

The complaint of farmers, gardeners and fishermen is that in the end they are not paid for the costs they have to bear. The market price they receive is not a fair price. A ‘White Paper’, a publication of Wageningen Economic Research, examines the problem of pricing. What is a fair price? How can you achieve a fair price? What is the effect of tinkering with price formation?

How do you achieve a fair price?

Prices are established in a market with supply and demand, it is explained. That market price ensures that producers who provide a product or service most cost-effectively have the best opportunities.

In a free market, producers who produce at too high a cost don’t stand a chance. Losing producers may see a price as unfair because they are not getting their costs paid.

Reasons why a price may be unreasonable

That white paper goes into detail about various reasons why a price may be unreasonable. This may be when a farmer sees that there are parties who can influence price agreements through dominant positions or who can enforce unfavorable delivery conditions or contract specifications.

The prices can also be perceived as unfair if you do not include negative effects of the production in the price. Consider, for example, the environmental impact of groundwater as a result of nitrate loss from agriculture. A real price (true price) is a calculated price that includes all hidden social costs. For example, the cost of environmental pollution.

protein transition

More and more meat substitutes are available on supermarket shelves. However, meat is often cheaper than the vegetarian version. Seen in the light of the government’s goals for the protein transition (less animal protein, more vegetable protein), this is not ideal.

There are several reasons for the higher price of vegetarian products. For example, developing vegetarian alternatives costs money, supermarkets make more money from vegetarian alternatives and vegetarian variants are often linked to brands that cost more advertising and thus money. According to Arjen Wals from Wageningen University, meat is too cheap and we should look at the fair price for meat.

How do Fairtrade organizations approach it?

The question is whether you can make the prices fairer. Fairtrade organizations say they do this by paying farmers a fair and ethical price for coffee, tea or cocoa. But the experiences with fair trade also show how difficult it is to set a fair price.

Production costs vary greatly between farmers and locations. If you want to pay a price so that the least efficient breeder can just make ends meet, the price may be too high. In addition to the ethical perspective, you will therefore also have to take the economic context into account.

Fair price policy

There is a lot to consider, especially when calculating social aspects. But also about how strong soil leakage is a factor in relation to, for example, working conditions. Wageningen UR is a public-private partnership (PPP) working to develop a broadly supported method for assigning products a real and fair price.

There is a social desire to intervene in price formation through politics, so that food producers can produce more sustainable food. However, it is difficult to influence prices. If you want fairer pricing by means of subsidies, then there must be sufficient financial resources available. It is also possible that regulations work against or that the effects can be disappointing.

Extra fee

Nevertheless, there are opportunities. For example, you can charge a surcharge for products produced under a quality label, such as meadow milk. Or you can introduce an environmental tax to fill a sustainability fund with which you can stimulate circular agriculture.

Finally, the authors of the document conclude that price correction policies can be a very good tool to realize farmers’ rewards for their efforts or to influence consumers’ consumption behavior. But such a policy is often not easy. Nevertheless, a correction in prices could be one of the building blocks of the larger story.

Source: Groen Kennisnet

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