Food inflation remains stubbornly high even as prices ease in other sectors

04 Apr 2023 --- While inflation is easing across sectors and countries, food prices continue to soar in a display of the volatile nature of foodstuffs. Headline inflation is broadly easing in most countries. However, even the countries that have managed to rein in general prices are failing to keep food inflation at bay, signaling that food inflation has completely detached from the general inflation rate.

A clear sign of this is the EU inflation numbers. Prices across the bloc peaked in October at 10.6% inflation and at that time food inflation was 15.9%. The latest Eurostat data shows that prices have eased down to 6.9%; nonetheless detached food prices are still climbing, reaching a 17.7% rate.

In the UK, general prices also peaked in October, reaching 11.1% (16.2% for food), however food prices topped 18% in February as the country experienced vegetable shortages. According to an Office for National Statistics March survey, 26% of UK adults experienced shortages of essential food items in the past two weeks – up from 16% from in 2022.

Food prices in their own world
Food prices have even detached from food commodity prices, which have decreased for eleven consecutive months. According to the UN’s Food and Agriculture Organization (FAO), prices are down 18.7% from one year ago.

Nonetheless, sugar prices, which didn’t experience much inflation during 2022, are now rising precipitously, with prices for the commodity increasing 6.9% only in February and reaching their highest level since February 2017. As Easter approaches, prices for chocolate, sweets and fizzy beverages will be affected.

Francois Sonneville, senior analyst Beverages at Rabobank, tells FoodIngredientsFirst that he sees two explanations to why food inflation is detached from headline inflation and explains that food prices might be a lagging indicator.

“Firstly, industries take longer to have inflation work through the value chain. A local taxi service e.g. will see costs go up immediately when energy prices rise. A brewer will be affected too, but much later. Glass and barley are held in inventory by bottle- and malt suppliers and part of the price rise is absorbed by them, passing on the benefit of having attractive stock that was made when costs were lower.

Shoppers looking forward to buying eggs – either chocolate or ordinary ones – will have to delve deeper into their pockets.“Eventually, costs will however rise and inflation will show for food companies at the end of the long value chain,” he highlights.

“Secondly, most food companies are large and have professional procurement departments. They might have passed on the risk either to financial parties or suppliers through hedges and long term contacts. Again, this gives a temporary relief, but not indefinite,” he continues.

Sonneville explains that companies can keep prices at bay through shrinkflation – which would still show as food inflation if it is measured in price per quantity – and reformulation by companies using cheaper or less ingredients.

Government ineffectiveness
The perfect storm of climate change – with droughts and floods – alongside skyrocketing fertilizer prices, worker shortages and higher labor costs, food export bans, the war in Ukraine, high energy costs, supply chain issues and the worldwide bird flu is prompting government action to control prices to be ever more complex.

Spain, Portugal and Poland have tried to cut VAT taxes on groceries, however food inflation for these countries remains stubbornly high at 16.7%, 22% and 24.5%, respectively – of the three countries, only Spain being under the EU food inflation average of 18%.

Hungary introduced price caps over a year ago, and since then food inflation has tripled and is now at 47%.

Government intervention to rein in prices worked in China, where authorities managed to bring down food inflation from 8.8% in September to 2.6% in February by releasing millions of pork metric tons into the markets from the country’s national reserves – pig prices disproportionately influence food basket costs in the country.   

Easter bunny extortion
Shoppers looking forward to buying eggs – either chocolate or ordinary ones – will have to delve deeper into their pockets. As sugar prices rise, so do confectionery prices. 

Meanwhile, chicken eggs are one of the most inflation-ridden commodities due to the avian flu.

According to the US Department of Agriculture (USDA) March food price outlook, egg prices are predicted to increase 29.6% in 2023. Nonetheless, prices might have peaked already. In the EU egg prices are on average 30% higher than last year, according to Eurostat, but there are wide disparities between countries – from the 85% inflation of the Czech Republic to the 18% of Germany.

USDA notes that the combined regional large egg weekly average price reached US$5.4 for a dozen eggs in December, up from US$1.4 in March 2022 and from the three-year average that fluctuated around US$1.UK food prices topped 18% in February as the country experience limited tomato availability.

The latest data positions US large egg prices at US$3.47 per dozen.

Potatoes USA, which represents US potato growers and importers, named 2023 the year of the Easter potato, as the vegetable is a cheaper alternative to traditional eggs.  

“Many families are hopping aboard this new trend,” says Bonnie Johnson, director of nutrition and industry relations at Potatoes USA. 

“As a dietitian, I love seeing families embrace vegetables in creative ways. Making potatoes a fun part of your holiday will help children learn to love the spud – and all its incredible nutritional benefits,” he continues.

Food protests
After over a year of rising food prices, some countries are running short on food and of money to continue buying food in international markets. 

The WEF Global Risks Report of 2023 also signed that Tunisia, Ghana, Lebanon and Egypt are in simultaneous food and debt crises. The latter is seeing increasing instability due to currency debasing against a strong US dollar, making food imports prohibitively expensive in a country requiring massive food imports. Moreover, in recent weeks Kenya has seen rising instability due to protests due to soaring prices. 

Over the next few weeks, with the Ramadan celebrations household consumption typically increases and food inflation is set to push up inflation in countries like Algeria and Tunisia, which are dependent on expensive food imports. 

The UN has called for funding and action against global starvation as political upheaval exacerbates food insecurity. An expected 345.2 million people are projected to be food insecure in 2023 – more than double the number of 2020, according to the World Food Programme. 

By Marc Cervera