From the mouths of babes and sucklings
Some people just don’t really understand numbers. Which is why we get suggestions like this:
The rise of “proteinmaxxing” – a trend in which consumers try to eat as much protein as possible – could lead to higher prices for infant formula, experts warn.
Whey protein, a key ingredient in infant formula, has surged in popularity over the past year as health professionals emphasise the benefits of protein.
Whey protein is an ingredient in baby formula, therefore baby formula might go up in price and therefore:
She said a solution the CMA had proposed was for the government to impose a mandatory price or profit cap.
Which is an obvious idiocy as price caps simply destroy the supply of the good and therefore there would be a lot of hungry babies. Very silly. But the justification is:
“There is precedent for this from other countries including Greece and it’s warranted because the CMA’s work exposed high profit margins of between 50% and 75%. Companies should not be allowed to protect their margins at the expense of the wellbeing of mothers and babies,” she said.
Profit margins of 50 to 75% is one of those things we think very unlikely indeed. That’s the sort of profit margin that would have covetous capitalist billionaires throwing up baby juice factories in every corner of the continent. It’s just not a logical possibility.
The CMA report actually says:
The level of manufacturers’ variable gross margins was always within a 25 percentage point range (degree of accuracy) of 50% to 75%.
And their definition of variable gross margin is:
Source: CMA’s calculations based on manufacturers’ variable revenue and variable cost of goods sold data (variable raw material costs, variable labour costs, and variable packaging costs).
So, the extra costs of producing another bottle. Without including any at all of the fixed costs - the cost of the factory, the distribution, the lorries, having an organisation at all and so on. Not even including those essential costs of an army of power skirts in the HR department.
Now, there is a value to working this out. To see whether market prices follow those marginal and raw materials costs. Which they find they do. Which is, as these things work out, evidence of a competitive market, not a captive one. In a captive market producers would already be charging everything the market would bear. In a competitive one they could only raise prices if those of all competitors had to rise as well in order to cover raw material cost rises. So our initial conclusion would be we’re in an at least sort of competitive market here.
But there we have it, the consumer affairs correspondent of The Guardian thinks that variable gross margins are the same as profit margins. That the revenue on minus marginal cost of the raw ingredients for an extra bottle of baby juice is the same as the profit left over after paying for the entire company and operation. Not just her either - the BMJ seems to think so too.
No wonder economic reporting in this country is so useful and accurate, eh?
Tim Worstall