Marketing margins for New Zealand lamb and for all lamb and mutton in the United Kingdom

Abstract

The marketing margin is a general term used to cover all the multitude of costs and profit margins which make up the difference between the price paid for lamb by consumers in retail markets, and the price at some earlier point in the marketing chain. In this study we are concerned with the marketing margin between wholesale and retail prices for lamb in Great Britain. Three aspects of the margin between wholesale and retail meat prices in two major retail outlets in the United Kingdom have been investigated. These are firstly, the closeness with which changes in wholesale prices are followed by changes in retail prices; secondly, the extent of the margin between these prices; and lastly, the type of margin that has existed during the period of analysis. The retail outlets studied are firstly a large chain of supermarkets, chosen to be representative of supermarkets in general; and secondly, a sample or retail butcher shops. The relationship between prices in both these markets and the Smithfield wholesale price is investigated. A pragmatic approach was adopted to answer the following four questions: (i) How long does it take for meat offered on the wholesale market to reach the consumer? (ii) What, on average, is the mark-up on meat between the wholesale and retail markets? (iii) Is there, at different levels, a consistent relationship between the wholesale and retail prices of meat? (iv) What is the nature of this relationship?

The nature of the marketing margin has important implications for the New Zealand lamb producer in so far as the retail price fluctuations reach down to him in the form of fluctuations in wholesale prices which in turn are reflected in the schedule price to the farmer. If the margin is a fixed one then a given percentage price fluctuation induced by the consumer is exaggerated in the wholesale market and further exaggerated at the farm gate. If it is a percentage mark-up then the percentage change in the wholesale market is the same as that in the retail market. The costs of marketing between the farm gate and the wholesale market are known to be fixed, and if, therefore, the wholesale retail margin is a percentage one, the total mark-up from farm gate to retail will be a mixture and the fluctuations will be greater at the farm gate. It has been suspected for some time that retail butchers in the United Kingdom exert a non-price influence on consumer demand. When supplies of one line of meat are short they tend to use promotional tactics to push other lines rather than adjusting prices to clear their stocks. A dampening of price fluctuations in this manner would tend to reduce the degree of association between wholesale and retail prices and if anything show up as a percentage mark-up.