European politicians impose price caps to deal with rising food prices

European retailers and governments are embroiled in the fiercest battle over food prices in 50 years, with policy makers turning to price controls to combat the worst cost-of-living crisis in a generation.

Despite lower energy prices easing overall price pressures, food prices have continued to rise and unconventional market interventions by politicians are increasing to quell public anger.

Food prices in the EU rose 16.6% in the year to April, well above headline inflation of 8.1%, according to Eurostat. Some of the biggest jumps have been in staple food prices, with egg prices up 22.7%, whole milk 25% and sugar 54.9% over the period.

“We haven’t had the usual pattern of price controls in the West since the 1970s,” said Lars Jonung, a Swedish economist and expert on the controversial ceiling.

Central and Eastern European countries hardest hit by price hikes, such as Hungary and Croatia, are moving to cap prices on essential commodities to protect the most vulnerable, who tend to spend more of their income on food. there is

A sign in front of a shelf of egg cartons
A sign in a store in Hungary, one of the states hardest hit by price hikes, tells customers about a price ceiling © Attila Kisbenedek/AFP/Getty Images

Nora, a 32-year-old mother of three in Budapest, said it was “good” that price controls made products such as whole milk cheaper. But she pointed out that supermarkets have started restricting purchases, so you have to visit multiple stores or go shopping every day to take advantage of them.

Greece has taken an alternative approach to limiting prices by capping the profit margins of food and other essential retailers.

In countries with rich economies, France negotiates looser deals with supermarkets, offering a wide range of products at the lowest possible prices. Spain is one of several countries that have cut VAT on food. Other countries, such as Italy, have also come under pressure to cap the price of popular ingredients such as pasta.

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The pressure on retailers to curb price increases has been exacerbated by the sharp drop in agricultural prices over the past year. The United Nations food price index fell 19.7% in April compared to the same month last year.

“There is growing suspicion that while some price increases may be justified, others are simply opportunistic excuses for companies to inflate prices,” he said. Monique Goens, Executive Director of the European Consumers’ Federation, which represents 46 consumer groups, said. The mainland newspaper called on governments to “take strong measures to protect consumers from rising prices.”

Belgian consumer protection group Test Achats called for measures similar to France’s original anti-inflation basket proposal, but tougher than what Paris was able to implement. The Austrian Chamber of Commerce association AK also calls for a “price regulation” for food.

But retailers say they are not to blame and should be hit with capped products rather than go up in price.

Kodaly Delicatessen, a small supermarket in southern Hungary’s Pécs, said the wholesale price of certain products was higher than the maximum retail price, and displayed capped products with signs warning customers not to buy “products of the dictatorship”. summarized.

Delicatessen added, “Regulations force us to sell at a loss!”

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Large companies operating in Hungary (Liddle, Spar, French retailer Ocean, etc.) make similar claims.

“If you source sugar, you pay 500 forints (1.35 euros) per kilo and you have to sell it for 300 forints (0.85 euros),” said a representative of an international retailer. “There is a negative margin for each unit sold, which is totally unreasonable in a retail industry characterized by mass production and low margins.”

While the measures have been successful in keeping the prices of basic commodities in check, economists believe they are an insufficient solution to rising food prices.

A World Bank report on Thursday called on European governments to provide more “targeted policy interventions and social safety nets” to help those suffering from the cost of living crisis. But multilateral financial institutions stressed that price controls and subsidies “are not optimal because they distort price signals to consumers and producers.”

Hungary’s central bank governor, György Matorsi, went even further during a parliamentary hearing in December. “You can’t win this battle with old tools,” he said. “Price limits and all similar ideas have already proven ineffective in the socialist era.”

“We can put caps on the types of milk, but there are dozens of milks in the inflation basket,” said Peter Bilowatz, an analyst at ING Bank.

But the fact that shoppers are being hit hard by weekly price hikes has economists worried that politicians will continue to rely on price caps regardless of their effectiveness. means that

“Price control as a means of controlling inflation does not work,” Jeongun said. “But they are addictive and hard to break.”

Additional report in Paris by Leila Abboud

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