Record food prices in Lithuania: looking for culprits, but finding only increased energy prices

Food shop in Lithuania
DELFI / Karolina Pansevič

Even official statistics show that food has recently become more expensive for Lithuanians than in other countries. Moreover, in Lithuania, food and beverages account for the largest share of household expenditure, Martynas Žilionis is writing at the news portal.

The Bank of Lithuania (BoL) tried to find the reasons for this. On Monday, the Bank’s Deputy Chairman of the Board, Raimondas Kuodis, and the Director of the Economics Department, Aurelijus Dabušinskas, presented the results of their analysis of food prices.

The LB experts concluded that neither farmers, agricultural processors, nor traders made more profit because they all increased prices. They had raised their prices in line with the increase in their costs. The most significant of these is the cost of energy products.

Mr Dabušinkas acknowledged that food price inflation in Lithuania is currently very high. Many consumers are noticing this.

According to the representative of the LB, since about September, the price of food products has been the highest and accounts for 40% of the total inflation.

The main contributors to this are the increase in the prices of bread and cereals, meat and meat products, and milk and milk products.

In December, the annual price increase for these commodity groups was around 30-50%.

Overall, food prices in the Baltic countries rose by around a third, compared with only 18% across the EU.

Over the past year, food prices in Lithuania have reached almost 98% of the EU average. However, Lithuanians’ incomes are barely on par with the European average.

We pay as much for food as Europeans

Dabušinksas said that because Lithuania’s economy was growing and people’s purchasing power had not declined, producers and processors were able to pass on increased energy and other costs to the final price of products.

In the agricultural sector, for example, output prices have risen relatively faster than the costs estimated by the LB over the past two years. In simple terms, according to the LBO analysis, farmers have increased their output prices relatively more than they have increased their various input costs, and their farm-gate prices have also increased more.

“These trends mean that the past couple of years should have been good for the agricultural sector”, Dabušinskas commented.

He pointed out that agricultural processors’ costs and the price of their products had risen at a similar rate. In addition, costs had started to rise before output prices. Raw materials, services and energy were the most expensive resources for processors.

Finally, retailers’ costs and the prices of finished products in shops increased similarly, according to the LB representative. The main increase in costs was due to the cost of goods sold.

According to Mr Dabušinskas, there was no exceptional profitability in the three sectors of food production, processing and sales. It did not change significantly. Only in agriculture was profitability slightly higher but within historical trends.

Is it only energy prices?

The Director of the Economics Department of the BoL summarised that the biggest impact on food prices was due to the energy price shock.

He did not rule out the possibility that, even if costs for food producers, processors and traders fall, final prices in shops will remain the same or may increase slightly further.

“A more detailed analysis of food prices has only confirmed that the main reason for the rise in prices is the energy price shock caused by Russia’s energy blackmail and the war against Ukraine, as well as the increase in agricultural prices in the region.

Lithuania and the EU should do their homework and implement measures to make themselves more resilient to possible energy price shocks in the future,” said Raimondas Kuodis, Deputy Chairman of the Bank of Lithuania.

According to the latest data, food prices rose by more than EUR 1.5 billion in December. As a result, food in Lithuania was one-third more expensive in December than a year earlier.

Food prices were similar in the other Baltic countries: almost 31% in Estonia and just over 29% in Latvia.

Across the region, food prices rose faster than the EU average, with EU average food price inflation in December at 18.2%.

The higher food prices in Lithuania than in the EU have led to a significant convergence of food price levels towards the EU level.

In 2020, food prices in Lithuania were still close to 85% of the EU average, and at the end of last year, they were already 97.5%.

According to the LB’s assessment, prices for some groups of products, such as oil, milk, cheese and eggs, are already above the EU price level. However, meat, fish, fruit and vegetables prices have not yet reached them.

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