Price controls on essential food items: consultation paper

Chapter 3: The goods which could be subject to price caps

The intention is to improve the affordability of some essential food items, particularly for households most impacted by cost-of-living pressures. The selection of products is central to the effectiveness of the policy. It engages a range of complexities. It requires consideration of consumer preference to maximise benefit of the intervention. It requires detailed regard for religious and other dietary needs.

We know that the choice of products could also have wider impacts. The introduction of price controls may impact patterns of consumer demand. It may have direct consequences for product availability, producer requirements and food supply chains. There may be indirect consequences for production, including impacts on supply chain resilience, animal welfare and net zero objectives.

This chapter discusses possible approaches to determining the items to which price caps might apply, and how the qualities of those products might be identified. It seeks your views on how items should be chosen and kept under review, and the various factors that could go into making that decision.

The relevant sections of the illustrative draft provisions for this chapter are sections 4 and 8. Section 4 would provide powers to the Scottish Ministers to specify the food items subject to the cap in Regulations. Section 8 proposes factors Scottish Ministers would be required to have regard to when making those decisions.

What is the proposal?

We do not propose to set out the items that would be subject to price caps on the face of primary legislation. Instead, we propose a power for Ministers to specify the products in secondary legislation. This means that, if enacted, an Act of the Scottish Parliament would give Scottish Ministers the power to decide, through subsequent Regulations, which products are subject to price caps and how they should be described. This approach would allow the list of products to be updated in response to changing circumstances without the need for a further Act of the Scottish Parliament.

Periodic review of the products to be included within scope is likely to be required as consumer preferences and diets change, in response to changes in a dynamic food supply chain, or to respond to emerging health and nutritional guidance. The proposed approach would allow the Scottish Government to adjust the list as we monitor implementation of the intervention to ensure that it continues to remain effective.

The price cap would only include food and non-alcoholic drinks for human consumption. It is not intended that caps would apply to other goods, such as cleaning products, toiletries or pet food.

The price cap would apply to essential food items – those basic products which are considered part of a nutritious and balanced diet.

There is no universally recognised description of “essential” food, with concepts of requirement, necessity and discretion engaging a range of subjective views. Products could be described under reference to qualitative and quantitative characteristics. The definition of the products to which price controls would apply therefore requires sufficient precision to support effective implementation, balanced with sufficient flexibility to support operational resilience. Different approaches may be appropriate for different products, with reference to qualitative and quantitative characteristics.

Products could be described in Regulations by reference to characteristics such as:

• size, weight or volume (for example, milk sold in a 2 litre container, or a loaf of bread with a specified weight range);
• packaging format (for example, a pack of six free-range eggs);
• ingredients or composition (for example, wholemeal bread containing specified ingredients);
• nutritional characteristics (for example, products meeting particular nutritional criteria); or
• whether products are sold loose, pre-packed, fresh, frozen or tinned.

Regulations could refer to one or more of these characteristics in combination, depending on the product concerned. This would allow products to be defined clearly while providing flexibility to account for differences in how food is sold and purchased. A non-exhaustive list of ways in which products could be described is set out in section 4 of the illustrative draft provisions.

Discussion of the factors Scottish Ministers might consider when deciding which food items should be subject to price controls

The Scottish Government has identified a number of factors that may be relevant when deciding which items should be subject to a price cap.

These factors may also be relevant when considering at what level a cap should be set, which is discussed further in Chapter 5. The factors are:

a. The general affordability of food (particularly as regards persons on low incomes);

b. Scottish Minister’s policies or strategies relating to healthy eating;

c. Guidance on nutrition;

d. The impact of the proposals on producers, retailers and other businesses Ministers consider may be impacted;

e. Consumer behaviour as regards the purchase of food;

f. Food security;

g. Any other matters the Scottish Ministers consider appropriate.

Affordability

Factor (a) relates to the affordability of food, particularly for low-income households. Affordability is determined both by dynamic price and household income profiles. The relative affordability of an essential food item may change over time in response to those dynamic factors. In determining which items should be subject to price controls (or the price at which caps are set), Scottish Ministers could have regard to the extent to which the cost of particular foods contributes to household food expenditure and affordability pressures experienced by different groups.

From the consumer’s perspective it may also be important to consider how frequently items are purchased and whether these items remain relatively low priced even if price rises have taken place.

Ministers may consider it relevant to have regard to available evidence on the affordability of food for different groups in society and the impact that food costs may have on household budgets. Respondents may wish to consider what evidence should inform decisions about affordability, such as purchasing patterns, expenditure data or changes in prices over time.

Healthy Eating and Guidance on Nutrition

Factors (b) and (c) above are proposed because the Scottish Government considers it important that where possible any affordability interventions complement wider public health objectives.

Existing dietary guidance, such as the Eatwell Guide^[5], may be relevant when considering how product selection aligns with wider health and nutrition policy. The Eatwell Guide suggests the proportions of different types of food that should come from each food group to achieve a healthy, balanced diet.

Diets across Scotland vary for a number of reasons. For example, some individuals choose to eat a plant-based diet and others will have specific dietary requirements for health reasons. There are a number of religious, cultural and social, reasons why groups may or may not consume certain products.

Respondents may wish to consider how product selection should take account of wider dietary guidance and nutritional objectives. We welcome views on the extent to which such guidance should inform decisions about items in scope. One option could be to take account of whether foods are high in fat, sugar and salt (HFSS) when considering products for inclusion. We welcome views on whether this should be a relevant consideration and, if so, how it should be applied.

Nutritional Quality

It is proposed that price capped products could be described by reference to their nutritional characteristics. This could be used to ensure healthier versions of products, or products that meet certain minimum nutritional standards, are subject to price caps.

If products which have certain nutritional characteristics are subject to price caps, it is recognised that retailers could potentially avoid the requirements by only stocking products which do not meet those minimum standards. This possibility could be present in premises with more limited selection. We are seeking views on this point and whether any further steps would be required to ensure standards are maintained.

It has been raised by stakeholders that product quality could decrease more generally the longer price caps are in place, as manufacturers switch to cheaper ingredients for composite products like bread. We welcome views on whether there should be a requirement to provide specific nutritional quality or minimum quality within goods, particularly around the benefits of doing so but also the cost of doing so and the potential impact on the food supply chain as a result.

Business Impacts

Factor (d) relates to the impact of any proposed price caps on business. This might include (but is not limited to) the cost of producing, supplying and selling food and wider impacts on the food supply chain. Costs can vary significantly between products and may include agricultural inputs, manufacturing, processing, transport, storage and distribution. It will also be important to recognise that the cost of supplying an item will be borne by multiple businesses across the supply chain, including, potentially, businesses based outside of the UK.

There may be reasons such as climate impacts, crop failures or animal or crop disease outbreaks that result in particular items being subject to increased prices that the Scottish Government would need to take into account when introducing a cap on an item so as to not exacerbate problems in the supply chain. Consideration may also need to be given to differential impacts on the various actors in the food supply chain, in Scotland and elsewhere, including but not limited to primary producers, abattoirs, processors, manufacturers, transportation, and retail.

Consumer behaviour

Factor (e) relates to consumer purchasing behaviour and preferences. It is intended to capture whether products are widely purchased and therefore likely to contribute meaningfully to the objectives of the scheme. This is distinct from consideration of affordability, which focuses on the financial impact of food costs on households.

Food Security

Factor (f) is food security, an important holistic consideration. It would be important for Ministers to consider the overall picture of food security in Scotland, particularly the food availability aspect, when deciding to include specific foods in any price cap scheme. In addition to specific impacts on supply chains for the products in question, wider supply chains implications should be considered. Potential impacts are not limited to domestic production but are also concerned with the import of inputs and food from a variety of sources.

Balancing cost of supply and affordability

We have seen in recent years the sharp increase in price of particular goods, due to a variety of factors including increased input costs like energy and fertiliser and also due to global events impacting supply chains. It may be relevant to consider the price history of items and how this has impacted affordability when deciding whether a particular item should be subject to a price cap – the consumer experience of changing costs may be directly relevant to the choice of items. From the consumer’s perspective it may also be important to consider how frequently items are purchased and whether these items are relatively low priced compared to the total cost of their shopping basket even if price rises have taken place.

However, price changes may reflect specific pressures affecting particular products or supply chains. Some supply chains may be more vulnerable to disruption than others, and it may therefore be relevant to consider how a price cap could affect the businesses involved in producing and supplying a product.

Other factors

There are potentially other factors that could be important to consider when deciding which items should be subject to a price cap. The above list is not intended to be exhaustive. For example, where an item that is capped is also one that is frequently used by other businesses such as hospitality this may create distortive effects that may need to be factored into the inclusion of a particular item. We wish to invite views on what those factors are. These could include but are not limited to:

• Practicality: Products would need to be described clearly in regulations, for example by reference to size, weight, volume, packaging format, ingredients or nutritional characteristics. The most practical approach may be different for different types of products. We welcome views on whether there are additional practical considerations, such as for products sold loose, weighed in-store or in multipacks, that should be taken into account. The approach should be manageable for retailers and regulators and minimise unnecessary complexity.
• Flexibility: We may require different approaches to how food products are described in Regulations, which would affect how much flexibility is provided to retailers to choose which particular item to sell at the price cap. For example, regulations could define products narrowly by reference to specific characteristics, or more broadly by reference to a product category. As an example providing for a cap on “pasta” generally compared to specifying a particular variety (such as wholemeal penne pasta). This flexibility in how to describe products in Regulations would allow the approach taken to reflect the circumstances, policy objectives and product concerned. As previously mentioned, any future regulations specifying products in scope would be subject to consultation.
• Environment and sustainability: Food production has an environmental impact (e.g. biodiversity loss and carbon emissions) and price capping specific items could encourage choices that result in a different impact on environmental outcomes.
• Local food: Some foods widely consumed in Scotland are produced domestically whereas others tend to come from overseas. Current proposals focus on increasing affordability but there may be consequences for food produced in Scotland. Consumers could switch from Scottish products to less expensive imported alternatives. Also, where products produced in Scotland are subject to the price cap, the costs of meeting the cap could be passed back through the domestic supply chain, potentially to processors and primary producers.
• Trade: Consideration may need to be given to the potential for trade impacts, both internationally and within the UK.

Product Sizes

Many goods are sold in varying quantities – for example in different sized packages with different weights or in a selection of volumes in the case of liquids. Some goods may be weighed and be sold as a price per unit of weight either as part of a pre-packed item or where the retailer enables the customer to choose the desired quantity.

It is important to recognise, to benefit the widest possible range of people, that shopping habits vary significantly with respect to package and product sizes. For example the size of milk carton a single person is likely to buy compared with that required for a large family. Seeking to cap only one size of an item may risk undesirable consequences such as increased food waste for smaller households or limiting the benefit to larger households. It may also reduce the effectiveness of a cap where similar products are sold in package sizes that fall outside the descriptions specified in regulations. This may mean that regulations may need to account for a range of commonly purchased package sizes or size ranges where appropriate. This approach increases the complexity of the regulations and therefore the costs of implementation and compliance.

Seasonality

We would welcome views with respect to dealing with the issue of seasonality. While consumers in large supermarkets tend to see year-round availability of most products compared with smaller or specialist retailers, seasonality of particular products (particularly fruits and vegetables) will mean that supply chains change over the course of the year. We would welcome information that helps to inform how seasonality factors into the price of essential goods.

Infant Formula

Babies, up to 12 months of age, have specific nutritional needs that support their optimal growth, development and overall health. Infant formula is designed to meet these needs and is an essential food product for many families with babies, as part of their weekly shop, and is the only suitable alternative to breastmilk. The infant formula market was recently investigated by Competition and Markets Authority^[6] which found that it has specific features which distinguish it from other consumer goods market, including on regulation, information and consumer behaviours. The difference in prices between brands leads to substantial differences in the cost over a baby’s first year of life. Recommendations that were developed for this study included an early exploration of price controls. We would welcome views on whether the introduction of such an approach would be effective and what else needs to be in place to increase affordability of infant formula.

Consultation questions

14. To what extent do you think the following factors should be taken into account when selecting items that would be subject to a price cap? (0 – not important; 5 – very important):

• general affordability (particularly as regards persons on low incomes)
  0 1 2 3 4 5.
• healthy eating policies
  0 1 2 3 4 5.
• nutrition guidance
  0 1 2 3 4 5.
• impacts on producers, retailers and other impacted businesses
  0 1 2 3 4 5.
• consumer preferences
  0 1 2 3 4 5
• food security
  0 1 2 3 4 5.
  • Please explain your answers.

15. Which food items or product types should be prioritised for inclusion in any future price cap scheme?

16. Are there any food items or product types should that you think should not be included in any future price cap scheme?

17. How should the Scottish Government take into account the seasonality of food when applying price caps to essential food items?

18. How should the Scottish Government take into account the issue of applying price caps to products that come in different sizes, weights, quantity, etc.?

19. How should the Scottish Government reflect the varying nutritional requirements of the population for example due to health needs, religious requirements, cultural, social or other preferences?