Although bread prices have risen by 2.9% over the year, this does not cover the sharp rise in production costs. In November, the price of gas had risen by 301% over the year, while electricity costs had risen by 54%. Bakers have warned that rising prices have forced them to raise the prices of finished products. Farmers have already expressed concern that rye bread would be available only to the rich.
Photo: Timur Subhankulov
Sandra Dieziņa, “Latvijas Avīze”, JSC “Latvijas Mediji”
World food prices rose by an average of 28% last year, the highest level in a decade, according to the Food and Agriculture Organization (FAO). The FAO points out that its food price index in 2021 reached 125.7 points.
–
The news
“We are facing very serious events.” MP on what awaits us this year
10 hours
–
Cocktail
Is it true that a number of natural disasters are expected this year? Answered by a certified astrologer
17 hours
–
The news
“Would you be willing to wait four months for your salary?” The head of the SRS is responsible for the entrepreneur’s accusations about the delay in the payment of support
1 day
–
The organization explains that prices rose last year in all food categories due to strong demand. According to statistical data, the rapid rise in food prices in Latvia, which started in the second half of last year, is still continuing.
Vegetable oil prices rose the most in the world, rising by an average of 66% last year, to an all-time high, and grain prices rising by 27% since 2012. Meanwhile, meat prices rose by an average of 12.7% and dairy prices by 16.9%.
What are the reasons for this increase? This is clearly a set of conditions. One of the main reasons was the increase in production costs, which was driven by rising electricity and gas prices. Logistics services and packaging also became more expensive and supply chain disruptions were observed.
The High Voltage Network has just published data on electricity prices, and the facts are indisputable. In the electricity trading area of Latvia in 2021, the average electricity price was 88.78 euros per megawatt hour (Mwh), which is 2.6 times higher than the average price in 2020.
In December alone, the average electricity price in Latvia reached 207.4 euros per MWh, which is 65.4% higher than the previous month’s record and five times higher than in December a year earlier. It is clear that this is having an impact on both household bills and industrial consumers, including food producers.
Still going on
Vegetable oil prices rose the most in the world, rising by an average of 66% last year, reaching an all-time high. Oil has also become more expensive in Latvia.
Photo: Dainis Bušmanis
What is happening in Latvia with food prices? According to statistics, the sharp rise in prices that began in the second half of last year is still going on. Data from the Central Statistical Bureau (CSB) show that inflation in Latvia in November was higher than the EU average – 7.4% vs. 5.2%, respectively.
The fastest year-on-year growth in consumer prices was for potatoes – by 50.2%, vegetable oils – by 33.3%, yoghurt – by 22.1%, fresh vegetables – by 11.1%, eggs – by 8.7%. by 6.9%. In turn, a decrease was observed for pork – by 5.7%, juices – by 5.3%. These are only November data, but it is clear that inflation continues to rise.
Inguna Gulbe, the head of the Agricultural Market Promotion Center (LTVC), admits that food prices in Latvia are slower than in world prices. “The rise in prices is not as great as in the world, but it is expected to continue. The main reasons are the increase in the cost of resources, logistics costs and rising packaging prices. Oil, grain and sugar prices were already rising sharply at the beginning of last year. These raw materials are used in the production of meat, eggs, dairy and other products, and this pushes up prices, ”explains Gulbe.
It is true that the price of pork has been inadequately low for a whole year, because the market is overproduced and the market balance is upset. The losses of farmers are measured in several tens of euros per pig, so it is only natural that the industry is asking for state support. The price of pork is expected to rise in the future due to higher production costs. Time will tell if this will happen.
In November, the price of gas for some bakers increased by 301% compared to November of the previous year, while the cost of electricity increased by one and a half times. Bakers have warned that rising prices have forced them to raise prices for finished products, but this is not always possible. Last year, dairy farmers also increased the prices of their products – on average by 10%, but resource prices have grown faster, so it is likely that prices will continue to rise this year as well.
Costs need to be reviewed
What to do in a situation where household spending is growing by days rather than months? One option would be to freeze electricity prices – such a proposal has been submitted to the Saeima by the Greens and Farmers Union. This means developing a mechanism whereby, if the average monthly wholesale price for electricity exceeds € 80 per megawatt hour, every consumer of electricity, both households and businesses, will be compensated.
It should be recalled that in mid-December the government coalition was unable to agree on the application of a reduced VAT rate to electricity and gas, but an agreement was reached to reduce the tariff for electricity distribution services. Although this tariff will be reduced by 50%, it will give the food industry a 5-7% reduction in the bill, but the increase is in the hundreds of thousands, the industry has already warned. In addition, costs have also risen in other items – raw materials, labor, logistics and fuel.
In order to address the increase in electricity prices, the payment of the mandatory procurement component (OIK) on electricity bills has already been reduced by 57%, a benefit of 20 euros has been introduced for seniors over 60 years of age vaccinated in winter, and financial support for protected user groups has been increased. However, this will be a small support against the background of rapidly rising costs.
The head of LTVC believes that the VAT rate on food should be reduced to ensure its availability to consumers. Currently, only fruit and vegetables have a reduced VAT rate of 5%, while most foods are still subject to a 21% rate. “There is no other way to develop and promote entrepreneurship than to destroy it. Small entrepreneurs are significantly affected by the tax reform, which should definitely be reviewed, ”says Gulbe. The costs of the administrations of large state monopolies, which are often inadequately high, should also be reduced.
Rising prices are just one of the challenges facing the food industry. In the coming years, farmers will have to introduce various new technologies in order to implement the Green Course, and it is already clear that they will have to think about how to work efficiently and in an environmentally friendly way. In addition, it should be borne in mind that the introduction of Green Exchange rate conditions will not lead to lower prices, but rather the opposite process. “It simply came to our notice then. The industry faces many new challenges. Changing trends, including the avoidance of animal products, veganism and vegetarianism will also affect the product portfolio of companies, ”adds the industry expert.
Themes
–
