Are we really paying more for food? We ask the experts

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If it seems like your grocery bill is more expensive than ever, that’s because the price of food hasn’t been this high since the last time Australia had back-to-back La Niña weather systems a decade ago.  

Now there’s a chance we could be in for a rare “triple-dip” La Niña. 

That would mean a continuation of the devastating weather that has lashed Australia’s east coast farming regions this year, at a time when the pandemic is still sweeping the nation and there’s no end in sight to the war in Ukraine.

Experts say these events have created an “unprecedented” confluence of both domestic and international pressures that are impacting supply chains and driving up food prices. 

The cost of fresh fruit and vegetables has already jumped as a result of widespread flooding in Queensland and New South Wales, and the prospect of a third La Niña could mean more disruption to the traditionally volatile market. 

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But experts are divided on whether the La Niña weather pattern will continue, and for how long.

“The forecasts out of the US [are] … at 50/50, which I think is kind of about where everybody’s sitting,” University of Southern Queensland climate scientist Chelsea Jarvis said.

Dr Jarvis said the current La Niña was likely to persist through winter.

Why are prices rising?

The latest March ABS inflation data showed food inflation was up 4.3 per cent compared to a year ago, with the biggest jump being in the price of fresh vegetables and meat — at  6.7 per cent and 6.2 per cent respectively.

But food inflation has been higher than this before, so why is everyone suddenly talking about food prices?

John Rolfe, a professor of Regional Economic Development at Central Queensland University, said that food had become relatively cheaper in developed countries over the past 30 to 40 years.

As agriculture had become more efficient and Australians had become wealthier, the cost of food had not really been a big issue, he said. Until now.

“It’s things that are essential items that are biting and because food is one of those, people are really noticing it.”

a graphic showing a list of food items and the percentage with which they have increased.a graphic showing a list of food items and the percentage with which they have increased.
Over the past year, the prices of many pantry staples, such as pasta, coffee and canned tomatoes, have risen significantly.(Graphic: Cordelia Brown)

The current general inflation rate of 5.1 per cent seems small compared with a record high of more than 17 per cent in the 1970s, but the difference now is that everything is getting more expensive at the same time.

“Housing and rents are really expensive now, compared to what they were back in the 1970s … so there’s not as much room to move in household budgets,” Professor Rolfe said.

Inflation in the 1970s peaked at an extraordinary 17.5 per cent, and there is no easy way to compare now to then because so much has changed – we have removed protections, floated the dollar, and introduced a GST.

But according to the Australian Bureau of Statistics, in the past 50 years, the prices of bread and cereal products have increased about tenfold, and the cost of meat is more than 12 times more expensive, and since 1989, vegetables have increased by 116 per cent.

But there are dozens of different food categories, and individual prices are affected by a variety of factors.

A flooded yellow wheat crop behind a wire fence.A flooded yellow wheat crop behind a wire fence.
Many crops were within days of harvesting when the floodwater hit.(ABC Central West: Mollie Gorman)

It is also very hard to quantify the costs relative to all the other factors, such as income or the price of fuel.

For example, in 1972 the seasonally adjusted average weekly wage earnings of a man was $91.80, and in 2021 weekly earnings for all employees was $,1305.80, an increase generally in line with the increase in the cost of food.

However, the graph below by the Reserve Bank of Australia also captures the drastic jump in house prices since then, which further complicates comparisons of food prices, because it has created financial advantage and disadvantage. 

A graph tracking house prices, rents and income from the 1970s to 2007 from the RBA.A graph tracking house prices, rents and income from the 1970s to 2007 from the RBA.

And 2019 analysis shows that the cost of essential goods and services has generally risen much faster than discretionary items — putting the squeeze on household budgets.

Chart showing the increase in costs for essential items and services compared to non-essentials.Chart showing the increase in costs for essential items and services compared to non-essentials.
In 2019 Fidelity Investment tracked the cost of essential goods versus non-essential goods.(ABC News: Alistair Kroie)

Price of pantry basics soars

Another reason you might be noticing a jump in your grocery bill is that for the first time in about 10 years, the price of dried and packaged products has jumped significantly.

Sean Smith, managing director of Frugl Limited, a digital app-based service that tracks grocery prices, said the biggest price hikes were being seen in pantry items.

“Olive oil, for example, has gone up between 30 and 50 per cent,” he said.

Mr Smith said the price of some basic items seemed to have been permanently raised since pandemic panic-buying saw supermarket shelves stripped bare.

“We saw the price of pasta go up 30 per cent, just purely on the basis that it was difficult and challenging for them to get,” he said.

Costs squeeze manufacturers

Rabobank senior analyst Michael Harvey said “a confluence of factors” — including high energy and oil prices — was driving up the cost of food.

“You’ve got cost pressures and cost headwinds across all parts of the supply chain,” he said.

The CEO of Australian food manufacturer SPC, Robert Giles, told the Australian Financial Review this month that the price of staples including canned baked beans, spaghetti and tomatoes would rise by 10 to 20 per cent to recover growing input costs. 

Food and Grocery Council chief executive Tanya Barden said between 2010 and 2020, the costs for food manufacturers went up 50 per cent, and until now output prices had only increased by 25 per cent.

“The industry’s profitability had fallen from $8 billion to $5 billion, because they weren’t able to pass those costs through,” she said.

Global shipping costs have also soared through the pandemic, increasing between 500 and 700 per cent.

‘Falling on their swords’

Despite the higher prices, vegetable growers like Carl Walker — from near Bowen in north Queensland, a major winter vegetable production area — aren’t exactly reaping the benefits.

“Across Australia we’ve seen a lessening of product coming out of areas because of lack of workers, and that’s causing a supply problem,” Mr Walker said.

Carl Walker stands on the steps to his tractor holding onto the handle on the side Carl Walker stands on the steps to his tractor holding onto the handle on the side
High input costs are driving up the price of production for farmers like Bowen-based vegetable grower Carl Walker.(ABC Rural: Ashleigh Bagshaw)

Growers are dealing with a 25 per cent drop in the available workforce, and many have relied on Pacific Island workers to carry their businesses through the pandemic.

With the Russian war in Ukraine ongoing and trade embargoes in place, the cost of diesel remains close to record highs. Russia is also a big global supplier of fertiliser, which will further push up input prices.

Some industry insiders say that we all should be paying more for fresh food — national peak body AusVeg recently called for retailers and buyers to offer prices to farmers that reflected the current economic climate.

“Prices have gone up between 30 and 40 per cent since last year, and somehow we’ve got to recoup that,” Mr Walker said.

When will food prices stabilise?

Good question, and there is no clear answer.

Senior retail analyst with MST Marquee Craig Woolford said much of the price pressure was the result of the pandemic.

With so many uncertain factors like war and the pandemic still playing out, food price fluctuation appears set to continue. 

But there is some good news.

There might be a silver lining for long-suffering dairy farmers, many of whom have been pushed to their limits by drought and dollar-per-litre milk prices.

“Dairy farmers are getting a record high milk price, and there’s an even higher price on the horizon for the new season,” Mr Harvey said.

“You’ve got a very firm global commodity market for dairy commodities, so that’s great news for farmers.”

Posted 10h ago10 hours agoTue 17 May 2022 at 12:41am, updated 10h ago10 hours agoTue 17 May 2022 at 12:42am