综合A原文欣赏(概括大意篇)：How technology pushes down price

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How technology pushesdown price

Dec 11th 2003 | from the print edition


THE Treaty of Breda, signed in 1667 after a warbetween the English and Dutch in which the English were worsted, gave the Dutchthe big prize: Run, a small island in the Indonesian archipelago which was theworld's principal source of nutmeg. The margin on nutmeg at the time was around3,200%. The English, as a consolation prize, got Manhattan.

As an illustration of the long-term fall in foodprices compared with other goods, that is a sharp one. But deflation hascharacterised the food business for centuries, because of continual advances infood production and distribution technology.


Consumers have benefited greatly from thoseadvances. Malthusians, whose descendants until quite recently predicted thatthe world would run out of food, have thereby been confounded. More and morefood is being produced by fewer and fewer people with less and less capital; itis therefore ever more plentiful and cheaper. Since demand is to some extentlimited by the size of people's stomachs, spending on food compared with othergoods has been falling for many years, and continues to drop .


Genetically modified (GM) seeds are the latest manifestation of aproduction revolution that started with Charles “Turnip” Townsend, who in the18th century laid the basis for crop rotation. Organic fertilisers werereplaced by chemical ones in the 19th century. The railway opened up theAmerican mid-west. The horse replaced the cow, the combine harvester the horse.After the second world war, dwarf varieties of wheat and rice (which overcamethe problem that heavily fertilised crops in hot countries grew too tall andfell over) boosted developing-country output.


The “green revolution” helped trigger a more recent“livestock revolution”, documented by Chris Delgado, who works jointly for theInternational Food Policy Research Institute and the International LivestockResearch Institute. Higher incomes and urbanisation, combined with falling foodprices, have boosted meat and milk consumption in developing countries. By1997, real beef prices were a third their level in 1971. Over that period, meatconsumption in developing countries rose five-fold, three times as fast as indeveloped countries.

Milk consumption rose three-fold.


By the 1980s, advances in conventional plantbreeding had tailed off, but GM made it possible to do things with DNA that conventional breedingcould not do. Despite scaremongering in Europe, GM technology is spreadingelsewhere: most of the world's soya is now GM.


Producing lots of food is not much good unless you candistribute it, so advances in distribution technology have been as important asthose in production technology. Salt, used to preserve food, which meant thatit could be stored and traded, was an early aid to distribution. Canningarrived in the early 19th century, when a Frenchman discovered that food couldbe stored longer if it was heated before it was bottled, and a Briton workedout that tin cans were easier to transport than bottles; and both the Britishand the French armies used the technology to feed their troops in theNapoleonic wars.


Francis Bacon, a British scientist and essayist,was an early victim of the struggle to develop refrigeration technology: hedied in 1626 after eating some chicken that he had stuffed with snow as part ofan experiment. In 1877 the first shipload of frozen beef was carried fromArgentina to France. The impact on the food industry of the spread of thedomestic refrigerator in the 20th century was rivalled only by that of the car,which changed the face of retailing by allowing supermarkets to develop.


Supermarkets have helped push down prices principallybecause of their scale. Big businesses can invest in IT systems that make themefficient. And their size allows them to buy in bulk. The more concentrated theretail business becomes, the bigger supermarkets get, the further prices getpushed down until, of course, there is so much concentration that there is notenough competition.


Britain's Competition Commission indicated earlierthis year that the supermarket industry was moving towards that point: itrefused to let any of the top three supermarket chains buy one of the smallerplayers. In America, however, where the size of the country means a morefragmented retail business, there is still scope for further concentration: the“black death”, as Wal-Mart is known in the trade, is expected to claim morevictims.


Wal-Mart's scale, the efficiency of its IT systems and the cheapnessof its non-unionised labour force ($8-10 an hour compared with $17-18 formid-sized players such as Albertsons, Ahold, Safeway and Kroger), give it amassive advantage. It sells Colgate toothpaste for an average of 63% of itscompetitors' price, Tropicana orange juice for 58% and Kellogg's Corn Flakesfor 56%. Analysts expect at least one of the mid-sized firms to disappear.


The concentration of power among retailers has ledto another stage in the shift in power down the food chain.

Once upon a time,power lay with landlords. In the 20th century, as processing and distributionbecame more important, so did the food producers. Lord Haskins, Tony Blair'sadviser on farming, recalls going to food industry conferences in the 1970s,when there would be a line of Rolls-Royces outside, all belonging to producers.


Retailer concentration has shifted power (and profits) further down thefood chainNo longer.


Retailer concentration has shifted power(and profits) further down the food chain. But the retailers are not the typeto swank around in flash cars. They are ostentatiously parsimonious,advertising their determination to keep prices down. Wal-Mart's headquarters inBentonville, Arkansas, is in a converted warehouse. Tesco, Britain's biggestprivate-sector employer, has its headquarters in a Stalinist bunker in a nastybit of north-east London. Beside the main reception its share price is proudlydisplayed on one of those blackboards with white plastic letters stuck on to itthat you see in the cheapest sandwich bars.


One of the manifestations of retailers' power(which also reinforces it) is the growth of private-label (ie, supermarket- notproducer-branded) goods. In 2002, according to the Boston Consulting Group,own-label made up 39% of grocery sales in Britain, 21% in France and only 16%in the United States, but everybody thinks that, as retailing becomes moreconcentrated, America is going the way of Britain. Retailers can sellprivate-label only if the price cuts they offer mean more to consumers than aproducer's brand. As own-label has expanded, so supermarkets have been takingall but the most successful brands off their shelves. “If you are a must-havebrand it's fine,” says Dido Harding, Tesco's commercial director. “If you're asub-global brand, life's much harder.”

The shift in power to retailers has put pressure onproducers' margins, hence huge programmes of cuts. Since 2000, Uni-lever hascut its workforce by 33,000 to 245,000 and dropped lots of minor brands as partof its “path to growth” strategy. Cadbury is the latest to announce big cuts:in October it said that it will be shutting 20% of its 133 factories andcutting 10% of its 55,000 global workforce. These cuts should help keep costs,and thus the price of food, low.


Does cheap food make people unhealthy? In someways. Hydrogenated vegetable oil, for instance—vegetable fat made solid byadding hydrogen atoms—is the nutritionists' current bête noire. Widely used as acheap substitute for butter and cream, it is the main dietary source of transfats. Trans fats are heavily implicated in heart disease; companies are takingthem out of products for fear of lawsuits.

Cheap food may also make people eat more. In apaper entitled “Why have Americans become more obese?” David Cutler, JesseShapiro and

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Edward Glaeser, a group of Harvard economists, note that, among OECD countries, obesity iscorrelated to the level of regulation: the more food laws, the more protectedlocal producers are, the harder it is to import technology, the slimmer peopletend to be. They reckon that is because of price: the less regulated a country,the cheaper a Big Mac tends to be. But it could be another factor: heavilyregulated countries might, for instance, be places with stronger family tieswhere real meals have survived and people eat fewer snacks and less fast food.


Giving people bigger portions is an easy way of making them feel they havegot a better deal


Food companies certainly think giving people more foodfor their money makes them buy more. That is why portions have been gettinglarger and larger. In America, soft drinks, which used to come in 8oz and then12oz containers now come in 20oz ones. As Dennis Lombardi of Technomic, afood-industry consultancy in Chicago, points out, giving people bigger portionsis an easy way of making them feel they have got a better deal. “If I can giveyou an 8oz portion for $7, I can give you a 12oz portion for $8. The onlyincremental cost to me is the food, which probably cost 25 cents.” Everybody, therefore,has done it.


Scientists have shown that portion size partlydetermines how much people eat. Barbara Rolls, a nutrition professor atPennsylvania State University, fed subjects macaroni cheese, some in 2.5-cupportions, some in 5-cup portions. The ones with the big portions ate 27% more,on average, than those with small portions but did not report feeling anyfuller. Brian Wansink at the University of Illinois found that if you givemovie-goers an extra-large bucket of popcorn, they eat nearly half as muchagain as if you give them the next size down, even if the popcorn is stale.


Now companies are under pressure to stop sellingpeople more for less. But it is a hard trend to reverse, as Mr Lombardi pointsout. “How about I give you a third less food for $1 less? I don't think so.”