university of copenhagen University of Copenhagen Summary: Food price monitoring in Denmark Hansen, Henning Otte Publication date: 2011 Document Version Publisher's PDF, also known as Version of record Citation for published version (APA): Hansen, H. O., (2011). Summary: Food price monitoring in Denmark, 2 p., (FOI Udredning; No. 2011/19). Download date: 05. Jul. 2016
Summary: Food price monitoring in Denmark Henning Otte Hansen (FOI Udredning) 2011 / 19
FOI Commissioned Work 2011 / 19 (FOI Udredning 2011 / 19) Summary: Food price monitoring in Denmark Author: Henning Otte Hansen Prepared for meetings in the European Commission according to the agreement on public sector services 2011 between the Institute of Food and Resource Economics and the Ministry of Food, Agriculture and Fisheries Institute of Food and Resource Economics University of Copenhagen Rolighedsvej 25 DK- 1958 Frederiksberg Denmark www.foi.life.ku.dk
Institute of Food and Resource Economics Faculty of Life Science University of Copenhagen Henning Otte Hansen Summary: Food price monitoring in Denmark In 2007/08 the whole world was experiencing a global food crisis. During this period in particular prices of grain increased but also of dairy products rose. In the first half of 2008, prices fell again, and for many products, the prices returned to the level before the food crisis began. In July 2010 - mainly because of drought and poor harvests in Russia, Ukraine and Kazakhstan - grain prices rose sharply again. There were several different explanations for the food crisis and rising grain prices. Some causes were temporary or casual, and their effect is relatively short, while other causes were more prolonged and structural, and they will probably be effective for a long time to come - and will thereby help to raise grain prices in the long term. The long-term price trends in agricultural and food is relatively predictable, as there is an almost permanent decrease of real prices and terms of trade. However it is assumed that nominal prices for agricultural products will continue to increase Farmers share of retail food prices tend to fall over time as a result of the increased processing and marketing. This makes retail prices (consumer prices) less and less dependent on changes in prices of agricultural products. Increasing level of processing of food and increasing productivity in agriculture are two main factors behind this development. When it comes to prices of grain/bread and milk/dairy products during and after the food crisis, it was characteristic that the consumer prices of bread rose sharply. Bread prices increased 3-4 times as much as the more expensive raw materials could explain, and bread prices continued to rise or be very high, even if commodity prices fell back to levels before the food crisis. Retail prices of milk increased again, with some months delay, when the farmer s price increased. The retail price of milk remained at high levels from mid-2008 until early 2009, although the farmer price fell. It is a general phenomenon in Europe that price transmission along the food chain is delayed. The process can be divided into several phases. In the first phase farmer prices increase. In the second phase farmer prices fall, while food industry prices continue to rise. In the third phase food industry prices decrease, while retail prices continue to rise. The last phase is a stabilisation.
Based on detailed manufacturer, industrial and consumer price analysis in the agricultural and food sector in Denmark it can be seen that in several cases there are time lags in the price changes: First farmer prices, then industry prices and ultimately retail prices. Price transmission is relatively fast - a few months delay - when prices are increasing - while the price decreases in the industrial chain and retail happen at a much slower speed and only partially. There are also examples of retail advantage coming before the industrial advantage, which is different from the European pattern. Price trends in the food chain may be very different from sector to sector and there are examples of decreasing industrial prices compared to both farmer and retail prices. Figure 1. Development of grain, flour and bread prices in Denmark 210 Index, Jan. 2007 = Index, Jan. 2007 = 122 120 190 118 Bread (consumer) 116 170 114 112 Bread (industry price) 108 130 106 Flour (industry price) 104 102 90 98 Farmer price 96 70 94 2007 2008 2009 2010 2011 2012 26 September 2011
Food price monitoring in Denmark Henning Otte Hansen (hoh@foi.dk) Institute of Food and Resource Economics University of Copenhagen October 2011 Place, date, unit, occasion etc. Slide 1 Background for increased focus on food price development 1
400 World market price of wheat $ per ton 350 300 250 200 50 0 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 Campaigns from bakeries 2007-2008 Extreme prices of grain means more expensive bread 2
210 Danish farmer prices of grain and consumer prices of bread Index, Jan. 2007 = Index, Jan. 2007 = 122 190 170 130 Bread (consumer) 120 118 116 114 112 108 106 104 90 Grain Farmer price 102 98 96 70 94 2007 2008 2009 2010 2011 2012 2007 2008 2009 2010 2011 3
Share of grain in consumer price of bread Grain 124 122 120 118 116 114 112 108 106 104 102 Bread price and estimated bread price adjusted for impact of grain price changes Index Jan 2007 = 126 Bread price Estimated bread price adjusted for impact of grain price changes 98 2007 2008 2009 2010 2011 2012 2007 2008 2009 2010 2011 4
Increased grain prices can only explain a minor part of bread price increases Danish competition authority Food prices Price development on milk, butter and bread 2008 and 2009 5
Contribution to changing consumer bread prices from August 2007 to March 2009 White bread Bread from rye Supermarkets Bakeries Mills Grain companies Farmers Food price monitoring From Institute of Food and Resource Economics, Faculty of Life Science, Copenhagen Yearly report, from 2010 Products Milk Butter Cheese Pork Beef Poultry Grain Flour Bread Eggs Potatoes 6
Measuring Prices in the food chain Agriculture Processing Wholesale Retail Index 1993 = Prices in grain-flour-chain 130 Flour (consumer price) Flour (industry price) 90 70 Farmer price 50 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 7
Prices in grain-flour-bread chain Index Jan. 2007= 190 180 170 160 Bread (industry price) Index Jan. 2007= 120 118 116 114 140 130 120 90 80 Farmer price Flour (industry price) 112 108 106 104 102 98 96 70 2007 2008 2009 2010 2011 94 Prices in grain-flour-bread chain Index Jan. 2007= 190 180 Bread (industry price) Index Jan. 2007= 120 118 170 160 140 130 120 90 80 Farmer price Bread (consumer price) Flour (industry price) 116 114 112 108 106 104 102 98 96 70 2007 2008 2009 2010 2011 94 8
Indeks 1993 = 170 Grain: Farmer and industry price 130 90 Industry price 70 Farmer price 50 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 Milk butter (industry) butter (consumer) Indekx1993 = 170 Consumer price Butter 130 Industry price (butter) 90 70 Farmer price 50 1980 1985 1990 1995 2000 2005 2010 9
Milk (farmer) milk (consumer) Index 1993 = 275 250 225 Consumer price 200 175 125 Farmer's price 75 1980 1985 1990 1995 2000 2005 2010 Index 1993 = Pork chain 160 Farmers price 140 120 Industry price 80 Consumer price 60 1980 1990 2000 2010 10
Our task - Explain and predict price movements - Analyze margins - Find trends Grain prices and stocks Price ($/t) Stocks (% of prod.) 250 40 200 Stocks 35 30 Price 25 20 15 50 10 5 0 0 1980 1985 1990 1995 2000 2005 2010 11
Price volatility on wheat på, 1980-2011 (%) Farmers share of food costs is declining ( 20 %) Farmers selling prices have a declining impact on consumer food prices... 12
Farmers share of retail prices Per cent 45 40 35 30 US Denmark 25 20 15 10 1950 1960 1970 1980 1990 2000 2010 Terms of trade in agriculture Index 1949 = 120 80 60 40 20 US Denmark Australia 0 1950 1960 1970 1980 1990 2000 2010 13
Possible plans for the future - Monthly data on price spreads - Annual reports on food price monitoring - Cost analyses of food chain - Farmer share - Industry share - Retail share - Long term trends - Factors behind food price movements 14