Horse meat scandal: the economics

That’s right, even the horse meat saga does, inevitably, come down to economics.

One of the main rules of the subject is that if something goes up in price, people will tend to substitute for alternative goods. That goes for individuals and for businesses. And it so happens that meat prices have jumped in price since the onset of the financial crisis.

You can see what’s happened in the chart above, showing you meat prices (in red) vs overall CPI inflation over the past decade. Until 2008 the two moved more or less in lockstep with each other, but since 2008 meat prices jumped higher.

And here, below, is what’s happened to the price of UK-slaughtered meat in the past few years (the data is from the Office for National Statistics’ producer prices database). Again, you can see a marked increase recently.

Now, none of this is to discount the other complex elements of the horse meat story: the corporate failures, the deceit towards consumers, a possible criminal element. There’s an interesting story on the FT website (£) about the possible contribution from horse culling.

But the reality is that everyone along the line, whether its the farmers and abattoir owners, the food processors and the supermarkets, have been trying to operate in a world where people have less money at their disposal. And meat has become more expensive.

So the pressure to try to cut costs – maybe even adulterating expensive meat with cheaper horse meat – has been greater than ever. And the demand from consumers for cheaper meats has only reinforced the cycle.

UPDATE 14/02/13

I’ve got hold of some more detailed figures from the Office for National Statistics looking at the prices of different types of beef in the stores (these are all from the internal CPI/RPI database) and what they show is rather interesting. As you can see, the prices of UK origin (that’s what home killed means) minced or sides of beef have risen far faster since 2008. That seems to underline the blunter point above, that meat prices have climbed more steeply than overall inflation. However, what’s intriguing is that the cost of frozen beefburgers, on the other hand has tracked the broader CPI very closely over the past couple of years.

In fact, scrutinising the path of frozen burgers more closely, they seem to have moved in line with other pricier cuts of beef until late 2009, when they dropped more sharply in price, since when they’ve moved in line with overall inflation.