The Limited Times

Now you can see non-English news...

Europe chokes on the shopping basket: can the escalation be stopped?

2023-03-05T10:44:15.316Z


Food prices post record rises, driven by rising costs and lower harvests, fueling debate about how to contain increases and whether companies are benefiting


A liter of milk sells for 90 cents in a supermarket in Madrid, 92 cents in London, 1.05 in Berlin and 1.54 euros in Paris.

The kilo of apples ranges between 1.46 euros in Rome and 2.69 euros in Brussels.

The price of the same shopping basket, made by this newspaper with 10 basic products from eight European cities, ranges from 16.96 euros in the Spanish capital to 26.55 euros in The Hague.

This comparison has a very limited representativeness, because the products are not exactly the same and neither is the purchasing power and salaries of its citizens.

But it illustrates a pervasive problem: All of these goods have risen in the past year more than ever.

The food CPI has gotten out of hand in Europe: the harmonized rate climbed to 18.4% year-on-year in January in the EU, according to the latest detailed data from Eurostat.

In 14 countries, the increase was higher, such as Germany (20.5%) and Portugal (21.1%).

In the rest it is above double digits: in Spain at 15.5%, in France at 14.4% and in Italy at 12.6%.

The escalation has eroded the purchasing power of citizens and has ignited the debate on how to tackle the situation and if someone in the food sector is taking advantage.

The shopping basket is the victim of an unusual combination of factors, according to the vast majority of experts and the agricultural and food sectors, The increase in costs, which began in 2021 and worsened with the outbreak of the war in Ukraine a few years ago a year, is the main cause, aggravated by lower production in the field due to bad harvests.

“We are facing a perfect storm: rise in energy, raw materials and fertilizers;

droughts and frosts that have reduced harvests and supply… it is a problem that cannot be simplified”, warns Manuel Hidalgo, professor of Economics at the Pablo de Olavide University.

In a supermarket in Madrid, a customer searches the shelves for the cheapest milk.

It is one of the products that has risen the most in the last year, 33.4% in the case of Spain.

Also olive oil (30.5%).

"I pay more attention to prices and I compare a lot, also between shops," says the consumer.

Do you notice differences between them?

"There are always some differences."

There are also disparities between countries: the shopping basket prepared for this report contains 10 products: bread, chicken, yogurt, milk, coffee, pasta, eggs, potatoes, tomatoes and apples.

The most expensive is the Dutch (see graph), followed by London, Paris, Berlin, Brussels, Rome, Lisbon and Madrid.

While energy costs have moderated, food costs continue to grow, to the concern of families with fewer resources, who have to dedicate an increasing percentage of their income to it.

52% now pay more attention to prices than before the pandemic, 31% more than in 2020, according to a survey published in January with 5,000 participants from 10 countries (including Spain) by the University of Aarhus (Denmark) in collaboration with the European Institute of Innovation and Technology, dependent on the EU.

54% believe that the war is the main cause, but 48% also think that the increase in costs is being distributed poorly and the conflict "has allowed distributors and manufacturers to obtain more profits", according to the authors of the survey. .

A cucumber at 3.29 euros

Social networks encourage debate.

In Germany these days they are buzzing with comments about the prices of vegetables.

“A cucumber for 1.89 and it's not even organic!” exclaims a Twitter user, showing the photo of the almost empty shelves in a supermarket.

Others upload photos of the skyrocketing prices of peppers at 7.99 a kilo or tomatoes at 5. The record seems to be a cucumber (yes, the unit) at 3.29 euros.

The largest economy in the euro zone is one of those that is suffering the most from the rise in food prices.

And the complaints about the record price of cucumbers are a reflection of a problem that Europe is now suffering and that adds fuel to the fire: the closure this winter of the greenhouses in the center of the continent and the United Kingdom —they work with gas and now are not profitable—has produced a reduction in the supply of vegetables and has triggered prices.

In the United Kingdom, which is also suffering from Morocco's decision to limit its exports to meet its own domestic demand, several supermarkets have rationed these products.

All of this has translated into greater demand from producers in Almería and Murcia, the so-called

orchards of Europe

.

The production of cucumbers and peppers has fallen, while prices have skyrocketed at agricultural auctions in the last month: 120% for cucumbers, 104% for peppers and 60% for tomatoes, according to sources in the sector, who estimate that The situation will normalize in a few weeks.

Vegetables are not the only thing that has become more expensive in Germany.

Products as basic as butter have risen almost 40% in one year.

The tripartite government of Olaf Scholz has approved different measures to alleviate the effects of inflation, but none directly focused on the price of food.

In September, the third aid package included a single payment of 300 euros for retirees and another of 200 euros for students.

Also in September the Executive decided to curb the price of electricity and gas.

In parallel, the new citizen income, the social protection system previously called Hartz IV, has risen by about 50 euros per person per month.

UK citizens are also suffering from the cost of living crisis that is affecting the whole of Europe.

To the increase in the cost of energy, London must add the negative consequences of Brexit, which has made the supply of supermarkets more expensive and complicated.

Inflation stands at 10.1%, but the rise in the shopping basket, according to Kantar, is well above that figure.

In the first month of 2023, the prices of basic foods rose an average of 16.7% (13.3%, according to the sector's employers).

The British Government launched, in mid-2022, the Help for Household program, coordinated by the businessman and former executive director of the food delivery company Just Eat David Buttress.

It is not a direct and general reduction of the prices of a basic shopping basket.

The Executive has increased direct subsidies in a range of situations that include both low-income families, such as the number of dependent minors, pensioners or citizens with disabilities.

The aid, distributed between 2023 and 2024, involves a single payment that ranges between 170 and 340 euros.

The pressure of the cost of living on the citizens has translated into a wave of strikes, in those sectors where wages have been frozen for more than a decade, and where the unions retain affiliates and convocation strength.

Railways, buses, the subway, health personnel, firefighters or teachers have staged discontinuous strikes since the end of last summer.

Measurements on the table

The discussion about what to do in the face of rising prices has been heating up in the Old Continent.

In Spain, the diagnosis of the situation and how to alleviate the increases has caused a schism between the partners of the Government.

The Executive has approved the reduction of VAT on some basic products and a check for 200 euros for families with incomes of less than 27,000 euros.

The Minister of Agriculture, Luis Planas, believes that the rise in prices has reached its ceiling and, although he has warned that price drops will be slow, he has ruled out new initiatives for the moment.

From United We Can they have asked to go further: first the formation was in favor of capping food prices and then proposed subsidizing certain products, regardless of income level, charged to public coffers.

In parallel, the Minister of Labor, Yolanda Díaz, has insisted on her initiative to agree with the distribution an affordable basket charged to her margins, which, according to her, are skyrocketing.

And she has reminded Planas that the Retail Trade Regulation Law allows intervening business margins or setting prices in exceptional cases.

"You have to identify the problems before taking measures because they can be useless or counterproductive," warns economist Manuel Hidalgo about the possibility of capping prices.

He gives as an example of a possible good policy, due to the specific circumstances that occurred, the price control that was imposed on masks in Spain during the pandemic to avoid abuse.

"But in the case of food, these types of measures are not useful because it is mainly a problem of costs," he adds.

In Hungary, the government of Viktor Orbán intervened last year in the market to limit the prices of a group of foods and the result has been the opposite of what was pursued.

The CPI for food is the one that has risen the most in the EU, almost 50% annually, partly because, according to experts,

Tomás García Azcárate, an agronomist from the CSIC and an expert in European agricultural policy, is in favor of "selective policies" that support those who "need it", such as expanding the 200-euro check.

Limiting prices as Budapest has done or discounting them in a general way, as Greece has done —the Government will assume 10% of the cost of the shopping basket since last February and for six months—, they seem wrong initiatives from “the point of view economic and ethical.

Several workers set up a greenhouse in La Mojonera, Almería. JULIÁN ROJAS

The reality is that in few European countries the debate around increases in food prices is being as tense as in Spain.

The general secretary of Podemos and minister, Ione Belarra, went so far as to call Juan Roig, president of Mercadona, a “ruthless capitalist” in February, and since the formation, supermarkets have been accused of being “rich.”

Minister Planas does not agree with this diagnosis.

He affirms that there is competition in the market, that the food chain works and there are controls, as evidenced by the fact that last year the Food Information and Control Agency imposed 272 sanctions on food companies, the vast majority for failing to meet payment deadlines. and contract anomalies.

Neither the agricultural sector nor the distributors are guilty of aggravating the escalation of food prices, according to García Azcárate: “In my 40 years studying this market, I have never seen a situation with this problem of supply and cost inflation.

The idea that there is a bad guy in the movie that assaults consumers does not square with reality.

The Agriculture data indicates that the prices paid by farmers and ranchers for what they need to produce, from seeds to fertilizers, together grew by 33.4% annually in November.

But the prices they received for their products rose less, an average of 23.4%, and agricultural income fell by 5.5% in 2022. That is, they have not transferred all the rise in costs.

This containment trend is maintained in the next link in the chain, industry, where prices rose 17.2% in the same period, according to INE data.

And in final sales to the public, in distributors, where the increase was 11.3% (the food CPI for last November).

Luis Planas, during a meeting with representatives of the food chain, on February 20 in Madrid._Eduardo Oyana (EFE)

The COAG agricultural association highlights the difference of up to 500% between a fresh product from its origin to the point of sale.

Although the ministry warns on its website that in these gross comparisons it is necessary to take into account all the costs associated with keeping a food chain running for the sector as a whole (from labor, to maintenance of facilities and all the costs of production and adaptation to environmental demands).

It must also be taken into account that the prices of origin can fall and on the shelf remain high, because there is "a replacement effect", explains García Azcárate, which means that time has to pass between one moment and another.

Is distribution in Europe really competitive?

In Spain, Mercadona is the leader, with a 25% share, followed by Carrefour (9.8%), Lidl (6%), Dia (4.4%) and Eroski (4.3%).

An insufficient distribution, according to Minister Díaz.

Enough, according to market experts from Kantar and Nielsen IQ.

In France, the five largest companies account for 78% and, in the Portuguese market, more than 50% is in the hands of two firms.

New rate in Portugal

Portugal, where increases in food prices are above 20%, has been blunt in the measures it has taken in relation to companies.

The prime minister, the socialist António Costa, ruled out lowering VAT on food products, but large distribution chains will have to pay a temporary rate of 33% on their extraordinary profits in 2022 and 2023. There are 108,000 people who benefit, in addition , from a basket with twenty essential products financed by the Government, although it is a measure prior to inflation.

In September a package of measures valued at 2,400 million was approved to compensate families and pensioners for inflation.

A movement called Vida Justa, created in the metropolitan areas of Lisbon where more low-income families are concentrated, organized a demonstration in the capital a week ago to demand that the price of essential goods be limited, wages raised and a stop to real estate speculation on housing.

The country is experiencing a wave of protests over low wages and job insecurity in various sectors.

The Portuguese minimum professional salary is 760 euros.

If someone wants to make a salad, they would have to spend 5% of the minimum wage to buy a kilo of oxheart tomatoes.

The shadow of the doubt hangs over the margins of manufacturers and distributors.

Globally, chains such as the American Kroger, the Dutch Ahold Delhaize and the British J Sainsbury say they survive with operating margins of 4% or less.

By comparison, large manufacturers such as Unilever and Nestlé work with margins of 16 or 17%, as analyzed a few days ago by Aimee Donnellan, a Reuters Breakingviews columnist who is an expert in the sector.

In the last results presentations, in February, executives of these last companies have promised to respond to the increase in costs by raising prices to protect those margins.

The distribution ensures that it can't do it so easily because it loses customers, Donnellan explained.

In June 2022, the British Tesco withdrew Kraft Heinz products from its shelves due to a price dispute.

Ahold Delhaize stopped selling KitKat and Nescafé (from Nestlé) for similar reasons.

So did the French chain Casino, which did not accept a 22% increase in the price of Danone's Evian and Volvic water.

Regarding Spain, the distribution sector as a whole ensures that its margins are very tight (between 1% and 3% of sales).

The Bank of Spain published an analysis in December in which it concluded that, in the first three quarters of 2022, retail and hospitality companies registered increases in their margins.

But it does not refer specifically to food distribution.

Regarding this industry, the institution says in the same document that it would have "experienced drops in profitability", like other subsectors affected by "the negative impact of costs".

Mercadona plans to publish its 2022 results this month.

Dia, the fourth operator in Spain, has just published its accounts and is still in losses.

Carrefour has also obtained benefits on a global scale (it does not give the detail by country).

The French group earned 1,566 million, which leaves a net margin of 1.7% of its turnover.

The operating was 2.9%, two tenths lower than that of 2021.

Affordable basket in France

In France, the Government has been involved in a struggle with the large distribution firms, including Carrefour, to convince them that, as of March 15, they guarantee the lowest possible price for a series of food products.

It is about containing —by persuasion, and not with mandatory measures— inflation in food.

For the president, Emmanuel Macron, the rise in food prices is a cause for concern.

The fear is that the malaise will break out at some point, although for now what is bringing hundreds of thousands of French people to the streets is not inflation, but the pension reform.

Demands for higher wages already sparked strikes at refineries in the fall.

They could come back.

The Government has already spent 110,000 million euros since 2021 to contain the rise in gas and electricity.

Thus it kept inflation at the lowest levels in the EU last year.

But Macron does not want to spend a euro, as he did with energy, with food, and advocates a voluntary agreement with the companies, an agreement that should be finalized in the coming days.

"The president is not capable of proposing anything other than charity to food multinationals, we must stop capitulating to inflation," denounced the far-right deputy Jean-Philippe Tanguy.

Macron is confident that public pressure will lead multinationals to contain prices on their own initiative.

The model is Total Energies, which a few days ago promised, after announcing stratospheric results, that diesel gasoline would not exceed the price of 1.99 euros per liter in French service stations by 2023.

protests in Belgium

Price tensions in Belgium are considerable and in recent months there have been protests demanding wage increases in the face of escalating inflation.

Food prices rose 19.2% in January at the harmonized rate, above the EU average.

The Belgian statistics institute estimates that eggs have risen by 38.6% in recent months;

milk, 33.5%;

bread, 20%;

fish, 15.7% and meat, 14.8%.

Since prices began to rise in Belgium, the coalition government, made up of seven parties, has deployed measures very similar to those of other European countries.

At the end of 2022, for example, it released some 26 million for the shopping basket of the most vulnerable households (about 450,000).

The time that students will be able to work with reduced contributions and without losing other family benefits is increased from 475 hours to 600 hours a year.

But where more emphasis was placed was, without a doubt, on aid to pay the energy bill: extension of the social bonus to one million households, lowering of VAT on gas and electricity to 6% or reduction in excise taxes on gasoline and diesel .

Tax reduction in Italy

Nor has Italy escaped the rise in the shopping basket, although the harmonized rate is below average, at 12.6%, according to Eurostat.

According to consumer associations, families spent an average of 700 euros more on food last year.

The government of the far-right Giorgia Meloni has promised measures to alleviate the escalation of prices.

For now, it has lowered the so-called tax wedge (the difference between the salary an employer pays and what a worker takes home) by between two and three points.

This is a measure along the lines of those promoted by the previous Executive led by Mario Draghi that serves to increase salaries in practice between 10 and 30 euros per month.

Meloni also tried a drop in VAT to 5% for basic foods such as bread or milk that was not approved.

Climbing in the Netherlands

In the Netherlands, the harmonized CPI stood at 17.7% in January, according to Eurostat.

Milk, cheese and eggs, meat and fish, vegetables have risen... while in recent months the price of cereals has fallen and also dietary fats, but the adjustment has not yet been noticed in the consumer pocket.

The most recent analyzes published by the experts of the Rabobank bank point to the possibility that prices begin to fall towards the end of the summer.

In 2023, the average Dutch salary is 40,000 euros gross per year, notes the ADP Institute for Financial Research.

A package of whole wheat bread (standard purchase at home) is worth 2.49 euros.

If you buy one daily, it would be an expense of 74 euros per month.

With information from Marc Bassets (Paris), Tereixa Constenla (Lisbon), Manuel V. Gómez (Brussels), Lorena Pacho (Rome) and Isabel Ferrer (The Hague).

Follow all the information on

Economy

and

Business

on

Facebook

and

Twitter

, or in our

weekly newsletter

Subscribe to continue reading

Read without limits

Keep reading

I'm already a subscriber

Source: elparis

All business articles on 2023-03-05

You may like

Trends 24h

Latest

© Communities 2019 - Privacy

The information on this site is from external sources that are not under our control.
The inclusion of any links does not necessarily imply a recommendation or endorse the views expressed within them.