The situation in the food production sector is critical. The reason is because growth is observed on all positions of expenditures. This means food price increase is unavoidable. Food price rise has been observed over a long period of time. Prices will continue increasing, according to Latvian Federation of Food Companies (LPUF).
Price rise is particularly rapid for certain groups of products. Generally, however, price rise is gradual and is expected to vary depending on product groups. The reason is because there are many factors that affect the process.
Prices have increased for raw materials over the course of the year. However, the current situation on the raw materials market indicates very rapid growth around the world. Since the start of year procurement prices have increased for nearly all raw materials.
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«Producers have performed investments into raising energy efficiency to reduce the influence of electricity price changes. Nevertheless, increase is still observed on all expenditure positions. While in other years we observed price increase only for some food and beverage production sectors, now this situation is present for all sectors – dairy, meat, fruit and vegetable, confectioneries and snacks, bread, fish and beverage production sectors,» stresses LPUF council chairman Ināra Šure.
The growth of food product prices can be explained with poor harvests caused by this year’s summer months and the Covid-19 pandemic.
There are producers that have signed supply contracts with suppliers. However, they are unable to guarantee anything to our producers, because the challenge is not limited to just prices of raw materials. There is also the deficit of materials, which generates a rapid growth of demand around the world.
Food producers are in a difficult situation because prices are on a rise for not just raw materials but also packaging and energy resources. Gas and electricity price rise is one of the biggest ones observed in the last several years. This creates pressure on costs, because energy resources are one of the biggest cost components when it comes to production. All this is further impacted by transport complications due to restrictions imposed by countries to halt the pandemic.
The issue of shortage of labourers is also topical. This further escalates the already tense situation. Wages in food production have increased by an average of 6%. The shortage of working hands causes additional pressure on employers when it comes to employee retention and attraction of new ones.
Prices of goods are composed of multiple components. If one component increases, the price follows.
«Food price rise could be slowed by different electricity supply contracts, different pricing policy based on how large energy consumption is in specific food production sectors. For example, bread and canned fish production are some of the more energy demanding sectors. Bakers predict the price rise may increase for all bread and baked food products 10% in the next couple of months,» explains Šure.
The UN Food and Agriculture Organization’s food price index shows that food prices around the world have suffered the most rapid increase in the last decade.
Price rise was observed for 10 out of 12 months of the last year.
LPUF: growth of food prices will continue in Latvia
