A box of six eggs? More than 50 cents more expensive than a year ago. A portion of ground beef? 1.20 euros extra. Twenty coffee cups? Another 1.26 euros extra. For the average supermarket visitor, it is hard to swallow at the checkout now that the sum at the bottom of the receipt is getting higher and higher. For example, the thirteen popular supermarket products that de Volkskrant has now placed in the shopping cart 39.75 euros. That is 16.7 percent more than a year ago.
The wallet will be spared almost nowhere by mid-2022. Fueled by expensive food, high rents and ever-rising energy costs, inflation rose further last month. The Central Bureau of Statistics (CBS) reports that prices in July were 10.3 percent higher than a year ago, compared to 8.6 percent in June. This means that the consumer price index is higher than 10 percent for the first time since 1975.
Not entirely unexpected, given the current gas prices, the ‘energy’ category takes the cake, with a price increase of 108 percent. Food prices also rose faster than average: they are now 12.3 percent higher than a year ago.
How come? ‘Expensive raw materials, packaging materials, energy, transport, personnel.’ The list of things that, according to Sebastiaan Schreijen, cause high inflation in the supermarket is long. Rabobank’s food and agriculture analyst has seen prices on store shelves rise by 1 to 1.5 percentage points each month since January, while the salary and thus the grocery budget of most consumers has barely increased.
The high food prices can often be traced back to one common denominator: scarcity. Last year, the demand for many products grew due to economic prosperity and the reopening of the economy. Add to that the war in Ukraine, the gas crisis and supply chain problems caused by the pandemic, and the highest inflation in almost 50 years is a fact.
Cheap bananas
The extra costs are not yet felt on every shelf. A cucumber became more than 54 percent more expensive in a year, but a kilo of Chiquita bananas last month was exactly the same as last summer. The price difference is also relatively small for mandarins and luxury sandwiches.
‘The proportions are different for all products’, explains Schreijen. As a result, price increases affect some sectors more than others. ‘Margarine, for example, is a lot more expensive because it consists of 80 percent oilseeds, which are scarce now that exports from Ukraine are disappearing.’ The banana does not suffer much from this.
However, the transport and packaging costs of bananas – which are imported from South America – will not have decreased either. ‘But people forget that supermarkets also keep a close eye on each other’s prices,’ says Laurens Sloot, professor by special appointment in retail entrepreneurship at the University of Groningen. ‘If Albert Heijn does not pass on the higher purchase prices for bananas to consumers, then Jumbo will not do so just like that.’ Not even if the supermarket suffers a loss on that product as a result. ‘The point is that the consumer continues to pay for the entire shopping cart with them and that there is still some money to be made on that.’
Empty shelves
That is not to say that the large supermarket chains simply accept the higher prices that their suppliers want to pass on. At the beginning of this year, several chains accused the manufacturers of taking advantage of the high inflation. According to the supermarkets, the suppliers would charge higher prices than strictly necessary. Tensions at Ahold Delhaize and Jumbo were so high at the beginning of this year that brands such as Pringles and Nestlé temporarily disappeared from the shelves.
Schreijen speaks of three important price waves in the supermarket. “The first wave was the ‘normal’ annual price increases at the end of 2021, although they were already much higher than usual.” The supermarkets were still somewhat on the brakes in the negotiations with their suppliers, the Rabobank analyst explains. ‘To send a signal to the suppliers and to the customers: we think of your wallet.’
In March, a second price wave followed as a result of the war in Ukraine, which hampered trade in, among other things, oil, energy, grain and animal feed. ‘The price negotiations between producers and shops changed then.’ The annual figures from Heineken and Unilever, among others, show that the transfer of the inflation bill is now going well for producers. ‘The power of suppliers increased because of scarcity. Less margin is for the supermarkets up to that point, but no products on the shelf at all? That is a problem.’ To get them there, the supermarkets and their customers pay more.
According to Schreijen, the third price wave has yet to begin. ‘Thanks to current supply contracts, some companies were not yet fully affected by higher raw material and energy prices. They will only pass on the higher costs in the coming months.’
End not in sight
Will prices continue to rise? Rabobank expects food prices to peak in the autumn. ABN Amro economists predict that consumers will feel the high energy and raw material prices until the end of 2023.
An important reason for this prediction is the producer price index (ppi), which indicates the price that customers pay to manufacturers. ‘At the end of June, food manufacturers charged an average of more than 20 percent more for their products, a lot more than the consumer price index of 10.3 percent,’ explains Schreijen. ‘We expect that supermarkets will partly pass on that difference.’
In addition, the contrasts on the shelves are still great. ‘Wine, for example, has only risen by 2 to 3 percent in price, while glass and transport have also become more expensive.’ Schreijen expects that the moment when the high costs are felt in the wallet has yet to come for some products. Moreover, supermarkets themselves also have to contend with growing personnel, transport and energy costs, which means that they are less likely to accept lower or negative margins.
There is one big but, say both Schreijen and Sloot. ‘That’s consumer sentiment. There will come a time when it becomes too expensive.’ The companies cannot forever pass the high costs on to the consumer, Sloot expects. To prevent customers from switching en masse to a discount supermarket or private label, they will automatically take something from their margins. Sloot: ‘The market mechanism will keep food somewhat affordable.’
Cucumber (54.5 percent more expensive)
In order to use energy and water as efficiently as possible and to keep diseases at bay, green vegetables are grown in greenhouses in the Netherlands. ‘Normally, the costs of cucumbers consist of about 20 to 30 percent energy,’ says Alexander Formsma of Greenhouse Horticulture Netherlands. “But that was when the gas price was ten times lower.” For companies that purchase (part of) their gas and electricity on the daily market, energy costs are now reaching unprecedented heights. ‘But companies with a fixed energy contract will also have to sign a new contract at some point.’ Passing on the costs to customers is not self-evident in most cases, according to Formsma. That also depends on current contracts. Cheaper cucumbers will be hard to find for the time being. ‘Because of the beautiful summer weather, the growers hardly use gas now, but it will be untenable for many companies to grow next winter.’ This will not only further increase the cost price of the cucumbers, but also that of the many other vegetables, pot plants and flowers from the greenhouse.
Minced beef organic, 500 grams (22.7 percent more expensive)
For livestock farmers, the largest cost item is the feed for their animals. ‘Certainly for pigs and poultry, more than 60 percent of the costs consist of purchasing animal feed,’ says sector economist Thijs Geijer of ING. This feed largely consists of crops such as maize, wheat or soy, which have risen sharply in price since mid-2021. ‘Worldwide demand increased due to economic prosperity, because when things go well, people eat more meat and dairy.’ The war between Russia and Ukraine, two of the largest grain exporters in the world, only pushed prices higher. ‘Farmers pass these costs on to the meat manufacturers, who in turn start negotiating with the supermarkets.’ Meat lovers will have to dig deep into their pockets for the time being. ‘The prices for crops are now back to pre-war levels in Ukraine, but they are still relatively high.’ This is also noticeable in the dairy sector. ‘Dairy farmers need less animal feed, because the cows also graze outside. But they use fertilizer on their land and that too is more expensive now.’ Farmers and slaughterhouses also have to deal with higher transport and energy costs. ‘It’s only about 3 or 4 percent of the total costs, but it is noticeable because of the extreme increases.’
House brand kitchen paper, 3 rolls (35.2 percent more expensive)
For the production of paper, from tissue to kitchen roll, pulp is needed in addition to the necessary energy. The prices of both components have risen to record highs in recent months, says paper producer Nalys. Paper pulp is especially expensive due to shortages that occurred at the end of last year. Producers cite numerous reasons for the scarcity, which in summary mainly come down to a growing demand due to economic prosperity, a shortage of labor and logistical problems after the pandemic. More than six months later, these problems are far from solved. The Brazilian Suzano, one of the largest producers of pulp and paper in the world, warned at the end of May that prices would rise further. Due to a trade boycott against Russia, the necessary wood for the paper pulp has become even scarcer. In addition, the manufacturers of kitchen towels and toilet rolls, like most manufacturers, suffer from higher packaging and transport costs.