#[1]alternate [2]Why Are Food Prices So High in Europe?
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Why Are Food Prices So High in Europe?
Britain
Italy
Germany
+28%
+17%
+40%
Britain
Italy
Germany
+28%
+17%
+40%
Britain
Italy
Germany
+28%
+17%
+40%
Source: Britain’s Office for National Statistics, Italy’s Industry
Ministry and Germany’s Federal Statistical Office By Rebecca Lieberman
Agricultural and energy costs are falling, but basic items remain
stubbornly expensive for consumers.
By [10]Eshe Nelson
Reporting from London
__________________________________________________________________
It is the most basic of staple food items: sliced white bread. In
Britain, the average price of a loaf was 28 percent higher in April, at
1.39 pounds, or $1.72, than it was a year earlier.
In Italy, the price of spaghetti and other pasta, a fixture of the
Italian diet, has risen nearly 17 percent from the year before. In
Germany, the European Union’s largest economy, cheese prices are nearly
40 percent higher than a year ago, and potatoes cost 14 percent more.
Throughout the European Union, consumer food prices were on average
nearly 17 percent higher in April than a year earlier, a slight
slowdown from the previous month, which set the fastest pace of growth
in over two and a half decades. The situation is worse in Britain than
in its Western European neighbors: Food and nonalcoholic drink prices
were 19 percent higher, the quickest pace of annual food inflation in
more than 45 years. By comparison, the annual rate of U.S. food
inflation was 7.7 percent.
The percent increase in staple food prices in the E.U. over the last year
Data as of April 2023
Sugar
Cheese and curd
+54.9%
+25.3%
Fresh whole milk
Olive oil
+25%
+23.6%
Eggs
Potatoes
+22.7%
+19.8%
Bread
Fish and seafood
+16.4%
+13%
Poultry
Butter
+12.6%
+8.5%
Sugar
Cheese and curd
+54.9%
+25.3%
Fresh whole milk
Olive oil
+25%
+23.6%
Eggs
Potatoes
+22.7%
+19.8%
Bread
Fish and seafood
+16.4%
+13%
Poultry
Butter
+12.6%
+8.5%
Olive oil
Sugar
Cheese and curd
Fresh whole milk
+23.6%
+54.9%
+25.3%
+25%
Eggs
Potatoes
Bread
Fish and seafood
+22.7%
+19.8%
+16.4%
+13%
Poultry
Butter
+12.6%
+8.5%
Olive oil
Sugar
Cheese and curd
Fresh whole milk
+23.6%
+54.9%
+25.3%
+25%
Eggs
Potatoes
Bread
Fish and seafood
+22.7%
+19.8%
+16.4%
+13%
Poultry
Butter
+12.6%
+8.5%
Source: Eurostat By Rebecca Lieberman
Persistent food inflation is squeezing low-income households and
troubling European politicians. (In Italy, the government held a
meeting this month to discuss [11]soaring pasta prices.)
At the same time, the major costs that go into making food products,
including fuel, wheat and other agricultural commodities, have been
falling in international markets for much of the past year — raising
questions about why food prices for consumers remain so high in Europe.
And with rising labor costs and the possibility of profiteering, food
prices are unlikely to come down anytime soon. More broadly, rising
prices could also put pressure on central banks to keep interest rates
high, potentially restraining economic growth.
What is driving up food prices?
Behind the sticker price for a loaf of bread includes the costs for not
only key ingredients but also processing, packaging, transport, wages,
storage and company markups.
A United Nations index of global food commodity prices, such as wheat,
meat and vegetable oil, peaked in March 2022, immediately after
Russia’s invasion of Ukraine, which is one of the largest grain
producers. The war disrupted grain and oil production in the region
and had global impact, too, [12]worsening food crises in parts of East
Africa and the Middle East.
But the worst was avoided, in part because of a deal to export grain
from Ukraine. European wheat prices have declined about 40
percent since last May. Global vegetable oil prices are down about 50
percent. But there is still a ways to go: The United Nations’ food
price index was 34 percent higher in April than its 2019 average.
+50
%
Food prices
+40
European
Union
consumer
prices
+30
+20
+10
0
–10
Year-over-year changes in E.U. consumer food price inflation and the
United Nations global food commodity price index.
Global
commodity
prices
–20
–30
’20
’21
’22
’23
+50
%
Food prices
+40
+30
European Union
consumer prices
+20
+10
0
–10
Global
commodity prices
Year-over-year changes in E.U. consumer food price inflation and the
United Nations global food commodity price index.
–20
–30
’20
’21
’22
’23
Sources: Food and Agriculture Organization of the United Nations,
Eurostat
By Karl Russell
Aside from commodity prices, Europe has experienced particularly harsh
increases in costs along the food supply chain.
Energy prices soared because the war forced Europe to rapidly replace
Russian gas with new supplies, pushing up the costs of food production,
transport and storage.
Though wholesale energy prices have fallen back down recently,
retailers warn there’s a long lag — perhaps up to a year — before
consumers will see the benefits of that because energy contracts were
made months before, most likely reflecting those higher prices.
And the tight labor markets in Europe with high job vacancy rates and
low levels of unemployment are forcing employers, including food
companies, to push up wages to attract workers. This in turn drives up
costs for businesses, including in the food sector.
Is profiteering keeping prices high?
Suspicions are growing among consumers, trade unions and some
economists that inflation could be kept needlessly high by companies
raising prices above their costs to protect profit margins. The
European Central Bank said that at the end of last year, corporate
[13]profits were contributing to domestic inflation as much as wage
growth, but it did not say if any industries had made excessive
profits.
Economists at Allianz, the German insurer and asset manager, estimate
that 10 to 20 percent of food inflation in Europe can be attributed to
profiteering. “There is part of the food price inflation that we see
which is not explainable, easily,” said Ludovic Subran, the chief
economist at Allianz.
But the lack of detailed data about corporate profits and supply chains
has caused a rift in economic opinions.
Some economists and food retailers have pointed fingers at [14]big
global food producers, which have sustained double-digit profit margins
while raising prices. In April, the Swiss giant Nestlé said it expected
its profit margin this year to be about the same as it was last year,
about 17 percent, while it reported raising prices almost 10 percent in
the first quarter.
Even taking into account expenses like transport and accounting for
pricing lags from farms to shelves, Mr. Subran said he would have
expected food inflation to come down by now.
In Britain, some economists are telling a different story. Michael
Saunders, an economist at Oxford Economics and former rate-setter at
the Bank of England, said in a note to clients in May that
“greedflation” was not the culprit. Most of the increase in inflation
reflects the higher cost of energy and other commodities, he said.
Rather than rising, total profits for nonfinancial companies in
Britain, excluding the oil and gas industry, have fallen over the past
year, he said.
Britain’s competition regulator also said that it hadn’t seen evidence
of competition concerns in the grocery sector, but that it was
[15]stepping up its investigation into “cost of living pressures.”
Have food prices peaked?
Despite well-publicized [16]cuts to milk prices in Britain, food prices
in general are unlikely to go down in the near future.
Instead, policymakers are closely watching for a slowdown in the rate
of increases.
There are tentative signs that the pace of food inflation — the
double-digit increase in annual prices — has reached its pinnacle. In
April, the rate fell in the European Union for the first time in two
years.
Food
inflation
+20
%
Britain
+18
Food vs.
overall inflation
+16
Year-over-year
changes in
consumer prices
Eurozone
+14
+12
Overall
inflation
+10
Britain
+8
Eurozone
+6
+4
+2
0
–2
’20
’21
’22
’23
+20
%
Food inflation
Britain
+18
Food vs. overall inflation
+16
Year-over-year changes
in consumer prices
Eurozone
+14
+12
+10
Overall inflation
Britain
+8
Eurozone
+6
+4
+2
0
–2
’20
’21
’22
’23
Sources: U.K. Office for National Statistics; Eurostat
By Karl Russell
But the slowdown from here is likely to be gradual.
“It appears to be taking longer for food price pressures to work their
way through the system this time than we had expected,” Andrew Bailey,
the governor of the Bank of England, [17]said this month.
Across the continent, some governments are intervening by capping
prices on food essentials, rather than waiting for the economic debates
about corporate profiteering to play out. In France, the government is
pushing an “anti-inflation quarter,” asking food retailers to cut
prices on some products until June. But the finance minister, Bruno Le
Maire, said this month that he wanted food producers to contribute more
to the effort, warning [18]they could face tax penalties to recover any
margins unfairly made at the expense of consumers if they refuse to
return to negotiations.
These efforts may help some shoppers, but on the whole there is little
to comfort Europeans. Food prices are unlikely to decline — it’s likely
only that the pace of increases will slow later this year.
Eshe Nelson is a reporter in London, where she writes about companies,
the British economy and finance. [19]@eshelouise
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