Groceries are becoming more and more expensive - and there is no end in sight

Created: 02/17/2022 10:53 am

By: Matthew Schneider

Food prices go up and up.

Consumers are feeling this more and more clearly.

But where is the rise coming from and how long will it last?

An attempt at an explanation.

Munich – Delivery bottlenecks, economic development, a revitalizing economy: The consequences of the pandemic drove inflation to almost a 30-year high of 5.3 percent at the end of 2021.

But while last year the prices for electricity and natural gas were mainly responsible for the rising inflation, in 2022 the cost of food could weigh the most on consumers.

Timo Wollmershäuser, head of economic activity at the Munich Ifo Institute, explains: "Consumer prices for food are likely to be seven percent higher this year than in 2021."

For his forecast, Wollmershäuser relates the increased world market prices for food and beverages to the German market: "According to our surveys, more than two thirds of the food manufacturers are planning further price increases in the coming months".

The reason for the market activity is, among other things, the increased producer prices, explains Jörg-Simon Immerz, the leading dealer for agricultural products at BayWa AG: "It starts with the fertilizer, which is urgently needed for the cultivation of grain, for example.

Prices here have more than doubled since spring 2021.”

Energy prices affect food

Because the production of nitrogen fertilizer is energy-intensive - and energy is expensive.

"In addition, there was the mixed summer, which decimated yields in the last few weeks before harvest throughout the northern hemisphere," says Immerz.

After all, the markets for dry goods such as wheat, corn and soya are global.

In addition, there are higher freight costs due to the pandemic: "Overall, wheat costs around 30 percent more on the Paris Matif exchange than in July 2021," says Immerz.

The fact that the below-average harvest is so significant also has to do with the low stocks: "In Germany we only have about ten percent of our wheat requirements in stock, the rest depends on the current harvests," explains Immerz.

That's why the price jumps in Germany are all the more serious: "The mills currently have to buy the grain with a premium of up to 60 percent compared to the previous year," says Immerz.

An easing of the situation could only bring a larger supply: "We are currently expecting an average harvest this year.

The coming harvest alone will therefore not ease the situation in the long term.”

Ukraine crisis could weigh on grain prices

The head of trade is particularly concerned about the tense situation in Ukraine: “About 30 percent of global wheat production comes from Russia and Ukraine.

If the situation escalates and supplies are cut off, we face a major challenge.”

This mainly affects prices: "Germany is a net exporter of high-quality wheat, and we won't run out of it." The problem is the world market: "Countries in North Africa or Arabia are big importers.

If the Black Sea region no longer supplies, this will also drive up prices in Germany due to the scarce supply.”

In addition to grain, important feedstuffs such as corn and soy are also under pressure.

Here, too, demand is driving the price: "Due to the growing world population, we actually need a record harvest every year - and we didn't manage that in 2021," explains Immerz.

This also applies to the world's most important source of protein, the soybean: "It's harvest season in South America right now - but because of the dry and hot past few weeks, it will remain below expectations." The increase is currently particularly serious for oil crops such as rapeseed.

However, this is primarily used for biodiesel.

Prices for fruit and vegetables almost stable

The price increases for goods that are not necessarily traded on the world market are more moderate, explains Judith Dittrich from the market observation institute Ami: "Vegetables have become 4 percent more expensive in 2021, beef by three percent, fruit has remained relatively constant." The only major exception is an 11 percent premium in the eggs, "because the killing of male chicks was banned from January 1, 2022".

The following applies to the current year: “How the prices for fruit and vegetables develop depends mainly on how the harvest is this year.” Nevertheless, the world market plays a role: “World market goods such as animal feed or Energy plays an important role,” says Dittrich.

The bottom line, however, is that consumers have benefited from the fact that farmers have been spending less and less on food for decades, as the Federal Agency for Agriculture and Food has determined: According to this, in 1970 a farmer earned 19 percent on a loaf of bread - in 2020 it was four.

For meat, the proportions changed from 44 percent to 21 percent, for eggs from 85 percent to 41 percent.

Accordingly, the higher producer prices only pass through to consumers to a lesser extent.