Food prices may rise by over 10% this year in Europe, according to Allianz Trade analyzes.
“Judging by the high inflation episodes so far and the current market environment, we believe that retail food prices will reflect at least 75% of the current food producer price increase, bringing food inflation in Europe and all major European countries slightly below or above in 2022. According to the World Bank’s forecast for agricultural commodity prices, retail food prices will reach equilibrium or begin to decline in early 2023, the study reads.
“However, the risk is clearly in the upside at the end of 2022. Particularly large food exporters, who are imposing permanent restrictions on international trade, could fuel another round of price increases at all levels, from commodity prices to retail prices,” it indicated.
It has been pointed out that firms tend not to fully reflect the higher cost of purchasing food products in their prices in the short term in order to maintain their market share and optimize costs further down in the income statement.
“Compared to the previous periods of high inflation, we expect retailers to pass the price increases to consumers to a greater extent this time, as, among other things, retailers’ incentives to maintain sales volumes at lower prices appear to be less strong than in the past,” its analysis stated.
Food retailers are emerging from two years of operational challenges that have proven to be very beneficial for both sales and profits. Retail food sales in Q1 2022 were still + 10% higher than 2019 levels, and profits for more than two years are exceptionally high.
The analysis showed that current retail prices largely do not reflect higher food prices and are only halfway to offsetting higher food producer prices.
The companies also mentioned that current prices do not yet reflect the impact of the war in Ukraine and that inflation is not only due to higher food production costs but also to rising costs of transport, labor and packaging. A recent survey among European food and drink companies led to similar conclusions – the overwhelming majority of respondents expect prices to rise further in the next three months, the report reads.
Allianz Trade is a world leader in trade credit insurance and a recognized specialist in the areas of insurance guarantees, debt collection, structured trade credit and political risk.
Source: Allianz Trade and ISBnews
