The food industry and the mass consumption sector already talk about the price crisis as something of the past. In fact, the big players in the sector predict that in the coming months the economy will enter a scenario where food inflation will be negative. That is, they anticipate a drop in prices that would have to be reflected in the shopping basket in the coming months. The reason is that there are basic elements, such as olive oil, that have to begin to weaken because the harvests are good.
Beyond perceptions, the latest official data places food inflation in Spain at 1.8%, at the end of September. It is the lowest figure in the last three years.
Within that percentage are products that have already reduced their price. For example, breakfast cereals (-1.6%), pasta and couscous (-0.7%) or fruits (-3.4%). Also olive oil, which became cheaper by 2.9% in September.
‘Liquid gold’ has been the element that has made the shopping basket most expensive in recent months, because its cost has risen by almost 300% in three years. Now there are factors pushing its price in opposite directions. On the one hand, there is the VAT increase on October 1, from 0% to 2%, which was applied to other basic products such as milk, bread or eggs. The VAT on vegetables was also increased, as well as that on pasta. The latter rose from 5% to 7.5%.
However, the sector – manufacturers and distributors – has repeated in recent days that food prices are going to decline, led by oil. Regarding when this basic product will drop and how it will be noticeable when paying, there is no consensus. It will depend on a harvest that is now beginning and that is expected to be significantly good, although there is also a marketing sector that has its warehouses empty, after dragging on for two years with the worst production in a century, and that could take advantage of it to fill them and not take to the market. all the olive oil that will be produced in the coming months.
The key factor of climate
If there is a price drop it would have to be seen, depending on the sector, before the Christmas campaign. However, there are international raw materials that can ruin that aspiration. The FAO, the Food and Agriculture Organization of the United Nations, updates each month a food price index of essential raw materials, such as cereals or dairy products. This index rose 3% during the month of September. It was “the largest month-on-month increase since March 2022,” he highlights, just after Russia’s invasion of Ukraine.
The FAO breaks down that the prices of all the basic foods it analyzes strengthened, with increases ranging from 0.4% for meat to 10.4% for sugar. “Compared to historical levels, the September food price index was 2.1% higher than a year ago.” However, on the positive side, it is 22% below the levels that were reached in spring 2022.
This United Nations organization points, among others, to cereals, which became more expensive by more than 3% in the last month. In the case of corn, the increase was due to low water levels in key regions for this product, such as the Madeira River (Brazil) or the Mississippi (United States), which add to strong demand in the Brazilian markets. and Argentine. And, although we are paying attention to olive oil here, other varieties such as palm oil, soybean oil, sunflower oil or rapeseed oil are increasing (on average, just over 4%), because production has been lower than normal. both in Asia and America.
The US agency Bloomberg also publishes an index focused on basic products, such as soybeans and corn, which rose 7% in September. An increase that has not been seen for two years. Behind, again, the falls in production, either due to the drought or due to the floods, which have affected products such as sugar, cocoa or coffee.
Some time ago, sugar became one of the raw materials that has hit the cost of the shopping basket the most, as we discussed in this topic. The problem now is the drop in production in one of the main markets, Brazil, due to the lack of rain in recent months. On the other hand, in India, which is also a producer, the opposite has happened, an excess of rainfall that has also damaged crops.
On the other hand, cocoa is beginning to give some good signs. The raw material for chocolate has been pushing up costs for months due to the fall in harvests in the Ivory Coast, which together with Ghana are the main producers of this raw material. In fact, in recent weeks, the price of chocolates and candy has made headlines in the United States – for example, in the Washington Post – because this year Halloween candy is going to be much more expensive. However, in recent days the price of this raw material has begun to take a break because it seems that demand in Europe and the United States is not as high as expected.
The same does not happen with coffee, which increased its cost by 8.4% in September, compared to August; and almost 70% compared to a year ago, according to data published by the World Coffee Organization (ICO). The reason, again, is the fall in harvests in key markets, such as Brazil or Colombia, and also an increase in demand in the main consumer markets. Furthermore, in that month, trade in this product was interrupted by the dockers’ strike in the United States, which ended at the beginning of October.
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