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Thursday, 13 October 2016

Guido Fawked - Marmite Claim Busted

After Sterling fell in the wake of the referendum on Britain’s membership of the EU, there were warnings over the cost of imported goods, especially foodstuffs. And the currency fall has continued recently. So no-one should have been surprised that Unilever, one of the largest owners of global brands, decided it needed to increase its prices. Supermarket chain Tesco is trying to push back on the increase, to little avail.
But as this is mainly about Brexit, and is very bad publicity for those who have claimed everything would be wonderful were Britain to leave the EU, there has had to be spin applied to make it look like it’s about something else entirely. And marching with characteristic lack of subtlety into this particular breech has come the perpetually thirsty Paul Staines and his rabble at the Guido Fawkes blog.

Marmite Is 100% British Sourced And Produceddeclared the Fawkes folks, going on to tell readers that they have made a miraculous discovery: “The whole world’s Marmite supply is produced in Burton from yeast extract by-products of brewing. Burton has for over a century been the manufacturing base of Marmite because of the town’s beer heritage”. Tell us something we all know already.

But do go on. “Unilever produces 6,000 tons of Marmite every year - around 50 million jars - entirely in the UK. The fall in the pound can therefore not justify Unilever’s reported demand for a 10% price increase for an entirely UK sourced product. Unilever are just using Brexit as a pretext for profiteering”. If only the production location were the only determinant of product cost - but sadly for The Great Guido, it isn’t.

For starters, the main cost of turning that yeast extract into Marmite is in energy. And energy costs are inevitably priced, as is oil, in US Dollars (your domestic energy bill hasn’t gone up yet? Give it time). The next largest cost of getting Marmite to your local Tesco - or whichever other supermarket you choose to shop at - is transport. And hey, guess what? The cost of that is heavily influenced by fuel price changes.

You haven’t seen more expensive prices at the pumps? They’re on the way, most likely 5 or 6 pence a litre for starters. It gets worse: those costs also affect the brewers whose by-products Marmite uses. And on top of that, Unilever, although it has been a British-Netherlands joint venture since its creation back in 1930, trades not in Sterling, but in Euro. And Sterling has fallen just as much against the Euro as the US Dollar.

Then to cap it all, supermarkets like Tesco have screwed down their suppliers - think farmers and milk - so that the margins are so small, there is no room to absorb price shocks. All of that is why Unilever is increasing the price of its branded products - it’s not so much trying to score more profits, just making sure they don’t lose money. Not of course that the Europhobic Fawkes rabble want you to know that.

The Great Guido fails to understand practical economics again. Another fine mess.


Shakey said...

Has anyone from Tesco claimed Marmite is going up 10% in price?

Ian Brealey said...

And the money is Dutch!

rob said...

Ian Dunt on Twitter

"We're going to need a special word for the contortions Brexiters will work themselves into blaming rising prices on something else."

Well there you are - Marmitisation!

Anonymous said...

The lack of an understanding of the economics of a supply chain is of no surprise when it comes to good old Guido.

Whilst I can't stand the stuff I'm quite sure that Marmite isn't sold loose.

It needs to be put into jars. These are made of glass, glass is made of sand and other ingredients, glass needs vast amounts of energy to make. It then needs a lid. The lid is plastic, plastic is made from oil, oil is priced in dollars.

It needs a label, made of paper (made form wood not from the UK) and ink - need I go on?

I also understand Marmite is available in plastic containers - see above re plastic and oil.

I've not even touched on supply chain economics of beer, which is needed to get the raw ingredient of Marmite in the first place!

Arnold said...

The pound has slumped by about 17%, so the 10% increase must allow for the fact that some elements are paid for in pounds.
I'm waiting for Brexiters to take their own advice to Remainers. Accept that they won and suck it up. I may have a long wait.

SteveB said...

there is avery worrying possible side effect which shuld get Staines quaking. Marmite contains a by product of brewing. The brewers presumably don't give it away and the income is part of the brewery economics. So if production shrinks the market for the ingredients will fall. And so brewing costs will go up and you know what happens next!

David Belcher said...

Well said, SteveB - beer fans who aren't keen on Marmite would do well to remember that supply of the raw material makes the price of a pint that tiny bit lower. :)

Fred Boycott said...

So on the basis that fuel and energy costs might rise in the future. A commodity that contributes less than 2% to the overall cost of Marmite you accept a 10% increase? Do your sums again.
More political shenanigans from the remoaners, nothing more.

Fred Boycott said...

We can do without price increase apologists thank you.
Do you sums again. They don't stack up.