Introducing the Fair Profit Share Index

My fascination with fair markets recently collided with the current developments in the food transition. The food transition has many moving parts, I'll oversimplify to try to get my point across. My apologies. Mainly I'd want share the evolution of my ideas on fair markets and use the application domain of food to clarify. I'm not a food system expert. (Nor am I an economist)

To recap: 3,5 years ago I started writing about how Fairness of markets could also be facilitated by machine learning, trying to quantify fairness and exploring for whom we should optimize fairness. I called for Revisiting Adam Smith’s Invisible Hand in the Data Economy to test the workings of markets with data. To make the invisible, visible.

I dug into the core concepts of information & power assymmetry and tried to establish a new kind of market concept based on cooperation, and value symmetry. When you add value to a product, you will get an equal share of the profit. Quickly I found out game theorical concepts predict people would game that system. Like... a lot. ??

But information & power assymetry as building blocks for a more optimal, dare I say fair, market didn't leave my mind.

Enter today. Farmers are protesting in the Netherlands because of new rules from government forcing them to reduce emissions.

Dutch farmers protest against unfair treatment

Again, this is a very complex and multifaceted problem. But to me it's clear that farmers feel they aren't treated fair.

One element of the unfair treatment in the farmers' eyes is that they get a relatively small percentage of the profits that are being made in the food industry. Large supermarket chains seem to get the largest share of the profits, because the have the power to "control the market". Farmers are forced to lower their margins, pushing them to even larger scale industrial farming and thereby highering their emissions, is their reasoning.

Hold that thought.

Consumers could influence a fair food transition

Another side to the food transition is the potential impact consumers have to change the system. Their money influences the products that get made. But when buying food, consumers know very little about what goes on in the food industry. With the arrival of industrial farming, the industry maybe wasn't that keen to show all the ins and outs. It's not always pretty, and it could harm sales of the products.

An often heard critique is that consumers only look at the price. I'd argue that price is also the only thing consumers get to see.

Following the concept of information symmetry, a market would work more optimal when buyers have the same information as sellers have. And instead of my earlier idea to force a system of fair value division onto the industry, we could show how the pie of profits is shared and let the consumer decide what is fair.

Would you buy a cucumber with a label as shown below?

Yes, this says nothing about carbon footprint. It's also not a fair trade certificate. It shows how profits are shared.

How does it work? It depends... My main goal would be to give consumers information about how well the market works. Is there an industry player in the supplychain that has too much power? The information on how the profits are shared, could help shed light on that.

Optimizing Information (of Power) Symmetry with Data

So the information of profit share is used as indication of power division. Might work, right? And yes, it would be better to calculate costs as well. How much effort did any one industry player put in to achieve the profits?

In the example shown above: a farmer grows a cucumber in 10 weeks. And a supermarket puts it on display for up to 3 days, in areas where there are many consumers. Again simplified. Would you say it's fair that the supermarket gets 90% of the profit?

Let the market decide ??.

But the point is, that we could try it. For many reasons the data on costs and profits are already being tracked in the industry. I could argue it's only fair to judge a market on these metrics. (True pricing #FTW)

Yes, if you are the most powerful player - in the current system - you don't want to share that data. Data that shows your profit share. Your power over the system.

But in the new system, build by companies that see things differently, you might want to share that data and consumers would potentially reward you for it. Consumers don't have to accept being kept in the dark.

If I would be starting a company to help accelerate the food transition I'd know what I would want to experiment with... what do you think?