What's the story with rising food prices?
THE SPIRALLING PRICE of food has been big news in recent weeks, with simmering tensions boiling over into lethal violence in Haiti, Egypt and the World Bank and the IMF issuing dire warnings about the impact the current food inflation will have on at least 33 other countries in the developing world.
The problem of rising food prices is being felt the world over. Global warming, poor growing conditions in major cereal-producing countries, oil reaching record highs and greater affluence in parts of Asia have all combined to create this perfect storm which has put enormous pressure on food prices over the last 12 months.
Unsurprisingly, Ireland has not been immune to the price hikes, and while a year ago people here thought they were paying over the odds for groceries, it is now clear the worst was yet to come. This month's figures from the Central Statistics Office showed inflation hitting 5 per cent and the rate of food inflation at 0.9 per cent or an annual rate of close to 10 per cent.
While high, these figures don't fully reflect the impact rising prices have had on certain products. According to the Consumer Price Index, bread is up by around 23 per cent, flour 40 per cent; the cost of milk is approximately 30 per cent higher and eggs, butter and biscuits - things commonly found in Irish shopping baskets - are also significantly dearer.
BUT FORGET ABOUTpercentages, let's talk in euros. In March 2006 an 800g sliced pan from Irish Pride cost €1.66 in your local Tesco. Today, the same pan will set you back €2.15, an increase of 49 cent. Two years ago a litre of Avonmore Supermilk in the same store was €1.08 while today it costs €1.44. Over the course of next year, the average family which goes through three sliced pans and 15 litres of milk a week can expect to pay over €350 more than it spent in 2006 on these two staples alone.
The almost comical thing about the current round of price hikes is that many of the products which have seen the most significant jumps are the very ones which we were told would come tumbling down in the wake of the abolition of the Groceries Order in 2006.
"I think it is only to be expected that many people are suspicious about the causes given for some of the price rises and can hardly be blamed for wondering if they are really associated with higher prices on the global food markets or just another example of retailers taking advantage of a situation for their own benefit," says Dermott Jewell of the Consumer Association of Ireland.
"It's not as if we have any price transparency in this country and I wonder if we have been conditioned to accept these price increases and are expected to just accept whatever hikes come our way?
"Because of the increase in grain prices on world markets we have seen everything from bread and milk to butter and biscuits increase by something like 30 or 40 per cent. This is ludicrous," claims Jewell.
"Undoubtedly some of the price increases are legitimate and I completely understand them, but the levels of increase does invite a certain scepticism," he says.
One question some Irish sceptics have been asking is, how could the high cost of animal feed in the US or Australia have such a serious knock-on effect on the price of milk from grass-fed Irish cows? There is an easy explanation. Some 10 per cent of Ireland's milk goes into the liquid milk market, while the rest is used to make powdered products, cheeses and other manufactured products. The vast majority of the non-liquid milk products are then exported.
"There is a huge and growing demand for dairy products, in particular in China and in India," Paul Kelly, director of Food and Drink Ireland, says. "The exported dairy products are achieving the prices being set on the global markets."
Dairy farmers preparing products for the liquid milk market at home are not likely to accept lower prices than those selling milk for export, so prices across the board have increased. When it comes to cereal products, "a lot of Irish cereal farmers look for the best available prices and if they are not getting them at home they will export," explains Kelly.
"The raw materials have a major part to play, but then there are the general costs of running a business which have also increased significantly.
"Up until very recently and over the last six years, food inflation in Ireland was averaging 1 per cent and over that time there was a lot of absorption of costs reflecting greater efficiencies."
ANOTHER QUESTION MANYwant answered is why the price of bread has increased so sharply when flour is, in fact, such a small part of the end product.
"You can certainly argue that not only is food getting more expensive but so is the energy used to produce it, but, having said that, I would not expect price rises to be one for one, so if wheat rises by 40 per cent I would not expect to see the price of bread rise by the same amount," says Prof Alan Matthews, the Jean Monnet professor of European Agricultural Policy in Trinity College's department of economics. "If that was the case it would certainly suggest some profit-taking."
Prof Matthews says he has been listening to dire predictions about food prices since the 1970s, and so far they have proved to be "complete nonsense", but what has fundamentally changed this time round, he says, is "the link between food prices and the energy market".
Not only does the link push up the cost of food but it also ensures that if the price of wheat falls below a certain level, then it becomes more economical to grow it to produce fuel and not food, a factor which looks set to ensure that food prices are unlikely to fall either here or elsewhere for some time to come.
