High fixed costs for retailing fresh fruit and vegetables means that they cost 40% more than would be efficient, unlike unhealthy alternatives, which trade close to marginal cost, a new study demonstrates.
Introducing a subsidy to counteract the price distortion and reduce the cost of fruit and vegetables will change diets in a way that is not only healthier, but also more in line with what consumers like to eat, according to the research.
Published on 30 March in Science Advances, the study by economists at the University of Warwick set out to quantify distortions in the price of fruit and vegetables due to market imperfections, and their impact on our diets.
The economists found that fixed costs in the supply chain play a much larger role in the price of fruit and vegetables than in prices of other foods, distorting the relative price by at least 40%. These high prices imply that consumers on average buy 15% less fruit and vegetables than they would have if these sold at marginal cost. This under-consumption is due to a market imperfection: the fixed costs prevent the ‘invisible hand’ of the market from allocating more fruits and vegetables to consumers, which both they and the producers of these product would prefer.
The 15% under-consumption of fruits and vegetables due to retail market imperfections accounts for a third of the gap between the average amounts of fruit and vegetables consumed and the recommended intake.
Professor Thijs van Rens, one of the authors of the article, also leads the Warwick Obesity Network, which develops evidence-based policy and practitioner briefs supporting a national strategy against obesity. He said: “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.
“A higher price of any product means that people buy less of it. The question is, by how much? We find that if the market were working correctly, consumers would buy 15% more fruit and vegetables than they currently do, which would constitute a huge gain for public health.
“There is something wrong with the market, which is that there’s a high fixed cost in the provision of fruits and vegetables. The effect of that is that the prices are too high, and consumption too low. What is worse: the effect is stronger when demand is low. And demand happens to be low where people are poor. So this market failure not only makes us all unhealthier, but it increases health inequality as well.”
For more information: eurekalert.org