The food industry and the consumer goods sector are already talking about the price crisis as an event of the past. In fact, major players in the sector predict that in the coming months the economy will enter a scenario where food inflation will be negative. In other words, they anticipate a drop in prices which should be reflected in the basket over the coming months. The reason is that there are basic elements, like olive oil, that must start to weaken because the harvests are good.
Beyond perceptions, the latest official data places food inflation in Spain at 1.8% at the end of September. This is the lowest figure in the last three years.
This percentage includes products whose price has already been reduced. For example, breakfast cereals (-1.6%), pasta and couscous (-0.7%) or even fruits (-3.4%). Also olive oil, which became cheaper by 2.9% in September.
“Liquid gold” is the element that has made the basket most expensive in recent months, as its cost has increased by almost 300% in three years. There are now factors pushing its price in opposite directions. On the one hand, there is the increase in VAT on October 1, from 0% to 2%, which was applied to other basic products such as milk, bread or eggs. VAT on vegetables has also been increased, as well as that on pasta. The latter increased from 5% to 7.5%.
However, the sector – manufacturers and distributors – have repeated in recent days that food prices will fall, driven by oil. There is no consensus on when this core product will be released and how it will be visible during checkout. This will depend on a harvest that begins now and which should be very good, although there is also a marketing sector whose warehouses are empty, after having dragged on for two years with the worst production in a century, and this could take take the opportunity to fill them and not take all the olive oil that will be produced in the coming months to the market.
The key climate factor
If there was a drop in prices, it should be noted, depending on the sector, before the Christmas campaign. However, there are international raw materials that can ruin this aspiration. FAO, the Food and Agriculture Organization of the United Nations, updates a monthly food price index for essential raw materials, such as cereals or dairy products. This index increased by 3% during the month of September. This is “the largest monthly increase since March 2022”, he underlines, just after Russia’s invasion of Ukraine.
The FAO specifies that the prices of all the basic foods it analyzes have strengthened, with increases ranging from 0.4% for meat to 10.4% for sugar. “Compared to historical levels, the September food price index was 2.1% higher than a year ago. » However, on the positive side, it is 22% below the levels reached in spring 2022.
This United Nations organization points, among other things, to cereals, the price of which increased by more than 3% last month. In the case of corn, the increase is due to low water levels in key regions for this product, such as the Madeira River (Brazil) or the Mississippi (United States), which add to high demand on the Brazilian and Argentinian markets. And, although we pay attention here to olive oil, other varieties like palm oil, soybean oil, sunflower oil or rapeseed oil are increasing (on average just over 4%), as production was below normal in both cases in Asia. and America.
The American agency Bloomberg also publishes an index focused on basic products, such as soybeans and corn, up 7% in September. An increase that had not been observed for two years. Behind, once again, the declines in production, either due to drought or due to floods, which affected products such as sugar, cocoa or coffee.
Some time ago, sugar became one of the raw materials that weighs the most on the cost of the basket, as we discussed in this subject. The problem now is declining production in one of the main markets, Brazil, due to the lack of rain in recent months. On the other hand, in India, which is also a producer, the opposite happened, an excess of precipitation which also damaged the crops.
On the other hand, cocoa is starting to show good signs. The raw material for chocolate has been driving up costs for months due to declining harvests in Ivory Coast, which with Ghana is the main producer of this raw material. In fact, in recent weeks the price of chocolates and candies has made headlines in the United States – for example in the Washington Post – because this year Halloween candies will be much more expensive. However, in recent days the price of this raw material has started to fall as it seems that demand in Europe and the United States is not as high as expected.
The same is not true for coffee, the cost of which increased by 8.4% in September compared to August; and almost 70% compared to a year ago, according to data published by the World Coffee Organization (ICO). The reason, once again, is the decline in harvests in key markets, such as Brazil or Colombia, as well as the increase in demand in the main consumer markets. In addition, that month, trade in this product was interrupted by the dock workers’ strike in the United States, which ended in early October.
