Cost of quality
The Central Statistics Office recently released figures that show Irish consumers are paying over the EU average for some of the most basic foodstuffs. Fiona Donnellan spoke to retailers and food producers about the rising cost of food
Print14 August 2013
AT A GLANCE: MILK PRICES
- In 1995, farmers were paid 43% of the retail price for milk. In 2012 that figure had reduced to 31%
- There are 5.2 billion litres of milk supplied by 18,000 dairy farmers
- 60% of the milk is produced in the five summer months while 20% is produced in the five winter months
- In 1995, there were 3,060 registered liquid milk producers in Ireland – in 2012 this had fallen to 1,936, a drop of 42%
- In 1994 there were 20 processors in Ireland, in 2012 that figure was down to 14
- The retail price of liquid milk has increased by 28% since 1995
- The farmers’ price for liquid milk has increased by 3% in 1995
(Source: The National Milk Agency)
Price levels above average
The Central Statistics Office (CSO) published its findings on price level indices for food, beverages and tobacco in Europe in June. The study looked at the prices of food, beverages and tobacco in 27 European Union member states; three European Free Trade Associations (EFTA) countries which were Iceland, Norway and Switzerland; acceding country Croatia; four candidate countries and two potential candidate countries. The results of the study make for interesting reading. Ireland’s price levels for all seven of the main categories of food, beverages and tobacco were above the EU average in 2012. The level of difference ranged from 10% above the average for meat, and bread and cereals to nearly double, 99% above, the average in the case of tobacco. Ireland was above the EU average by 62% in the case of alcohol, 38% for fruit, vegetables and potatoes, 31% for non-alcoholic beverages and 19% for milk, cheese and eggs.
Recent figures from the Central Statistics Office show that Irish consumers are paying above the EU average for many basic items including meat, vegetables and milk
The study covered approximately 500 items over a total of 37 countries. The results will not come as a surprise to many in the grocery and food production industry. Several of the categories where Ireland was well above the EU average are home-grown products. For years, Irish consumers have had to pay above the odds when it comes to imported goods from other EU countries like Britain. How many times have we bemoaned the fact that the Sterling price and the Euro price do not match and we are, in fact, paying more than the item should cost? However, the most recent findings show that it is also goods grown and produced in Ireland that are expensive. Generally speaking, Ireland has higher costs than many other EU countries, including wages, rent, rates, taxes and energy costs, which all help account for the reported difference, but what are the specific production costs that lie behind the country’s most recent food price increases? After all, as Mark Thomson, director at Kantar Worldpanel points out: "Although inflation is stabilising, [with grocery price inflation currently standing at 4.65%* for the 12 week period ending 7 July 2013], price increases are nearly double the rate they were this time last year".
Ahead of the curve
Ireland was found to be 38% above the EU average price for fruit, vegetables and potatoes. While some of the more exotic variants are imported, most of our produce is home-grown. The Irish potato industry has been through a difficult couple of seasons with last season proving particularly tough. Daniel Boyle, manager of Curtin’s Londis, Adare in Co. Limerick says that the demand for potatoes last year drove prices up. "The crop of potatoes wasn’t as good last year and the demand was higher because of the weather but this year then, the prices have generally come down an awful lot quicker than what they normally would have because of the dry spell. There’s a better crop and I suppose the demand isn’t there either for potatoes at the moment with the fine weather so prices are coming back down a bit." With the recent spell of hot weather, sales of our national food may be down but a better crop this year has restored prices to previous levels. Dave Ryan runs the Amber Costcutter forecourt in Fermoy, Co. Cork. "We sell very little potatoes but potatoes did increase. We’re just starting with the new season now. They did get more expensive towards the end of last season, towards May."
The price of meat is also higher in Ireland than several European countries. On average, the Irish consumer is paying 10% above the average for meat. This is a small difference compared to some of the countries surveyed. Meat in Switzerland costs 121% more than the average while in Albania, prices were 48% below the average. Ryan says Irish meat prices have increased in recent years. "Bacon took a jump earlier on in the year, now it has steadied again but I know that it’s going back up although it hasn’t been passed onto us. You look at the price of beef or lamb, they’ve gone up. Now I don’t sell beef or lamb but I’ve noticed it when I’m buying it over the counter that it’s gone up hugely in the last couple of years. There have been increases in prices. But I suppose we’re so small in the context of the world that if you’re involved in the world markets and a higher price is set by someone in France for example, well if we want it, we’ve got to pay for it."
Holding firm
While potato prices have steadied, the cost of milk, cheese and eggs was 19% over the EU average, according to the CSO. Eggs are one of the main things that retailers buy locally rather than wholesale. Most retailers have a local egg supplier and as such, suppliers are slow to increase their prices. Most of the retailers ShelfLife spoke with said that the price of eggs has remained steady for the last number of years. Lil Courtney runs several Centra stores in Dublin. She says her local supplier for eggs has held his price and when it did go up, she held the retail price. "I am buying cheaper off him but I’m selling them cheaper as well, for example, I have a half dozen eggs for €1. It’s a permanent price. The last time we got an egg increase was the time all the egg prices were going up so we did get put up too but we didn’t actually put up the retail. We took the cost." This seems to be common practice in today’s retail landscape. Retailers are loath to pass on price increases to the consumer so many absorb the price increase themselves while holding the retail price steady. Small retailers are in a constant battle for customers with larger multiples and discount stores so are prepared to take a hit on margins in order to retain customer shopping loyalty. "One of the things all the retailers or the middle men don’t want to do at the moment is have a price increase; it’s something we’re not interested in," says Courtney. "The market is so volatile that we can’t afford to put up the prices and when you have Aldi and Lidl, you have massive competition."
Daniel Boyle says that "egg prices in general have come down in the last 12 months," while Fermoy retailer Dave Ryan says "in terms of eggs we’ve been on the same prices for a while, it hasn’t budged. I’m aware that they have gone up in the marketplace but our man has held it. Our supplier is very slow to move the price. We buy a huge amount of a small selection of products and our suppliers are very slow to move on their prices."
Milk increases
One commodity that has had a recent unavoidable price increase is liquid milk. Retailers have had to implement a recent price hike which has been passed onto consumers. Farmers say they are not getting a fair price for their product while retailers say the price increase has come from the farmers themselves. Vivian Buttimer is a liquid milk supplier in Ballinascarthy, Co. Cork. He believes that Irish consumers are facing the possibility of not having a fresh liquid milk supply all year-round if the industry does not become more financially stable for farmers. Buttimer’s cows are supplying winter milk, outside of the traditional milk cycle. Winter milk farmers are decreasing year-on-year as it costs more to feed the cows through the winter and ensure that the milk supply keeps coming. "It costs €1.20 per day on grass. Last year, from November, it was costing me €5.80 for my six gallon cow per day. Usually we’re paid a bonus for those months, but that’s under threat now this winter because they’re not getting it back from the wholesale price." Buttimer says that many winter milk farmers are moving away from the liquid milk industry and moving into powdered milk because it’s too costly. Fianna Fáil spokesperson for agriculture Éamon Ó’Cuív expressed the same fears to ShelfLife. "What has been a major concern of mine is that we would see a squeeze put on the liquid milk suppliers that we wouldn’t any longer have a 52 week of the year supply. I’m told that producing milk in mid-winter, at a loss, is not sustainable. Our problem is to ensure that we actually have milk on the shelves for the 365 days, that’s a challenge."
The price that farmers are getting per litre of milk is never far from the headlines in the Irish news. Buttimer says that retailing groups need to take action regarding the price that farmers are getting for all produce, not just milk. However he’s not confident of any change in the way things work. "I can’t see retailers stepping up to the mark, they’re very entrenched. They have moved, some of them have moved, but some others haven’t. As farmers, we’re not negotiating the price; we’re just given a price. We [dairy farmers] are price takers, that goes for farmers in general." Lil Courtney doesn’t agree: "The milk increase recently, that went up from the supplier, the dairy farmers can say what they like but they forced the price up for whatever reasons they have. Then the multiples took it and then we had to put up the retail." Courtney is keen to dispel the myth that retailers have large margins on goods like milk and eggs. "We are so cheap on those lines; the margin is non-existent on those lines. My margin on potatoes and milk is very, very tight. The last time the milk increased, I actually held my price down in one of my shops because I had an Aldi coming to open up near my store. I’m actually cheaper than Aldi. So some of those key lines, we have no choice but to hold them down because we need to compete."
Cost of farming
The cost of raising an animal for finishing, or producing milk on a daily basis is one of the deciding factors for farmers thinking about exiting the agri-food industry. Michael Seymour is a sheep farmer in Co. Tipperary and part of Farmers Feed Families; a non-profit group aimed at raising awareness of the role of the farmer among the non-farming community. The group has a Facebook page and Twitter account and holds various events across the country. Seymour told ShelfLife that his costs over the last number of years have increased. "I was looking through my accounts and while my personal income is holding up, as in income from the farm, my costs are going up. My profits are down year-on-year. I’m not passing any costs on because obviously, we cannot set the price, we are price takers; all farmers are." Seymour says that his farm costs are outweighing his farm income which is where the difficulty lies. "The running costs; oil is more expensive and that affects everything else. The likes of farm insurance, health insurance, and mechanics are huge costs. Making silage is one of the major costs and that goes up every year because they have to buy oil and that costs more and more every year to run all the vehicles on the farm. Fertiliser is also an extra cost; I’m organic so I don’t have that cost but a lot of farmers do." Seymour is of the opinion that in a mission to have the cheapest price for food, farmers are the ones that are losing out. "The main thing is the cheap food policy, it costs so much to produce an animal and because of the squeeze then from the supermarkets who want to be able to sell it at a certain price, you have all these costs in the middle and we [the farmers] are the ones who are being squeezed. I understand they have to make a margin to be able to survive as well but it’s not working."
A tough market
It’s a well known fact that the retail market in Ireland is a cut throat world. Competition is rife and the rise of the discounters’ share of the marketplace is putting retailers under increasing pressure to keep their existing customers and, more importantly, keep the doors of their shops open. Lil Courtney says retailers have to keep on top of the market to survive. "I always had to be competitive because of where my shop is situated. There are many items in my shop that haven’t moved price in six or seven years, up or down because we’ve had to maintain them. I would seriously contemplate before raising any of my prices. I think the grocery market in Ireland is extremely competitive now. The amount of promotional activity that goes on, I have never been anywhere near as competitive as I am now."
At the end of the day no retailer wants to put their prices up; customers won’t react well to it. Courtney says she is working to keep her current customers happy and ensure her store has the value message. "My business now is to maintain my customer, to look after my customer because it’s an awful lot harder and more expensive trying to get your customer back if you lose them. The margins are tight and we’re keeping our costs as tight as we can. It’s the survival of the fittest now and putting up prices is not the way to go. Now more than ever, the consumer is comparing prices and I believe the majority of retailers out there are as competitive as they can be."
Consumers are extremely loyal to the ‘Buy Irish’ mantra. Studies have shown that shoppers will choose Irish produce especially when it comes to their food choices. The government is pushing ahead with its Food Harvest 2020 agenda which has set targets for growth in the food industry. Demand for food is projected to increase by 50% between now and 2030. It seems Ireland is a more expensive place to produce food than other European countries and while producers criticise the price they are getting for their food, retailers’ hands are tied. If the price increases then consumers will find cheaper goods elsewhere. This issue is not one to be resolved in a hurry.
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