Food Prices Under Scrutiny in Belgium

• 15/02/2024
• News

Public authorities in Belgium have expressed a strong interest in retail prices over the past few months. Following a study published in December 2023 by the Belgian Pricing Observatory (Prijzenobservatorium / Observatoire des Prix) regarding retail prices of fast moving consumer goods (FMCG) in Belgium, France, Germany, and the Netherlands between 2016 and 2022, a report published by the Belgian Competition Authority at the end of January 2024 (see, VBB Belgian Antitrust Watch of 26 January 2024), and parliamentary questions submitted to the Committee for Economic Affairs, Consumer Protection and Digital Agenda of the federal Chamber of Representatives on 7 February 2024, a couple of further studies were published over the last few days.

The first of these two new studies was published on 9 February 2024 by the Pricing Observatory (available in Dutch and in French) and concerns price and margin trends in the food chain. It analyses what is referred to as the «price transmission mechanism» (prijstransmissiemechanisme / mécanisme de transmission des prix) in Belgium and neighbouring countries. It thus focuses on the impact of pricing developments at one level of the supply chain on the other levels. It is an update of an earlier study of December 2022. The Pricing Observatory reached the following conclusions:

1. In the food sector, “the 2022 globalised margin fell compared with 2021(-20%) and represents the lowest margin of the 2017-2022 period”.
2. In July 2023, the consumer price index for processed food products (excluding tobacco and alcohol) reached an all-time high of 138 points (with the benchmark year 2015 at 100 points).
3. From January 2022 to July 2023, prices for processed foodstuffs rose by 25%. Inflation has therefore also reached record levels, even though it decreased significantly from 20.5% in the first quarter of 2023 to 16.4% in the second quarter of the same year. This is the result of the record high prices of agricultural raw materials in 2021 and part of 2022, the simultaneous rise in energy prices, and the ensuing increased production costs in the food industry (including higher wages due to automatic indexation).
4. Food prices stabilised in the second half of 2023. The decline in agricultural commodity prices for over a year (-50% between May 2022 and October 2023) has not yet led to a tangible decline in downstream food prices but stopped the upward trend. Certain production costs are not decreasing (e.g., wages), which may partly explain this plateau.
5. Agricultural prices and agricultural costs both rose sharply in 2022. Net income nevertheless improved significantly compared with 2020 and 2021 (two bad years). Given the recent fall in production costs and continued high prices for certain agricultural products, 2023 should be even better (the study does not cover the last couple of months of 2023), although this overall conclusion hides major disparities.
6. At industrial level, the margin improved in 2023 compared to 2022 “in almost all the sectors studied”, sometimes significantly, such as in the beer production industry.
7. At retail level, in 2022, “retailers have been able to pass the rise in purchase prices on to their resale prices, but not entirely the rise in other production costs. For 2023, the trends […] are less clear, but the status quo in margins seems to prevail”.

The second document, published on 13 February 2024, is a yearly report prepared by the Institute of National Accounts (Instituut voor de nationale rekeningen / Institut des comptes nationaux) (in Dutch and in French). Part III of the report discusses food prices. Key takeaways are as follows:

1. Food inflation was historically high in Belgium in 2023, even higher than in 2022. While this is also true for France, Germany and the Netherlands, inflation was the highest in Belgium.
2. Unprocessed food products in particular explain why food inflation is higher in Belgium (e.g., fruits and vegetables); conversely, for processed food products, the inflation gap with the three neighbouring countries is small.
3. This study confirms that the second half 2023 saw a stabilisation of food prices at both retail and supply levels. It also confirms that the fall in agricultural commodity prices observed for over a year (-50% between June 2022 and October 2023) has not yet led to a tangible decline in downstream food industry prices, but has only caused a halt in the upward trend.

It is difficult to predict what concrete actions, if any, these multiple reports and studies will prompt. However, in the run-up to a series of elections, high prices and the recent wave of inflation continue to occupy public authorities, political and other, some of which seem bent on finding culprits. The current agricultural storm adds to this pressure. In its January 2024 report on FMCG retail prices, the Belgian Competition Authority explicitly stated that it would keep investigating FMCG prices and associated issues such as territorial supply constraints.