Europe politicians cap prices to tackle rising food prices

Europe’s retailers and governments have been locked in their fiercest tussle over the cost of food for 50 years, with policymakers resorting to price controls to tackle the worst cost of living crisis for a generation.

Despite lower energy prices easing overall price pressures, food costs have continued to rise, prompting increasingly unorthodox market interventions from politicians trying to calm public anger.

According to Eurostat, food prices in the European Union rose 16.6 percent in the year to April, much higher than the headline inflation rate of 8.1 percent. Some of the biggest jumps have been in the price of staples, with the price of eggs increasing by 22.7 percent, whole milk by 25 percent and sugar by 54.9 percent during this period.

“We haven’t had price controls in the usual pattern in the Western world since the 1970s,” said Lars Jonung, a Swedish economist and expert on the controversial cap.

Central and Eastern European states hardest hit by rising prices, such as Hungary and Croatia, have moved to reduce the cost of essential goods to protect the most vulnerable, who spend much of their income on food. .

Nora, a 32-year-old mother of three in Budapest, said it was “good” that price controls had made products such as whole milk cheaper. But she noted that supermarkets have started to limit purchases, meaning she has to visit multiple stores or shop every day to take advantage.

Greece has taken an alternative approach to capping prices by limiting retailers’ profit margins on food and other essential goods.

Among rich economies, France has negotiated a looser agreement with supermarkets to offer a selection of items at the lowest possible prices. Spain is one of several countries to cut value-added tax on food. Others, such as Italy, are coming under pressure to reduce the price of beloved foods such as pasta.

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A sharp fall in farm commodity prices in the last one year has put pressure on retailers to increase prices. The United Nations’ food price index was down 19.7 percent in April compared to the same month last year.

“While some price increases may be justified, there is a growing suspicion that there are other opportunistic excuses by businesses to raise prices,” said Monique Goines, director general of the Bureau Europee des Unions de Consumers. Continent, who called on governments to “adopt stronger measures to protect consumers against rising prices”.

Belgian consumer protection organization Test Achts has called for measures similar to France’s original anti-inflationary basket proposal, which turned out to be tougher than Paris was able to implement. Austria’s Chamber of Labor body, AK, has also called for “price regulation” of food items.

However, retailers say they are not to blame and that capped goods are taking a hit, far from increasing prices.

Kodály Delikatessen, a small supermarket in Pécs, southern Hungary, has grouped the capped products under a sign that warns customers against buying “the dictatorship’s products”, saying that the wholesale price of some items is higher than the capped retail price. was more than

Delikatessen said: “Regulation forces us to sell at a loss!”

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Big businesses operating in Hungary – such as Lidl, Spar and French retailer Auchan – have made similar claims.

A representative of an international retailer said, “If you are buying sugar, you are paying 500 forints (€1.35) per kilo and you have to sell it for 300 forints (€0.85).” “You end up making a negative margin for every unit sold, which is completely absurd in a sector like retail that is characterized by high volume and low margins.”

While the measures have been successful in keeping a lid on the cost of essential goods, economists believe they are a poor solution to high food prices.

A World Bank report on Thursday called on European governments to provide “targeted policy interventions and social safety nets” to support those hit by the cost of living crisis. However the multilateral lender stressed that price controls and subsidies “were short of adoption because they distort price signals to consumers and producers.”

At a parliamentary hearing in December, György Matolsky, the governor of Hungary’s central bank, went ahead. “You can’t win this battle with old tools,” he said. “Price caps and all similar ideas proved ineffective already during socialism.”

“You can narrow down to one type of milk, but there are dozens of types in the inflationary basket,” said Petar Wirowacz, an analyst at ING Bank.

But struggles faced by shopkeepers with the rising cost of their weekly shop mean economists fear politicians will continue to resort to price caps, regardless of their effectiveness.

“As a means of reducing inflation, price controls do not work,” Jonung said. “But they are addictive and it’s hard to kick the habit.”

Additional reporting by Leila Abboud in Paris

Europe’s retailers and governments have been locked in their fiercest tussle over the cost of food for 50 years, with policymakers resorting to price controls to tackle the worst cost of living crisis for a generation.

Despite lower energy prices easing overall price pressures, food costs have continued to rise, prompting increasingly unorthodox market interventions from politicians trying to calm public anger.

According to Eurostat, food prices in the European Union rose 16.6 percent in the year to April, much higher than the headline inflation rate of 8.1 percent. Some of the biggest jumps have been in the price of staples, with the price of eggs increasing by 22.7 percent, whole milk by 25 percent and sugar by 54.9 percent during this period.

“We haven’t had price controls in the usual pattern in the Western world since the 1970s,” said Lars Jonung, a Swedish economist and expert on the controversial cap.

Central and Eastern European states hardest hit by rising prices, such as Hungary and Croatia, have moved to reduce the cost of essential goods to protect the most vulnerable, who spend much of their income on food. .

Nora, a 32-year-old mother of three in Budapest, said it was “good” that price controls had made products such as whole milk cheaper. But she noted that supermarkets have started to limit purchases, meaning she has to visit multiple stores or shop every day to take advantage.

Greece has taken an alternative approach to capping prices by limiting retailers’ profit margins on food and other essential goods.

Among rich economies, France has negotiated a looser agreement with supermarkets to offer a selection of items at the lowest possible prices. Spain is one of several countries to cut value-added tax on food. Others, such as Italy, are coming under pressure to reduce the price of beloved foods such as pasta.

You are viewing a snapshot of an interactive graphic. This is probably due to being offline or JavaScript is disabled in your browser.

A sharp fall in farm commodity prices in the last one year has put pressure on retailers to increase prices. The United Nations’ food price index was down 19.7 percent in April compared to the same month last year.

“While some price increases may be justified, there is a growing suspicion that there are other opportunistic excuses by businesses to raise prices,” said Monique Goines, director general of the Bureau Europee des Unions de Consumers. Continent, who called on governments to “adopt stronger measures to protect consumers against rising prices”.

Belgian consumer protection organization Test Achts has called for measures similar to France’s original anti-inflationary basket proposal, which turned out to be tougher than Paris was able to implement. Austria’s Chamber of Labor body, AK, has also called for “price regulation” of food items.

However, retailers say they are not to blame and that capped goods are taking a hit, far from increasing prices.

Kodály Delikatessen, a small supermarket in Pécs, southern Hungary, has grouped the capped products under a sign that warns customers against buying “the dictatorship’s products”, saying that the wholesale price of some items is higher than the capped retail price. was more than

Delikatessen said: “Regulation forces us to sell at a loss!”

You are viewing a snapshot of an interactive graphic. This is probably due to being offline or JavaScript is disabled in your browser.

Big businesses operating in Hungary – such as Lidl, Spar and French retailer Auchan – have made similar claims.

A representative of an international retailer said, “If you are buying sugar, you are paying 500 forints (€1.35) per kilo and you have to sell it for 300 forints (€0.85).” “You end up making a negative margin for every unit sold, which is completely absurd in a sector like retail that is characterized by high volume and low margins.”

While the measures have been successful in keeping a lid on the cost of essential goods, economists believe they are a poor solution to high food prices.

A World Bank report on Thursday called on European governments to provide “targeted policy interventions and social safety nets” to support those hit by the cost of living crisis. However the multilateral lender stressed that price controls and subsidies “were short of adoption because they distort price signals to consumers and producers.”

At a parliamentary hearing in December, György Matolsky, the governor of Hungary’s central bank, went ahead. “You can’t win this battle with old tools,” he said. “Price caps and all similar ideas proved ineffective already during socialism.”

“You can narrow down to one type of milk, but there are dozens of types in the inflationary basket,” said Petar Wirowacz, an analyst at ING Bank.

But struggles faced by shopkeepers with the rising cost of their weekly shop mean economists fear politicians will continue to resort to price caps, regardless of their effectiveness.

“As a means of reducing inflation, price controls do not work,” Jonung said. “But they are addictive and it’s hard to kick the habit.”

Additional reporting by Leila Abboud in Paris