Rising food prices
August 30, 2007
(3 votes, average: 3.67 out of 5)
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One of the hottest topics over the month of August was the rising price of food. The media in Germany went into overdrive over the soaring cost of milk, and the story rapidly spread further afield. There was similar concern about the effect of tight grain supplies on retail prices for bread and meat.
I’ve obviously been watching the market situation very closely.
We find ourselves in a world no-one would have imagined a year ago, where the dairy sector has moved from a market under pressure to a situation where prices are surging.
Likewise, for grain, we suddenly find ourselves in a situation where supplies are tight and prices are way above recent levels.
While this has a lot to do with circumstances beyond our control, I think it’s fair to say that it also reflects very positively on the reform process we kicked off in 2003.
In fact, it reminds me of the election slogan of a certain well-known US president: “It’s the economy, stupid!”
Recent price developments are no more and no less than the market in action, which is precisely what we want from European agriculture in 2007. That was what the reforms were in large measure about – making farmers react to the market and making EU agriculture competitive.
If further proof were needed about our enhanced competitiveness, we only have to note how export subsidies for all dairy products have been set at zero since June. Our farmers are able to compete in the global marketplace without export assistance from the EU! That is good news indeed.
Of course, this is not the end of the story. I have made it very plain that we should abolish milk quotas by 2015 – they are an anachronism in the post-reform world, where farmers should be able to adjust rapidly to changing market circumstances. It is also wrong that young farmers in some countries have to fork out a small fortune just to buy a quota.
But we need a soft landing. We can’t simply get rid of quotas from one day to the next. That is why I believe the most realistic option is a gradual increase in quotas leading up to 2015. This is a discussion we must have in next year’s CAP Health Check.
As far as grain prices are concerned, I am keen to refute the idea that some people are putting about that it is largely the recent interest in biofuels that is driving up prices. This is not the case – they play a marginal role at most in the EU context. More significant by far have been low harvests in many regions of the world, bad weather in Europe and growing demand from east Asia. Here too, I have shown my willingness to act, by suggesting a cut in the set-aside rate for next year. And the entire principle of set-aside will also be high on the agenda of the Health Check.
Of course, in this whole debate about food prices, we cannot lose sight of the effect on consumers. It hurts consumers in their pockets when food prices go up.
Here, I will say only this: the increases in supermarket milk prices in some Member States are definitely not warranted by the overall market supply situation in the EU. And, as we all know, the contribution of the raw material to the final price of foods like bread is relatively small, so I hope that the supermarkets and discounters will act responsibly.
Concerns have also been raised that livestock producers face much higher feed prices in the short to medium term. Certainly, this is a concern that I share. Having said that, pig and poultry producers all over the world are affected by high cereal prices, even in low cost competitors like Brazil.
This will lead to adjustments in world meat prices. So I hope that the global competitiveness of European farmers should not be overly affected by the current situation.
Finally, as I’ve said on numerous occasions, I hope European consumers will put their money where their mouth is and be prepared to pay a little bit more for EU produce.
Where we win out every time is in quality and in the attention we pay to animal welfare and the environment. That is something well worth paying for.
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August 30th, 2007 at 5:41 pm
Below you find the link to comments of the Asda/UK direction:
We understand that the average Asda customer only has a disposable income of £140 at end of every month.
“With interest rates rising, families are already experiencing increased financial pressure, so we don’t want to place further burden on consumers.
“Obviously we will try to balance instabilities, because absorbing and reducing the profit margins is a fundamental aspect of our business strategy, but raising prices is always a last resort for us.”
http://www.politics.co.uk/issueoftheday/opinion-former-index...
This looks bad.
August 30th, 2007 at 6:37 pm
I am afraid food´s prices will grow a lot because of biofuels. They need the same raw material like food and it is a competition in agriculture. Biofuels are not a good solution for peak oil and instead of that they are making a big harm for markets. The proof is how prices are growing so high in few years, just when Europe bets on biofuels. I think we need another Energy politic more friendly with development.
August 31st, 2007 at 5:14 pm
You say that the impact of biofuels mandates is ‘marginal at most in the EU context’. What about the US, where there is a major drive towards corn-based ethanol that is entirely the result of government mandates? Is your view that this is having a knock-on effect on feed prices throughout the world, or is the effect also marginal? What is your evauation of the net energy and carbon balance of corn-based ethanol? Do you think it’s a good thing that the US is going so decisively in this direction? Is corn-based ethanol a bridge to 2nd generation biofuels (cellulosics) or an expensive cul-de-sac, as some are warning. Is there anything that the EU should be learning from the US experience with biofuels, or that the US should be learning from the EU?
September 3rd, 2007 at 3:13 pm
While I agree that the impact that biofuels have on grain prices is marginal in a normal market situation, what we have at present is definitely not normal. Traditionally, the grain market has reacted to supply/demand influences, but it has been infiltrated over recent months by speculative and hedge fund players who have driven values well beyond the market fundamentals. They have thereby exaggerated the impact of poor harvests (e.g, in Southern Europe) and also the impact of a biofuels industry which is still in its infancy in terms of actual consumption. While next year’s reduction of set aside to 0% will help redress the balance (and hopefully burn some speculators’ fingers), care will be needed to avoid a see-sawing market that will do as much to damage investor confidence in biofuels as has the exponential recent price rise.
September 3rd, 2007 at 5:28 pm
In numbers:: the EC Management Committee for Grain reports the following consumption in Europe for 2006/2007:
58,5 % animal feed
21,7 % food
9,2 % industry
5,6 % intervention
3,8 % seed
1,3 % bioethanol (!)
Marginal indeed. Last not least: bioethanol industry itself is not interested in inflating prices. High raw material prices strongly compromise plant economy the consequence of which is a downturn in production.
September 5th, 2007 at 2:03 pm
I believe it is an important point to make that the debate around food vs. fuel is largely unfounded. The major requirement for grain crops is access to the protein contained within. Bioethanol manufacture actually utilises the starch content of crops only, with the protein turned into a co-product called DDGS. This concentrated form of protein can then be recycled into the food chain, thus ensuring it is not lost and effectively negating the usage of grains for bioethanol.
It’s worth noting that this is on top of the EU’s ability to bring back into productive use substantial areas of set-aside land (the first, helpful signs of which have already materialised), as well as the significant yield improvement potential of many of the newer member states due to further advances in local farming techniques.
Sustainably produced biofuels have the ability to combate climate change, improve Europe’s energy security, stimulate rural economies and all with minimal impact on food supplies. These are critical points that shouldn’t be lost on anyone.
September 5th, 2007 at 4:51 pm
I wonder how the poor in Europe will suffer due to profiteering by multinationals who are using the “excuse” of higher grain prices to push up product prices.
Irish farmers highlighted the fact that the return from a pint (that costs the comsumer €4) to them is 2-3 cent at most. This means that even if the price of grain doubled or tripled in price that the increases being talked about should not be happening.
One of the main things which set Western Europe from the USSR was the fact that people didn’t have to queue for food. I would be a pity if “the market in action” led to those queues coming back. Food has become so cheap relatively speaking that its sourcing has become irrelevant in today’s world. The “market in action” doesn’t allow for a bad harvest in Europe or a drought in Australia.
September 6th, 2007 at 9:56 am
I would think Commission also “needs to put their money where the mouth is” to see more “market in action”. What sense is the import duty on Russian, Kazakhi, Ukrainian (if and when available) grain making now? If US maize is half the price of EU wheat, what sense the de-facto ban of importing (GM-modified) American and Argentinian maize to feed EU pigs making now?
As for bioethanol, this is one of the worst examples when politics is going ahead of science. The fundamental problem is, it is not economical without heavy subisides (in fact, even distracted vale of starch nowadays), not at all ecological (the cost of 1 t CO2 reduction via ethanol from EU wheat abt 500 USD, Commissions’ own number) and provides no energy security whatsoever, for you need lot of gas to make ethanol, and Europe has no gas. Worst of all, in Europe (contrary to Brazil & US) it is mostly energy-negative (i.e., you need higher input into hectar than you get from it): so all fundamentals completely wrong. So why to boost long-term non-competitive industry via heavy subsidies but at the cost of competitive industries? Doesn’t sound much like the “market-friendly” policies.
Otherwise high grain prices without artificial fences are quite ok, because the best cure for high prices are high prices. The world (and Europe) obviously needs more grain. So one should pay for what one needs.
September 7th, 2007 at 4:33 pm
Considering the comments there is a large variety of explanations of food prices and the origin of their recent rise - for the better or worse.
Subsidies are said to disappear, which should be of value for the poor countries who may more easily enter market competition. Hedge Fonds are mentioned as a reason, which gives an entirely different picture, i.e. that the rich are getting richer and, consequently, the poor poorer.
Ethanol production makes people go hungry in Mexico - but statistics say it is responsible for only 1,5% of the money, so who is hungry?
When will the picture become clearer and the information less biased?
Leadership should be combined with responsibility - that is what the EU should provide.
September 11th, 2007 at 11:34 am
Lets put a bit of perspective on this debate we have been suffering from years of cheap food culture. With little benefit to the global environment or consumers.
Food is now cheaper and more affordable than ever while farmgate prices had continued to decline in real terms:
• In the last 20 years food has become 20 per cent cheaper in real terms.
• Sixty years ago the average British family spent more than one-third of its income on food. This has now dropped to less than one-tenth.
• Farmgate prices have continued to decline in real terms – if they had grown during the past 100 years at the same rate as the general cost of living they would be, on average, four times higher than their current levels. For example, the price of wheat per tonne would now be over £600 as opposed to the current price in the region of £150.
Recent increases in commodity prices are a reflection of global demand and supply conditions and represent an opportunity for EU farmers to benefit from a long-awaited and overdue recovery in farmgate prices.
Commodity price increases do not represent the threat to consumers, to the economy or to developing countries that some have been all too keen to depict. And, to the extent that they translate to higher farmgate prices, they will be good news not only for EU farmers but also for the rural economy, as it could mean more resources becoming available for countryside management, more investment in farm infrastructure, and fewer farming families being forced to leave the land.
September 12th, 2007 at 3:45 pm
I’m afraid we are already suffering the raising of prices by supermakets..last week,on Tuesday, for example,milk was 5 cents more expensive than on Monday! what is really going on? 5 cents for milk that, for sure, the had in stock!!!
September 14th, 2007 at 2:26 pm
From time to time we are reminded how central agricultural production is to the stability of Europe. Several years of poor harvest contributed in a major way to civil unrest preceding the French revolution. The UK invented its own CAP when European hostilities ceased in 1814. The 1846 repeal of the 1815 UK Corn Laws makes excellent reading http://en.wikipedia.org/wiki/Corn_Laws.
Europe needs to know when to be protectionist and when interventionist. Right now it (EU Commission) needs to intervene to reduce protection - much sooner than it had imagined. The public urgently needs the repeal of Europe’s Corn & Milk Laws - namely set-aside, questionable science on GM Maize and Co-products, and Milk Quota.
September 14th, 2007 at 2:59 pm
Bread and pasta becoming more expensive? “Qu’ils mangent de la brioche!”
September 20th, 2007 at 6:40 am
It is obvious that EU policy does have direct impact on developing countries like Bangladesh.
I have to buy flour at 25% higher price than last week and soybean oil at 67% higher price than last months. My question is did my farmer friend in Netherlands who produced the corn or the friend in Argentina for soybean received the proportioned increased premium I paid?
September 27th, 2007 at 12:21 pm
Farmers and ranchers from developping countries are the most affected by high prices of feed and food on the international market. most feed is imported from abroad.This problem has been worsen by reduction in consummer revenu.
September 30th, 2007 at 3:48 am
If indeed EU farmers are able to compete in the global marketplace without export assistance from the EU, then I applaud it.
Here in the US milk prices went through the roof. Now we pay an average $3.80 a gallon, compared to $3.29 in January. The Department of Agriculturet forecasts prices will remain high throughout the year. So it looks like dairy farmers have to add more cows or shift production to powders.
Also let us not forget that a boom in biofuels has pushed corn prices up and has made animal feed more expensive.
October 1st, 2007 at 7:50 pm
Hello Mariann Fischer Boel!
When can farmers expect to import US corn even if it is question of GM corn.
Right now livestock farmers struggle with high feedcosts and more cheap corn will help.GM is no danger , just another method to improve plants.
I guarrantee!!!!!!!!!!!!!!!!!!!!
October 14th, 2007 at 8:43 pm
So Dear Bjorn,
You are trying to say that, those who are opposing GM or demanding strict biosafety protocal, they are living in the fools’ world?
October 16th, 2007 at 1:19 am
I simply cannot believe the sheer irony of complaining about rising food prices while simultaneously supporting the CAP. It is the CAP that gives rise to high prices while being at the detriment to consumers in all European countries (and YES, that IS you and ME) and producers in developing countries at the same time. I wonder how long it will take for Mrs Fischer to free herself from the undue influence of lobbyism of (French) farmers. I wish her the best of luck with that. Until then, I remain appalled (as everyone should with a marginal understanding of economics). R
October 16th, 2007 at 1:24 am
and NO, I don’t want to pay “a little more” for EU produce. In fact, I couldn’t care less about anything that is produced agriculturally in the EU. It is for the same reason that I don’t support subsidies of coal mining in Norway - it is archaic to think that we should value agricultural products purely due to the fact that they are European. Do the consumers a favour and get rid of the CAP. Lower prices would ensure. What is the percentage of farmers in the EU? What is the size of the budget attributed to them? I hate the agricultural lobby in the EU, and so should you.
October 22nd, 2007 at 3:03 pm
“Succesfull marketreforms”
Nonsense, there are still tariffs to “protect” us against cheap imports of cheap meat from brasil and subsidized biofuel from the us (so we can pay even more for our own subsidized fuel).
Milkquota’s till 2015. If that is the pace of EU legislation prevents then prices can explode while the Commission has their”let them eat cake moment”. it is disgusting that the interest of a small group of dairy farmers holds the may millions of consumers hostage. For years farmers have been spoiled with subsidies and now were charged both high prices for their products, as well as paying extra taxes to pay for biofuels. The politbureau (ec) is a farmers lobby. A bloody shame
January 11th, 2008 at 11:37 am
Hi, I’m trying to add the option
February 26th, 2008 at 4:50 pm
It never ceases to amaze me how people who sit at the top with enough money to live comfortably, no matter what, can pontificate on matters of food. The fact is food prices are higher and oil prices are higher. This has a direct effect on the poor and the middle class. The old ways are not working. It is time for someone to have the smarts and the courage to say, “Enough already!” You, who have the power to make a difference, please take a stand against poverty and MEAN it.