CHAP6_Presentation - East Side Food Store Adds Energy...

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Chapter 6 1 East Side Food Store Adds Energy Charge to Prices • Josefina Berlata, a cashier at Eli’s on the Upper East Side, waited for a customer to add the energy surtax to her payment. • The latest sign of the rising cost of everything greets shoppers at the registers of Eli’s fine-food warehouse on the Upper East Side like a slap with a wet fish. • “Attention customers,” the sign reads. “An energy surcharge of 1.8 percent will be added to every purchase.” Look down at the receipt and sure enough, there it is, right below the totaled items: another add-on that yanks the price of an $8.99 pound of fresh figs to $9.15. NY Times Sep 24, 2008 One complaint often voiced by dairy farmers is the difference between the price they are paid for milk and the price of fluid milk in the grocery store. Consumers also complain that supermarkets “gouge” consumers by raising the retail price of milk faster and farther than the prices paid dairymen increase. A number of reasons can be given for these differences, but they all center on a term referred to as marketing margin –the difference between retail and producer prices. Marketing Margins Marketing Margins Objectives: 1. Extend price theory to more than one market level 2. Examine relationship between price elasticity of demand at various market levels. Learn total elasticity and price transmission, etc.
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Chapter 6 2 1. Farmers don’t meet consumers (except farmers market) 2. Product on grocery-store shelf different from the original farm commodity 3. Price of retail product higher than the price of farm product 4. Marketing margin - difference between prices at various market levels, e.g., retail and farm price; also called price spread 5. Counterparts for nonfood sectors, e.g., the oil industry Marketing Margins Consumers Retailers (bread, beef) Processors, wholesalers Farmers (flour, cattle) Food distribution system Retail demand and supply determine retail price Farm demand and supply determine farm price Marketing margin A Breakdown of Milk Prices – NY Times, 2003 • To Connecticut dairy farmers, milk is a product that barely fetches a pint-size profit, if any. But for the state's major supermarket chains, it is an excessively lucrative product. That is the conclusion of a new pricing study by the Food Marketing Policy Center at UConnecticut. • The study of the top five supermarket chains that represent 75 percent of the Connecticut market revealed that on March 29 the average retail price of milk was $3.11 a gallon. Of that, dairy farmers received $1.04, not nearly enough to cover their costs of about $1.50 a gallon. Processors got about 58 cents for bottling and delivering the milk to stores. After paying the farmers and processors, the chains then added $1.49 to the price of a gallon. But the supermarkets' in-store expenses to sell a gallon of milk, including refrigeration and labor, are less than 40 cents, according to the study's lead author, Dr. Ronald Cotterill. The chains are ''price gouging,'' he said. Consumers
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CHAP6_Presentation - East Side Food Store Adds Energy...

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