Global food prices are increasing, but what does this mean for Irish consumers?

THE PROBLEM OF rising food prices is having a global impact thanks to a heady cocktail of climate change, poor growing conditions in major cereal-producing countries, oil prices reaching record highs, and greater affluence in parts of Asia.

The FAO Food Price Index measures the monthly change in international prices of a basket of food commodities; its August report shows a 6 per cent jump on July.

That’s not the worst of it. It breaks down food by category, and it found that its Cereal Price Index was 17 per cent higher in July than in June, and only 6 per cent below its all-time high in April 2008.

At that time, spiralling prices saw tensions boil over into violence in Haiti, Bangladesh and Egypt, with the World Bank and the IMF issuing dire warnings about the impact food inflation would have on at least 33 other countries in the developing world.

The situation settled as prices fell, but fears that such scenes will be repeated this autumn has led France, the US and G20 president Mexico discussing whether an emergency international meeting is needed. Even if such a crisis meeting takes place, few experts are anticipating much will get done.

“Beyond words, expect little from the G20 on rising food prices,” Simon Evenett, a former World Bank official and current professor of international trade and economic development at the University of St Gallen in Switzerland, warned this week. He accused the G20 of making “a string of broken promises on protectionism, no serious enforcement, monitoring well after the horse has bolted, and a tendency to pull their punches”.

Drought is a big problem in the US this summer, but how the country uses its corn is exacerbating the situation. The US uses 40 per cent of its corn crop to produce ethanol; earlier this month the UN’s food programme called on the US to overhaul its biofuel policies because it says it is more important to grow crops for food rather than fuel.

But what about Ireland? There have been warnings that grain-price increases on international markets will see the cost of poultry, meat and dairy products soar in the months ahead, while tea prices are also under pressure thanks to poor harvests in Kenya.

But should rising commodity prices have a dramatic impact on food prices here? The short answer is no. Grain prices may be up 17 per cent but that does not mean the price of bread will increase by 17 per cent because grain makes up only a fraction of the cost of the product to the consumer.

The Republic has long been an expensive place to eat. According to a recent Eurostat survey, food and drink prices are now 18 per cent dearer than the EU average, and the Republic is the fifth-highest-priced country in the EU for food and non-alcoholic beverages.

While that may seem like bad news, it used to be much worse. In 2010 a similar study found that the Republic had the second-highest prices for food and non-alcoholic drinks in the EU, and prices here were nearly 30 per cent higher than the EU average.

Why this is the case is difficult to say because when it comes to food prices in the Republic, there is a chronic lack of transparency. The big retailers refuse to reveal their profit margins here because they say the information is commercially sensitive.

This information is not so sensitive in the UK; Tesco and Marks Spencer disclose their profit margins there.

Considerably higher margins here may explain why some people in the international retail game have dubbed the Republic “Treasure Island”.

With all this talk of prices increasing worldwide, what is happening on Irish supermarket shelves? In March 2006 an 800g white sliced pan from Irish Pride cost €1.66 in your local Tesco. In the middle of 2008, the same pan would have set you back €2.15, an increase of 49 cent. Today, that bread is selling in the same retailer for €1.58.

In 2008, a litre of Avonmore Supermilk cost €1.44, which is exactly what it costs today. A year ago, 80 Lyons teabags cost €3.19; this year, it’s the same price.

Daniel Drum (right) is a dairy farmer in Co Westmeath. He is getting the same for his milk today as his father was getting in the 1980s, and in recent months he has seen prices of feed and fuel go through the roof.

“Soya-bean-based feed is what we use for the dairy cows and for beef. This time last year a tonne cost €250. This year I am paying close to €600 a tonne,” he says. A cow might eat around 2.5kg a day so will get through close to a tonne each year.

Three years ago he was paying €90 a tonne for combine-harvested grain feeds. Today it is costing €180. “While costs are increasing, prices are static as big retailers and co-ops put pressure on us. We get around 32 cent for each litre of milk we produce. To earn that we have to breed the cow, rear it, feed it and house it. We put a whole lot more time and money into it than the processors and are not getting the returns.”

Last year was good for Drum, as it was for most Irish farmers, but the money made went towards clearing overdrafts built up in 2009. “Most of our winter feed is gone already because of the weather and we have had to house the animals for much of the summer. This year is going to be as bad as 2009. If farmers were public servants, the country would be closed because we would spend all our time on strike.”