Chapter 18. The Curry Trade

18.1 Section Title

Chapter 18 HEADLINE: The Curry Trade

In 2009, a dramatic weakening of the pound against the euro sparked an unlikely boom in cross-Channel grocery deliveries.

If carrying coals to Newcastle is judged a pointless exercise, then importing croissants, baguettes and bottles of claret into France might seem even more absurd. But, due to the strength of the euro against the pound, hundreds of Britons living in France are now using the internet to order their food, including many French specialties, from British supermarkets.

Simon Goodenough, the director of Sterling Shopping, a delivery firm based in Brackley, Northamptonshire, says his company has 2,500 British customers in France and is running five delivery vans full of food to France each week.

“We deliver food from Waitrose, Sainsbury’s and Marks and Spencer, but by far the biggest is Asda,” said Goodenough “… We sit in our depot sometimes looking at the things people have bought and just laugh at the craziness of it all. We have seen croissants and baguettes in people’s shopping bags. And we have delivered bottles of Bergerac wine bought from Sainsbury’s to a customer in Bergerac. We even have a few French customers who have now heard about what we do. They love things like curries and tacos, which they just can’t get in France.”…

Goodenough said many of his company’s British customers hold pensions or savings in sterling rather than euros: “They have seen a 30% drop in their spending power over the past 18 months.”

John Steventon owns La Maison Removals, a delivery company based in Rayleigh, Essex. It takes food from its warehouse to about 1,000 British customers in central France.

“We just can’t cope with demand at the moment,” he said… . “We found that friends in France were asking us to bring over British food for them so we just thought it made sense to set up a food delivery service… . The savings for buying food, in particular, are amazing due to the strength of the euro. Customers tell us that for every £100 they would spend in France buying food, they save £30 buying through us, even with our 15% commission. A lot of people are using us to get things they really miss, such as bacon and sausages.”

Nikki Bundy, 41, has lived near Périgueux in the Dordogne with her family for four years…. “It’s just so much cheaper for us to buy our food this way…. The food in France is lovely, but you can come out of a supermarket here with just two carrier bags having spent €100. I still try and buy my fresh fruit and veg in France, but most other things I now buy from Asda.”

Source: Excerpted from Leo Hickman, “Expat Orders for British Supermarket Food Surge on Strength of euro,” The Guardian, June 9, 2010. Copyright Guardian News & Media Ltd 2010.

Question 1

Question

What does the law of one price say should happen to the price levels in both countries?

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According to the law of one price, the exchange rate should equalize the price differentials between two countries. With goods cheaper in the United Kingdom, we would expect the pound to appreciate relative to the euro.

Question 2

Question

Does this pattern of trade prove the law of one price does not hold?

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Not necessarily. The law of one price suggests that prices will converge over time. A one-time deviation in prices does not imply a failure in the law of one price. As we will see in the next question, the pound has since appreciated against the dollar.

Question 3

Question

Look at exchange rate data between the United Kingdom and the euro area. What has happened to the pound/euro exchange rate since 2009?

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The value of the pound was lowest in October 2009 (1.07 pounds/euro. By August 2010, the rate was 1.22 pounds/euro. In July 2012 the pound had appreciated to 1.28 pounds/euro.