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Magazine Issues » July-August 2022

Opinion: The ‘fair’ in ‘fair value’

Elizabeth PfeutiIn the past couple of decades, I have heard the term “fair value” countless times. From fund managers explaining why they have bought/sold a security or asset, to those who defend the fees they charge investors or other clients for services.

But value is only fair when both sides agree to it, and, outside of the nuts and bolts of trading in financial markets, as investors, we need to take a closer look at what this means.

Let’s take an example.;

How much did your last pint of beer down the pub cost you? The average in the UK, according to the British Beer and Pub Association, was £4.07 (€4.70) in April 2022. In central London, it would likely have been more than £5.

On the Champs Élysées or overlooking the slopes of Gstaad, I’m sure it would have been much more, while a rural pub in Lancashire may offer its wares at a lower cost.

The price of milk
Since the financial crisis, beer has (on average) increased in price by 70%, industry tracker CGA reported in June.

And how much did you last pay for a pint of milk? A recent survey by hallowed trade publication The Grocer showed most of us in the UK paid around 62p in April. But, if you buy it in a multi-pint bottle, you may pay as little as 30p a pint.

How much of that makes its way to farmers once supermarkets and other middlemen take their cut?

We know pubs don’t pay £4.07 a pint from their suppliers either, but they do have significant overheads that, in the current inflationary environment, are only going one way.

The same is true for farmers.

Growing up in a rural community, I often heard adults bemoaning the poor milk price. For years it cost more to produce milk than the farmer ever received for doing so.

See also: wool and other animal husbandry by-products. That’s why there are so many (vital) subsidies in agriculture.

Fertiliser, feed and fuel hit both the brewer and the farmer, but only one seems to get away with increasing prices by double-digits percentages. Is it completely barmy to think that anyone would seriously consider paying £4.07 for a pint of milk.

Farming needs a reset
Farming, at least how we know it in many parts of Europe, is unsustainable and I believe we need a reset. International agencies are already examining how the shrinking agricultural sector is going to impact all of us (including price rises across the board).

We need to reassess how we approach the “fair value” argument in the field (pardon the pun) of agriculture.

I’m not saying there isn’t a need for access to some cheap food. We are, after all, well aware of the meteoric rise of the food bank around the world.

The answer isn’t to cut back what we’re paying for the stuff, instead we need to value fairly what we already produce.

This also means cutting back on food waste, as the cost of what we buy in the shops and pubs needs to build in a massive buffer to offset that.

As investors, not just consumers, we have the ability and duty to ensure that the value of what we consume is fair for all.

By Liz Pfeuti

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