Economic slowdown expected to keep food prices down

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The surge in the price of food that took place last year is not expected to be repeated this year, even though some foodstuffs did go up in price at the beginning of the year.
      Many foodstuffs items rose sharply in price in Finland and many other countries last year. Milk went up by about 25 per cent, and wheat flour, for instance, rose by a full 44 per cent. However, there was some decline during the autumn.
      Jussi Tolvanen, director of product management at the retail chain Suomen lähikauppa, says that imports such as pasta and rice have gone down in price from last autumn, as world market prices have declined.
      However, there are more pressures for higher prices in meats and baked goods than in dairy products, says Perttu Pyykönen, head of research at the Pellervo Economic Research Institute.
     
At the SOK group of cooperative stores, Risto Pyykönen, manager of acquisitions, notes that price levels for the spring remain unknown.
      Pyykönen expects that price increases in perishable goods for the S Group could amount to about half of the increase in consumer purchasing power.
      According to calculations published by the Taxpayers’ Association of Finland on Monday, purchasing power by employed wage earners will grow this year at a record rate of 4.6 per cent, thanks to pay hikes, tax cuts, and lower inflation.
     
No store chains are giving out precise price information. The foodstuffs industry has spoken openly about pressures to raise prices as much as 12 per cent, but hardly anyone expects such high price rises in the current economic climate.
      So far, breweries have raised the prices of beers, brewed long drinks, and ciders by about ten per cent, but much of the rise is based on the increase in the tax on alcohol.
      Prices of fruits and vegetables have actually declined because of good crops last year. Tomatoes went down in price by about four per cent last year.
      Pyykönen of SOK says that last year was unique. “We will see nothing like it this year, and not all prices will change even now. When we have 13,000 articles of perishable goods in a store, we don’t go through them all.”
     
Last year’s consumer prices rises both in Finland and elsewhere were attributed to higher energy costs, processed foods, and services.
      In addition to more expensive energy, reasons for the rise in food prices included poor crops in most areas of the world, and increasing prices of fertiliser and transport, decreased overproduction, and the use of maize, vegetable oil, soya and wheat as raw materials for fuel, and the increased consumption of meat and dairy products in developing countries.
      Food commodities were also targets of investor speculation.
      The scheduling of negotiations between store chains and suppliers has evened out price fluctuations in both directions. While prices began to surge already in the early part of 2008 in many other countries, this did not happen in Finland until the late summer. “The Finnish consumer makes money there”, says SOK’s Pyykönen.
     
Prices and assortments are traditionally altered in January, May, and September, but in the past couple of years, price negotiations between the food industry and the merchants have become more frequent.
      Whereas previously, the price of milk was set once a year, now price talks occur every four months.
      There has been a differing pace in price negotiations for different groups of products. However, with fruits and vegetables, prices can fluctuate on a daily basis.
      The German-based chain Lidl says that it holds its negotiations separate from the Finnish practice both with foreign and domestic suppliers.
      Pricing decisions are always made for each individual product, and the prevailing competitive situation and world market prices determine the price of the product, says managing director Antti Tiitola.


Previously in HS International Edition:
  PTT predicts more increases in food prices in the New Year (13.11.2008)
  Research institute predicts that upward pressure on food prices will lessen in 2009 (4.4.2008)

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