Why is food becoming more expensive?
Despite the VAT reduction, food prices continue to rise at a rate not seen in recent decades. Experts point out that the sector in Europe is taking advantage of this to pass on part of the cost increases of recent years and other parts of the chain could be expanding margins.
According to data from the Consumer Price Index for February, food in Catalonia today is 14.5% more expensive than it was a year ago. This is a record rise and marks the ninth consecutive month of double-digit year-on-year increases.
The figures for Spain are even worse, as the increase in food prices in February reached 16.6% compared to the same month the previous year, the highest recorded in the historical series that began in 1994. And if we look at Germany, the European locomotive, the rise soared to 21.8%. There, people have been able to pay more than three euros for a cucumber.
According to Eurostat, the year-on-year increase in food prices in the eurozone stood at 15% in February. This is a higher percentage increase than that of energy, which was 13.7% in February. The reality is that fuels, which rose by as much as 40%, are tending to moderate their prices, while food prices are picking up speed.
Not even the reduction in January of the VAT applied to a large part of the basic products in the shopping basket, including bread, milk, eggs, fruit, vegetables and pulses, has served to halt the inflationary spiral. According to the National Statistics Institute, the products that have risen the most compared to last year include sugar (52.6%), butter (39.1%), sauces and condiments (33.8%), olive oil (33.5%) and whole milk (33.2%).
The Spanish government blames part of this price rise on a temporary reduction in supply due to “unfavourable weather conditions” in many EU countries, which is reducing production. In fact, as we indicated in another article, Catalonia is suffering the most severe drought since 2008. And it is true that this winter greenhouses have been closed in several European countries because the price of gas is making them loss-making.
However, this argument is not very solid when it comes to justifying the high prices if we take into account that the FAO index has accumulated 11 consecutive months of decreases in international food prices.
According to the UN agency, the food price index fell slightly (by 0.6%) compared to January and was 18.7% below the peak it reached in March 2022. Surprisingly, the decline in the index reflected falls in the prices of products such as vegetable oils, butter and dairy products, which have become considerably more expensive in our supermarkets.
Impact of costs
Many analysts point out that the price rises have served to offset part of the increase in production costs suffered by the agri-food sector in recent years. These affect such important items as seeds, fertilisers, animal feed and energy.
Fertilisers tripled in price, although they subsequently became 40% cheaper from spring onwards, when they reached their highest price; it is estimated that feed has risen by more than 80% since 2019; and, as for energy, the price per megawatt-hour reached more than 300 euros and the price of a barrel of Brent oil reached 120 euros. In fact, although the price of the latter has fallen by 15 euros between February 2022 and February 2023, diesel is 1.7% more expensive.
In any case, it is not clear that higher food prices always translate into higher incomes for producers. In this sense, there is much debate about which actors in the food chain are taking advantage of the situation to increase their margins. What is certain is that even the president of Mercadona, Juan Roig, has just admitted that his chain has raised prices “a huge amount”.
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