The Times Australia
The Times World News

.

Why capping food prices won't work – and will actually make things worse

  • Written by Phil Lewis, Professor of Economics, University of Canberra
Why capping food prices won't work – and will actually make things worse

Australian shoppers are facing a crisis in the fresh-food aisles.

Iceberg lettuces that cost $2.80 a year ago have doubled, or tripled[1], in price. Brussel sprouts that cost $4 to $6 a kilogram[2] are now $7 to $14[3]. Beans that cost $5 to $6 a kilogram[4] are now more than double – and five times as much[5] in remote areas.

That’s if you can even find such produce. Supermarket shelves for leafy greens are often bare.

This is a strong hint as to why prices have risen so much. As well as growers facing higher input costs – in line with pressures pushing up food prices globally – these price hikes are being driven by lack of supply – with crops and stores[6] wiped out by rain and floods in eastern Australia.

Read more: Why is lettuce so expensive? Costs have shot up, and won't return to where they were[7]

The price hikes have led to calls for supermarkets to impose price caps[8] to ensure shoppers can still afford to feed their families healthy food.

But price ceilings on goods or services rarely, if ever, work. Prices play an important role in allocating resources efficiently. They send a signal to both customers and suppliers. To arbitrarily reduce prices would only increase shortages – both now and in the longer term.

Notification of lettuce shortages in a Melbourne supermarket, June 15 2022.
Notification of lettuce shortages in a Melbourne supermarket, June 15 2022. Diego Fedele/AAP

Supply, demand and market equilibrium

The laws of supply and demand are fundamental concepts in economics. The law of demand says buyers will demand less of an economic good the higher its price. The law of supply says sellers will supply more of a good the higher the price. There are some rare exceptions, but generally these laws describe all markets.

British economist Alfred Marshall was the first to illustrate the interaction of these two laws graphically, in his 1890 book Principles of Economics[9]. Market equilibrium (balance) occurs at the price and quantity where demand equals supply.

Simple demand and supply curve
Wikimedia Commons, CC BY[10][11] If the quantity supplied falls, the market response is for prices to rise, achieving a new equilibrium. If the quantity supplied falls but prices remain the same, demand will outstrip supply, leading to shortages. Fresh fruit and vegetables are particularly prone to significant price fluctuations because they are perishable and cannot be easily stored for a long time. This why seasonal price fluctuations are common. Higher prices provide a signal both to consumers and producers. They tell consumers to buy less and switch to alternatives. They provide an incentive for producers to grow more – though this process is fairly slow given the time needed to grow and harvest fruit and vegetables. But eventually, if the market is left to its own devices, prices will eventually return to “normal”, consistent with historical prices. Capping the price, on the other hand, will benefit those lucky enough to grab supplies when they available. But it will likely reduce supply even further, by affecting the decision of producers unwilling to supply at below-market prices. It could also lead to a “black market”, with some customers sourcing supplies by other means at higher uncapped prices. Evidence from rent controls The economic theory of price caps is well supported by empirical evidence. The best-known involve rent controls, which are used in US cities such as New York City and Los Angeles, and in European cities[12] such as Stockholm, Berlin and Dublin. New York City's rent controls are world famousm - but not to be emulated.
New York City’s rent controls are world famous – but not to be emulated. Shutterstock

Rent controls mean some are lucky enough to find an affordable apartment. Many others miss out – or engage in “deals” with landlords to get around the controls. The most disadvantaged tend to lose out most since landlords can discriminate in favour of what they consider the “more desirable” tenants.

As Stanford University economist Rebecca Diamond has written[13]:

While rent control appears to help current tenants in the short run, in the long run it decreases affordability, fuels gentrification, and creates negative spillovers on the surrounding neighborhood.

As with housing, so too with broccoli and cabbage.

Read more: Why the NZ government is right to rule out rent controls as a housing crisis solution[14]

We’ve seen this all before

So generally price caps are to be avoided.

If there are suspicions of wholesalers or retailers exploiting shortages, this is best handled by the Australian Consumer and Competition Commission. Though “price gouging” is generally not illegal[15], the consumer watchdog can prosecute companies for makes misleading claims about the reasons for price increases and for unconscionable conduct (in the case of extreme gouging for an essential good).

What else can be done? Only what consumers have always done, which is to substitute relatively cheaper goods for those becoming more expensive.

We’ve seen this before. Queensland’s floods in 2011 destroyed vast crops of bananas and watermelons, causing prices to skyrocket. Shoppers switched to other fruits. Banana farmers recovered. Prices dropped.

These high prices for lettuce and such now may be a shock, but they are not a sign of market failure requiring intervention. If we let the market do its thing, shortages will end and prices return to “normal” – at least until the next natural disaster.

References

  1. ^ tripled (www.abc.net.au)
  2. ^ $4 to $6 a kilogram (www.sydneymarkets.com.au)
  3. ^ $7 to $14 (www.sydneymarkets.com.au)
  4. ^ $5 to $6 a kilogram (www.sydneymarkets.com.au)
  5. ^ five times as much (www.abc.net.au)
  6. ^ stores (www.theguardian.com)
  7. ^ Why is lettuce so expensive? Costs have shot up, and won't return to where they were (theconversation.com)
  8. ^ price caps (www.abc.net.au)
  9. ^ Principles of Economics (opentextbc.ca)
  10. ^ Wikimedia Commons (commons.wikimedia.org)
  11. ^ CC BY (creativecommons.org)
  12. ^ in European cities (www.jonesday.com)
  13. ^ has written (www.brookings.edu)
  14. ^ Why the NZ government is right to rule out rent controls as a housing crisis solution (theconversation.com)
  15. ^ is generally not illegal (www.accc.gov.au)

Read more https://theconversation.com/why-capping-food-prices-wont-work-and-will-actually-make-things-worse-185492

Times Magazine

Headless CMS in Digital Twins and 3D Product Experiences

Image by freepik As the metaverse becomes more advanced and accessible, it's clear that multiple sectors will use digital twins and 3D product experiences to visualize, connect, and streamline efforts better. A digital twin is a virtual replica of ...

The Decline of Hyper-Casual: How Mid-Core Mobile Games Took Over in 2025

In recent years, the mobile gaming landscape has undergone a significant transformation, with mid-core mobile games emerging as the dominant force in app stores by 2025. This shift is underpinned by changing user habits and evolving monetization tr...

Understanding ITIL 4 and PRINCE2 Project Management Synergy

Key Highlights ITIL 4 focuses on IT service management, emphasising continual improvement and value creation through modern digital transformation approaches. PRINCE2 project management supports systematic planning and execution of projects wit...

What AI Adoption Means for the Future of Workplace Risk Management

Image by freepik As industrial operations become more complex and fast-paced, the risks faced by workers and employers alike continue to grow. Traditional safety models—reliant on manual oversight, reactive investigations, and standardised checklist...

From Beach Bops to Alpine Anthems: Your Sonos Survival Guide for a Long Weekend Escape

Alright, fellow adventurers and relaxation enthusiasts! So, you've packed your bags, charged your devices, and mentally prepared for that glorious King's Birthday long weekend. But hold on, are you really ready? Because a true long weekend warrior kn...

Effective Commercial Pest Control Solutions for a Safer Workplace

Keeping a workplace clean, safe, and free from pests is essential for maintaining productivity, protecting employee health, and upholding a company's reputation. Pests pose health risks, can cause structural damage, and can lead to serious legal an...

The Times Features

Exploring the Curriculum at a Modern Junior School in Melbourne

Key Highlights The curriculum at junior schools emphasises whole-person development, catering to children’s physical, emotional, and intellectual needs. It ensures early year...

Distressed by all the bad news? Here’s how to stay informed but still look after yourself

If you’re feeling like the news is particularly bad at the moment, you’re not alone. But many of us can’t look away – and don’t want to. Engaging with news can help us make ...

The Role of Your GP in Creating a Chronic Disease Management Plan That Works

Living with a long-term condition, whether that is diabetes, asthma, arthritis or heart disease, means making hundreds of small decisions every day. You plan your diet against m...

Troubleshooting Flickering Lights: A Comprehensive Guide for Homeowners

Image by rawpixel.com on Freepik Effectively addressing flickering lights in your home is more than just a matter of convenience; it's a pivotal aspect of both home safety and en...

My shins hurt after running. Could it be shin splints?

If you’ve started running for the first time, started again after a break, or your workout is more intense, you might have felt it. A dull, nagging ache down your shins after...

Metal Roof Replacement Cost Per Square Metre in 2025: A Comprehensive Guide for Australian Homeowners

In recent years, the trend of installing metal roofs has surged across Australia. With their reputation for being both robust and visually appealing, it's easy to understand thei...