Posted by: Dirk | March 30, 2011

Food prices in the EU

The new tool on food prices by Eurostat (link) lets you compare the changes in the price of food in the EU. I boiled the data down to January (monthly data is available) and a selection of countries: Germany, France and the infamous PIIGS.

What I would expect from the European debt crisis, in which some countries borrowed heavily from abroad and sinking the funds into consumption, mainly real estate, to result is falling food prices in the periphery and rising food prices in the core relative to the other group.

This prediction is good for Spain Ireland and Portugal, which come in last. Then follows France and Germany, which is a bit puzzling. Also, the EU average is above all the national values depicted in the above graph. What is missing here, of course, is quantities. In an ideal common market, with no or negligible transport costs, prices should be equalized over all EU countries and move in tandem. Since transport costs are significant and the goods can turn bad, the data will not fit this description.

Food prices have historically been very low in Germany, especially compared to France where consumers pay a hefty mark-up. This is mostly due to culture. Where Germans of all colors are not afraid to do their shopping in discounters like ALDI and LIDL, the French consider buying food a cultural act and are therefore more willing to pay higher prices. The ALDI chain has defended itself against an attack by Wal-Mart, which moved to Germany some years back and found out it could not compete. Now ALDI is speeding up its expansion in the US, where a shrinking middle class seems ready to shift its expenditure from brand name to no- or whatever-name articles. Although spending on food is only a small part of total household expenditure, it normally defines ‘felt inflation’. As food price inflation is expected, it could be dampened by a change in consumer behavior.

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