There are some problems in the Latvian food market, as the prices of food products in Latvia have been rising faster than in the rest of the European Union (EU) over the past few years, Uldis Rutkaste, Head of the Monetary Policy Department of the Latvian Central Bank, said in an interview on the Latvian Radio programme “Krustpunktā” on 12 November.
“There are some problems in our food market. If we look relatively to other European countries and the level of food prices, for many years, we were around 20th in Europe in terms of food prices, which is largely where our incomes are, because prices have to correlate with incomes in the long term. And then in 2023 and 202,4 we suddenly moved up to 10th-14th place.
“We have the 14th highest food prices in the European Union, while incomes lag behind at the low end. This suggests to me that something has happened to push up those prices,” the Bank of Latvia economist said.
He admitted that profit margins were “not the highest”, but many market players – farmers, processors and traders – were currently above historical averages.
“We can’t talk about shops [as higher earners]. Although if we look, we see that the price of the shop, the buyer, has risen faster than the producer. This is one of the phenomena recently,” Rutkaste said.
Food prices in other EU countries have not risen as fast as in Latvia, he said. In his view, there are enough players in the food market and it cannot be said that there is a very high concentration. “But obviously there is something that allows… Both traders and producers have a bit too much pricing power.”
Rutkaste said that food price increases can be fought. “One thing that can help is active action by the Competition Council. Then there is definitely consumer information. One of my hypotheses is that perhaps consumers are inert and are used to shopping at one grocery chain and continue to shop there despite price changes,” the Bank of Latvia economist said.
Jānis Endziņš, Chairman of the Board of the Latvian Chamber of Commerce and Industry, listed several reasons why prices are higher in Latvia. The main reason is a scale effect, i.e. there are several small traders in Latvia who are unable to offer lower prices. The effect of the large Lidl chain has not yet been felt in Latvia. In order to reduce prices, Lidl should be allowed to continue opening new stores in Latvia.
Costs are also driven by excess bureaucracy for traders. For example, flagging countries of origin increases prices, Endziņš pointed out.
He stressed that value added tax on food is also lower in much of Europe than in Latvia.
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