Food prices expected to stabilise toward end of year

No price hikes in dairy products expected in last months of 2008

print this

The recent steep surge in the price of food in Finland appears to be over for now. No increases are expected in prices of dairy products in connection with the pricing phase which begins in early September.
      However, pork could increase by a few per cent.
      “Marginal increases are coming for baked goods”, says Markku Numminen, CEO of Fazer, Finland’s largest baker.
      Food prices increase in leaps in Finland because the foodstuffs industry and the commercial sector negotiate prices three times a year. In other EU countries, price increases have taken place at a more even pace, and earlier than in Finland.
     
The main reason for recent price hikes has been an increase in the price of grain and in production costs. From May last year to May this year - that is, up to the beginning of the previous pricing period, the rise in the price of food was an average 9.5 per cent. The greatest surge, about 20 per cent, was in the price of milk products.
      The price of pork has gone up by about 7%, processed meats have risen by 6%, chicken breast fillets have increased 5%, and the price of beef tenderloin has risen as much as 28%.
      Some prices have also gone down. A small comparison by Helsingin Sanomat on Wednesday found that the price of marinated chicken strips at stores of the S-Market chain had declined from January.
     
Higher food prices have raised inflation in Finland. In July, the annual inflation rate was 4.4 per cent. Factors in addition to food which contributed to inflation were higher prices in housing and in fuel for vehicles.
      However, pressures for price increases have not gone away, even though the price of raw materials such as grain is expected to decline. “Pressures for price rises are great, because production costs have risen”, says Jari Leija, CEO of the processed food manufacturer HK Ruokatalo.
      Although the price of grain has gone down, and although bumper crops are expected this year in many areas, the time of cheap grain is believed to be over.
     
The price of grain is expected to remain above the long-term average, because of increased meat consumption, especially in Asia, which is leading to an increase in demand for animal feed. Meanwhile, the use of grain-based ethanol in fuel is on the rise, and grain futures are an increasingly interesting investment target. Grain stocks remain low.
      The results of large producers of processed foods, such as Atria and KHS can have gone down during the year. Meat packers have not managed to pass their rapidly-increasing production costs - the rising prices of meat and energy - onto retail prices quickly enough.
      Large meat-producing countries such as Germany and Denmark export pork at lower prices than Finnish producers can.
      Now production in Finland has declined, and prices risen.
      “The situation of meat as a raw material appears to have become demand-driven, and there is no longer any over-production”, says Juha Gröhn, CEO of Atria Finland.
      The changed market situation can raise meat prices already next year.
      In addition to the meat industry, farm profitability is at a low ebb. Meat producers have been hit by higher energy and feed costs. On grain farms, the benefits of higher producer prices were largely swallowed up by higher fertiliser costs.
      According to figures put out by Agrifood Research Finland (MTT), profitability of farms is expected to fall further, in spite of higher producer prices.
      MTT has a formula for a profitability coefficient for farms, which is expected to collapse from last year’s figure. According to MTT assessments, farm income this year amounts to an hourly wage of EUR 4.7 for people living in farm families.
      MTT predicts that the total sum of sales income and agricultural subsidies is growing by three per cent this year, the average total income is EUR 122,600, of which 36 per cent comes from subsidies.


Previously in HS International Edition:
  Higher food prices bring longer breadlines (22.4.2008)
  Price hikes on food spur inflation (15.2.2008)

Helsingin Sanomat