My View:

Published: 18 January, 2007

One and a quarter percent isn't a big enough margin for any supplier," says Allan Cheeseman (Harpers magazine, August 31).

Do we hear the voice of Marx in Cheesman's theory of pricing? A demand that final sale prices should be derived from the cost of production inputs and a margin that supports the living standards of all in the supply-chain?

Set prices this way and they won't transmit information,

one of their most important functions. Bargaining strength comes through scarcity and demand.

But at the moment, there's no scarcity of wine. But no scarcity, no strength, no margin. Lower prices force producers at the margin to do other, more profitable things. Things that have more value to the economy.

Meanwhile, enterprising producers create scarcity. Or create an "illusion of scarcity", like Cloudy Bay.

Nobody doubts Cheesman's figures for wine firms. Yet profitability among food manufacturers - under the same "almost criminal" cosh as wine suppliers - has improved over the last decade. Pre-tax margins at the largest are almost twice those of Tesco.

Buyers can be sneaky, ego-trippers for sure. And they've missed opportunities to create margin for themselves and suppliers. But demanding lower prices in the face of a wall of cheap wine? That's not "almost criminal". It's wholly

rational.

Joe Fattorini is a freelance writer

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