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Download (11Mb) University of Warwick institutional repository: http://go.warwick.ac.uk/wrap A Thesis Submitted for the Degree of PhD at the University of Warwick http://go.warwick.ac.uk/wrap/59552 This thesis is made available online and is protected by original copyright. Please scroll down to view the document itself. Please refer to the repository record for this item for information to help you to cite it. Our policy information is available from the repository home page. UNILEVER AND ECONOMIC POWER: A STUDY OF THE MARKET FOR MARGARINE IN THE UNITED KINGDOM by IAN SLICER BSc (Hans) ECON (LONDON) MA (WARWICK) Submitted for the degree of PhD in Economics at The University of Warwick Research conducted in the Department of Economics Submitted August 1977 CONTAINS PULLOUTS ABSTRACT OF THESIS This analysis of the margarine industry in the presence of Unilever, identifies and examines the economic issues of structure, behaviour and performance, against a background of policy issues related to international trade, concentration and nutrition. The major divisions of the thesis are (i) the political and international trade issues (ii) propaganda and advertising (iii) the nutrition problem (iv) mar- garine demand (v) the degree of monopoly in the margarine industry (vi) Government White Papers and multinational corporate activity.' An attempt is made, both by descriptive and empirical treatment of the subject matter, to demonstrate the danger inherent in the oligopolistic manipulation of consumer demand and public opinion by propaganda and advertising, and to consider the evidence of resource wasteage. Empirical work, mainly be using techniques of multivariate regression analysis, tests issues in the nutrition problem and also estimates aggregate demand functions for margarine as well as estimating the change in performance due to changing structure and performance. Attention is also paid to the influence of oligopolistic price adjustment in the macroeconomic problem of inflation. The main thrust lies in the direction of considering adjustment problems in time series data. In demand estimation it is shown by allowing for quality variation and by allowing the influence of advertising to build up over time, that whilst aggregate demand for margarine appears to remain uninfluenced by advertising expenditure, substantially higher values are obtained than are usual for own price elasticity. In relation to the performance issue, the results indicate a more rapid adjustment to changes in the aggregate advertising variable than are usually obtained. Results are also reported which suggest that price adjustment to cost changes are rapid, and this is attributed to the structure of margarine production. • Apart from technical issues the main conclusions are that the nutrition controversy is being influenced unduly by propaganda and that independently of this, resource wasteage by the margarine oligopoly would be reduced by an increase in competition, and by the control of advertising. Again it is suggested gains, in relation to the problem of UK self sufficiency and in relation to the problem of inflation, could be expected following an increase in competition. The benefits of the control of costs as well as prices are considered as an alternative policy measure. CONTENTS Acknowledgements (iv) Tables (v) Figures (vii) Introduction - The ground plan of the thesis 1 CHAPTER 1 GOVERNMENT POLICY, YELLOW FATS AND tNILEVER 8 The UK position - prior to the treary of Accession to the EEC 10 1. Margarine 10 2. Domestic farm policy 14 3. The butter imports into the UK 17 The UK position - following the treaty of Accession 19 1. The attitude towards New Zealand 20 2. The Butter Mountain 22 3. The UK consumer subsidy 24 Unilever and subsidies 24 Edible oil technology and margarine 26 The economic aspects of official regulation 34 Notes and References 41 CHAPTER 2 ADVERTISING, PROPAGANDA AND MARGARINE 48 The Soap Trust of 1906 49 Oils and fats control in World War II 51 1. Hydrogenation capacity and the Whale oil supply 52 2. Rationing and the pooling of margarine 53 Trading-up and advertising 56 The advertising to sales ratio 61 The media influence independent of advertising 65 1. Ag ro - power and the world soy bean supply 66 2. The presentation of lengthy argument in the media 66 Notes and References 69 CHAPTER 3 HEALTH POLICY AND FATS 71 Introduction and definitions 71 Programme of empirical work in relation to the nutrition issue 74 Summary of the basic arguments in the nutrition issue 75 Dietary deficiencies and fats 75 Animal diet and EFA 76 Cholesterol in the diet 79 Behaviour patterns 81 Climate factors 81 • (ii) CHAPTER 3 (continued) Data Review 83 1. The food energy (calories) in European and UK diets 83 1.1 A cross section of fourteen countries in 1972 83 1.2 Time series results in the UK 85 1.3 Regression analysis of the fat consumption in the UK 1955-71 86 2. EFA deficiency 92 2.1 Seven European countries cross section analysis in 1972 92 2.2 Nineteen countries (OECD) Regression analysis of cross section data for 1972 95 Notes and References 99 CHAPTER4 THE DEMAND FOR MARGARINE 102 The anticipated problems in estimating margarine demand 103 Programme of empirical work in market demand analysis 105 The theoretical background 109 The structure of demand 109 Non-price determinants of the structure of demand III Substitution - the general background to the estimating problem 114 The short-run and the long-run in demand 118 Simultaneous equation models and the seasonal influence 123 The stock of advertising messages 128 Promotional activity and the problem of changes in advertising rates 131 Adjustments for quality variations in butter and margarine 133 Data Review 135 1. Adjustments for changes in margarine quality 135 1.1 Implicit specification prices from cross section data 135 1.2 Margarine specification and the change in edible oil utilisation over time 138 1.3 Constant quality from the consumer view point 151 2. Margarine substitution 153 2.1 Variables and their data sources in the substitution analysis 153 2.2 Results from the regression analysis of substitution 154 3. Margarine demand 158 3.1 Results from the regression analysis of demand 158 3.2 Introducing advertising into the demand equations 160 • (iii) CHAPTER 4 (continued) 3.3 Margarine demand in the absence of soft qualities of margarine 164 3.4 Margarine demand and soft margarine 167 4. Modification of the estimating relations 172 4.1 Using expenditure as the dependent variable 172 4.2 Two stage least squares 173 4.3 The method of first differences 174 Conclusions 175 Notes and References 179 CHAPTER 5 THE DEGREE OF MONOPOLY IN THE MARGARINE INDUSTRY 184 In traduction 184 Monopoly power - the theoretical background 186 Price cost margins for margarine brands, and price adjustment 192 Data Review 199 1. Variables, sources and preliminary arithmetic 199 1.1 The dependent variable in equation XV 199 1.2 The independent variables in equation XV 203 1.3 Variables in equation XIX 203 2. Price Cost Margins 204 3. Price Adjustment 211 3.1 Results for equation XIX 211 3.2 Conclusions and Comments 213 Notes and References 215 CHAPTER 6 - POLICY, FATS AND UNILEVER - A REAPPRAISAL 218 Technology and health 219 Economic self defence 220 The run-down in UK oil processing 221 Cost control and. the public interest 223 New product innovation 226 Advertising and resource wasteage 227 The control of structure 232 Inflationary pressures 234 Notes and References 237 BIBLIOGRAPHY 241 (iv) ACKNOWLE DGEMENTS I would like to thank i) Keith COwling (my supervisor) for the care and patience taken in reading and commenting on the entire manuscript, and for the many sessions of stimulating discussion which took place during the course of this research. ii) Don Aston and Clive Gilbert for reading and commenting on parts of the manuscript. iii) John Cubbin, Norman Ireland, Farouk el Sheikh, Paul Stoneman and members of the Industrial Economics workshop at Warwick University for helpful discussion and comment. iv) William Gutteridge for the benefit of a lengthy discussion on Unilever in Africa, and for helpful suggestions on the relevant literature in the field of International Relations. v) Catherine Slicer for helpful discussion and suggestions concerning the sources used in the propaganda issue. vi) Michael O'Neill and Edmund Slicer for information on various aspects of animal physiology and the animal diet issue. vii) The many representatives of official bodies and private companies involved in the oils and fats trade, who gave me the benefit of their experience in confidence. viii) Barbara Abbott, who typed this thesis, for her careful work and patience throughout its production. All errors remaining are my own. (v) LIST OF TABLES APPEARING IN THE TEXT Page Table 1 Commodity Sources and Outlets in the 1970 Yellow Fats market in the UK 11 2 UK butter imports as a share of world trade, together with the relative shares and production data for the major suppliers 47 3 Unilever share of margarine and compound fat production in 1955, 1960 and 1965 57 4 Market share by grade for Van den Berghs margarines 60 5 Zero order correlation coefficients for deflated quarterly advertising expenditures for 1960 through 1974 64 6 Advertising to sales ratios for household deter- gents, frozen food stuffs and margarine for selected years 64 7 Death rates for 45-64 year-olds in GB for three years: rates per 100,000 72 8 Estimated calorie needs and consumption and IHD mortality rates for fourteen west European countries in 1972 84 9 Regression
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