Economist: Stores earning more than producers on rising food costs

Bread in a supermarket in Estonia. Photo is illustrative.
Bread in a supermarket in Estonia. Photo is illustrative. Source: Siim Lõvi/ERR

Despite recent media claims to the contrary, compared with the pre-COVID-19 period, food prices in supermarkets have grown more than agricultural or food industry prices, Bank of Estonia economist Kaspar Oja said Monday.

"This difference is particularly apparent over the past half year, when producer prices have actually fallen in a monthly comparison," Oja said in a published comment.

"Prices in the agricultural sector depend on global market prices, and initially rose alongside the general energy and food price increase more than food industry or consumer prices, but by now they have started to decline," he explained. "Food industry prices are falling as well, however according to June and second quarter data, food prices in stores continued to climb."

The economist noted that in the second quarter of 2023, producer prices were 38 percent higher in the agricultural sector and 35 percent higher in the food industry sector than in 2019, but consumer food prices, meanwhile, had gone up a full 47 percent.

Did Lidl arrival have opposite effect on prices?

"One significant change we've seen in the retail sector in recent years is the arrival of Lidl," Oja said. "The addition of a discount chain should increase competition and drive prices down.

He nonetheless believes its arrival on the market has actually had the opposite effect in Estonia.

"Apparently existing market players' market shares have been reduced because of Lidl, and that impacts [their] economic results," the central bank economist said. "Poorer economic results, however, have often publicly been used as an argument for increasing prices."

Such a mechanism relies on retail chains commanding significant market power in Estonia, and that people remain loyal to their preferred store, which allows stores to be able to increase prices, he added.

Last week, investigative weekly Eesti Ekspress reported that food prices on the global market have been falling for more than a year already, however they continue to rise in Estonia, noting that it wasn't retail chains, but rather farmers in Estonia that have been raking in profits.

The paper cited as an example one Estonian family who earned a bigger profit farming last year than even Coop, Estonia's biggest grocery chain.

"The Villers family-owned Laheotsa Farm in the Harju County village of Padise sold nearly €8 million in potatoes, root vegetables, vegetables, rapeseed and grains (as well as a little electricity and forest)," Eesti Ekspress wrote. "The farm earned a net profit of nearly €6.2 million on this."


Follow ERR News on Facebook and Twitter and never miss an update!

Editor: Aili Vahtla

Hea lugeja, näeme et kasutate vanemat brauseri versiooni või vähelevinud brauserit.

Parema ja terviklikuma kasutajakogemuse tagamiseks soovitame alla laadida uusim versioon mõnest meie toetatud brauserist: