Economics of Food Markets

Food markets date back thousands of years, farmers traded commodities and the community came together to gather their weekly supply of milk, wheat and cotton. As time moves on traditions change and develop, consequently the previously ubiquitous food markets have come under intense competition from multinational supermarket chains, providing food from all over the world in one convenient location. This article aims to outline the basic economic benefits of food markets that date back to all those years ago.

A medieval market scene

The first point is that transactions in a food market are not zero-sum, that is to say that they are mutually beneficial. This is in contrast to the stories of major supermarkets paying farmers a minimum price as they reap supernormal profits. Despite having a lower gross profit margin, traders on a market tend to have higher net profit margins than their multinational competitors; this is because their wastage is minimal and their overheads are kept low, ensuring supply chains are local. Furthermore, traders’ revenue streams are less vulnerable to exogenous shocks of oil prices, tariffs and quotas. This provides longevity to traders within the markets and means investments can be made with a guarantee of secure future income. For the consumer, a typical food basket is 20% cheaper bought at market than in a supermarket. Not only is the produce cheaper, it is also fresher and comes with exact provenance and expert advice from the trader.

Food markets are also extremely advantageous for the local economy. The regional nature of markets means that there is a multiplier through the local economy after market days. This means that the money that changes hands in markets is then spent supporting other local businesses, which may use that money to pay employees, who then spend the money and so on- in effect “one person’s spending is another’s income”. Supporting local commerce and employment are features directly associated to markets and they form an integral part. Not only are transactions multiplied to support businesses, but knock-on trade also forms a large part of a market’s support to the local economy. Increased footfall either from local citizens or tourists provides shops with a customer base to exploit and derive business from; this is a positive third part effect of markets. A study carried out in 2002 reported that on the day of an outdoor market, 60% of market visitors also visited local stores; of those, 60% only visited those stores when the market was open. Further, the New Economics Foundation in London conducted a report in 2006 revealing that for every £10 spent in Queen’s Market generated £25 for the local economy, a multiplier of 2.5 which is considerably more than the UK average of roughly 1.3.

Markets support smaller traders, who in turn bring extra footfall to surrounding businesses

The third and arguably biggest benefit of markets is their sustainability. Sustainability is a word that is frequently thrown about without meaning, purpose or use, but in essence it means ensuring that today’s quality of life is up to a comfortable standard and using resources carefully so that future generations are not disadvantaged. Consequently, the use of any finite resource would be regarded unsustainable. Food sustainability along with energy sustainability has been at the forefront of economic debate for some time as the Earth’s population expands exponentially. Food markets go some way in contributing to a more sustainable world through minimizing their waste, and localizing their supply chains. The concept of self-sufficiency dates back to the Ancient Greeks with their markets and to the era of Mercantilism, and in the age of globalization where food prices peak and trough monthly, there is a revival in this way of thinking.

To a customer, the purpose of a food market is to obtain the daily or weekly essentials. In this respect markets excel, a product that is virtually unparalleled in price and quality, served to you by an expert and located in the centre of towns. To a trader, the markets provide a platform to sell their produce yielding higher margins than elsewhere and the markets’ central locations offer great exposure to frequent footfall. But the market offers more than this, the market serves as a hub within many towns, a place of congregation and on market days it is the life and soul of the community whilst supporting worldwide and local objectives.

To the market: unrivalled in quality, price, tradition and sustainability for thousands of years.

Guy Linch