Hello, Stephanomics. Here the podcast that brings you the global economy. And if you think about the things that are well functioning modern economy is supposed to deliver, food would have to come pretty high on the list. If you're not living in poverty worried about where your next meal is going to come from, you might well take it for granted. But not only more, or at least not for many
families in Europe. In the UK, last mark, food price inflation hit a forty five year high, with prices nineteen percent higher than a year ago, and across the channel, food price inflation has also been close to twenty percent for several months. If you're sitting in the US, you probably remember food prices did jump sharply last spring in the weeks after Russia invaded Ukraine. But there the spike proved temporary. That's not been the case in Europe, and
people are not happy about it. In a minute, we'll discuss the devil stating implications for the traditional English breakfast and ask a former chief economist from the US Department of Agriculture why it's taking so long for food prices to ease off. Also whether the experience of the past year should change the way we think about the global food chain. But first, Rome based economy reporter Alessandra Miliaccio explains how soaring prices have even put the basic human right to a pizza at risk.
Inflation rates may be slowing across Europe, but you wouldn't know it looking at someone's grocery bill. Food prices are still rising at an alarming pace, and there's only so much that governments can do to help people cope. Let's start at La Mansune, a small, family run restaurant nestled in the picture perfect town of Core, located in the
Sailer Valley in southwest France. A few tables, a cozy room with a view, and a set menu with local specialties allow owner Alin Falgier to stay afloat the titles. He's kept most items on the menu between sixteen and nineteen euros. But it's a struggle because well we.
Other prices are hard, from bread to cereals and animal feeds, and from that you have price increases on meat like beef, lamb poultry, and the same for the fresh fruits and vegetables everything, and for fruits it's even worse. The biggest increase since last year. It's not easy today, Profact.
Bloomberg has been tracking custom food and this is across France, Spain, and Italy throughout Europe's worst cost of living crisis in forty years. To calculate them, we figured out how much it would cost to make a traditional dish in each country, from classic cocoven to pizza margarita. To make cocoven, you need to start with chicken, and those prices jumped about eighteen percent in the year through March. Wine is another major ingredient, which costs eight point four percent more than
it did a year ago. You can also add carrots, but it'll cost.
You more than thirty three percent now compared to last March. Meanwhile, overall inflation in France is running at six point seven percent, still historically high, but pretty low by comparison. Much the same is happening in Italy, where the price of enjoying a classic pizza margharita made with cheese, tomato and basil has been at least twenty percent higher than a year
ago for eight consecutive months. That's more than double the nation's headline inflation rate, and even with over ninety billion euros of government aid spent to subsidize energy and gas bills and tax cuts for fuel prices as the pump well, there's just so much politicians can do when prices go up. The government managed to reduce the impact of the first wave of inflation following Russia's invasion of Ukraine, but as prices rise across a wider range of goods, including food,
it's becoming too expensive to intervene. Dominic Co Lombardi leads the Policy Observatory at the Lewis University School of Government in Rome. He says governments can't keep trying to protect everyone from inflation.
The inflictionary outlook has evolved. Headline inflation is falling. However, core inflation shows to be more persistent than expected, and this comes heavy government support that has further narrow the physical space. Let's not forget the pandemic, the shot course, but the pandemic and then of course the energyender GYO political crisis. So moving forward, the only physical support that looks feasible is more targeted surgical interventions in favor of those most affected.
That's not easy for ruling politicians like Italian Premier Georgia Maloney who promised her people they wouldn't be left alone to face inflation, but she has to balance that with keeping the country's fragile finances in check. The opposition has blasted her for canceling a form of citizens income to save money, and the government is now setting other solutions like lower taxes on salaries to help increase purchasing power. In France, retailers have agreed to prolong efforts to charge
the lowest possible amount for some essential food items. The three month campaign was announced in early March and set to end on June fifteenth, until the Finance ministry recently announced an extension. Supermarket chains are expected to take a hit to their margins amounting to several hundred million euros, and the European Central Bank has increasingly highlighted the role
of corporate profits in the Eurozone's inflation crisis. Here's French President Emmanuel Macron talking about the deal with retailers at the Paris Agriculture Fair earlier this year.
Our farmers are paying more for energy, more to produce, and they need to maintain their revenue. They have revenues that are still very weak, so they're not the ones who need to make an effort to reduce food prices. Our food industries have made considerable efforts these last few years, many small businesses and them. It is our distributors who have to make an effort now.
Spain's Prime Minister Pedro Sanchez has announced several aid packages to help households cope with inflation ever since Russia's invasion of Ukraine last year. He decided to cut the so called value added tacks on a basket of essentials like bread and olive oil. But Spaniards are still paying more to make their prize pay addish, especially after devastating droughts
last year wrecked crops like olives and rice. Olive oil, which Spain is the world's largest producer of, costs thirty two percent more in March compared to a year ago, and rice is an extra twenty two percent. But back in the valley of the salea river restaurant owner Folgier tries to make the best of it.
It won't keep going up. Some prices will go down at some point. A lot depends on global wheat prices and costs of animal foods. Meanwhile, you just have to go locally. That's what I do. Go directly to the farmers, which, as me, spent maybe twenty percent less that Arrows has to keep prices table and have the same profit, emmins clients can keep going to the restaurant.
Bloomberg News in Rome. I'm Alisandro Miyacchu.
So not quite as good for your heart as olive oil, but an equally potemic part of Britain's national cuisine is the traditional English breakfast, So we thought we should monitor what was happening to that before we go on to discuss the broader global forces at work in these rising food prices in Europe. And Bloomberg Reporter Arena Angel has more on that arena. Thank you very much for telling
us about the Bloomberg Breakfast Index. I guess you should first tell us what exactly if you were eating and English, traditionally English breakfast, what would you be in for?
Let's see, so I think it's sausages, bacon, eggs, bread, butter, tomatoes.
Mushrooms, fried bread as well, fried bread, yeah, yes, but taste and probably tea. Okay, So what if we found out what is the English Breakfast Index telling us at the moment?
So you know, the English Breakfast Index sort of puts inflation in the frying pan. So we, as you mentioned, each month, we use it to track the cost of the ten products or the product you mentioned plus coffee in case. I mean I personally prefer coffee over tea, and we use data from the UK Office for National Statistics.
So the latest Breakfast Index showed that the average cost of ingredients increased almost twenty three percent from last year, and it's the sharpest jump since we started tracking the numbers. In June, eggs, bread and milk saw the biggest price. Right, So Stephanie, if you and I go to the supermarket, we're going to pay around thirty five pounds fifty for all the ten products to make a full fry up, which is almost six pounds more than last March.
Thirty five pounds. I mean, I guess it depends on what the exchange rate is doing, but that's you know, at least forty five dollars. And of course that's not just for one person. I guess you'd be buying slightly more, would probably be for a few people, but that's yeah.
Exactly, Yeah, yeah, that is a lot of money. That's as you mentioned, Yeah, that's using the product sizes that the os provides provides a dozen eggs or a pint of milk, but it's it's a lot of money for a typical family.
And how does that compare to some of these other sort of classic meals around the world that we've been talking about.
Well, national dishes are becoming a luxury everywhere around the world, sort of bloomberg. We saw it at the in South Africa. The cost of making a traditional barbecue, which sounds delicious by the way, with ingredients like beef, carrots, onions and corn. So the price for that increased twenty percent, mainly driven by fresh products like pepper and tomatoes. Back in Europe, well you know, surging olive oil prices are behind the jump in Spain SPAIA index and they are making pizza
malgaita more expensive in Italy. In France also the price of preparing cocovaine ROAs by fifteen percent because of more expensive carrots and chicken.
So frice getting out of the out of reach in South Africa would definitely strike fear into the hearts. And when those numbers came out, I was in the UK and there was a sort of collective sigh because of course we've been expecting inflation to slow down, and we've seen in large parts of Europe inflation coming down quite sharply, the headline inflation rate. Why are food prices still rising in the UK.
Yeah, that's a that's a great question, and that's all the facts as you mentioned this, and plus the fact that global commodity prices have also been declining for a while now. So part of the explanation could be that big food producers in the UK are still tied to long term commodity contracts that they signed back when prices were sky high, so we have to wait for them to renew these contracts until we see the price falls.
To feed through and manufacturers, it looks like they keep passing on costs through the supply chain to consumers to protect their margins. However, there are some science inflation is easy in some categories. Some supermarkets including Tesco, as the Sainsbury, Aal, the Little Orcado all lower their price of milk. Tesco is also seeing some deflation for oils and grains and that could mean lower prices for big goods like croissants and all that.
So do looking down the road if we decide to pass on the English Breakfast right now because it's too expensive. Is there any chance it's going to come back into reach in the next few months.
The good news is even now, on a monthly basis, inflation in the Breakfast index looks like it's looked like, I mean, it's might be already slowing. The price of eggs, mushrooms and tea all fell in March actually from last month, and the butter, milk and bread were unchanged. And we're also entering the UK growing season and that might also
slow down food inflation. However, if you ask analysts, they always say that absolute pricing rarely falls, so when we finally see inflation slowing down, we might get more promotional discounts rather than cheaper full price tags. So this all means that the English Breakfast is probably going to stay indulgent in every sense of the word.
Well exactly, it's pretty indulgent. Maybe it's better, maybe for the better for the British heart if we have fear of them, I do. I had heard quite a lot of discussion around the fact that the structure of Britain's supermarkets was actually means that when prices are low, more of that is passed on to the consumer. People often say, you know, they go into the supermarkets in general, and
more expensive in continental Europe. But the cost of that, the cost of sort of squeezing the last penny out of suppliers, is that times like this you just get shortages. I guess the final question, Arena, can we blame brexit for this soaring cost of the English breakfast?
I mean, one role that Brexit good play is that there's labor shortages in the food industry more broadly, and we've been speaking to lots of businesses who mentioned brexitters their top problem that it can't find enough workers.
Well, I suspect this is going to continue to be a debate, but Arena Angiel, thank you so much.
Thank you.
So we're going to broaden this out. We've heard about a lot of hard pressed European consumers in this episode, and we're going to carry on worrying about them, but we're also going to think about the rest of the world and the potential implications of all these ups and downs of food prices. In the last year. With Joe Glaubert, who is a senior research fellow at the National Food Policy Research Institute, he also used to be Chief Economist
of the US Department of Agriculture. Joe, thank you very much for coming on Stephanomics. I'm always conscious when I am hearing about the soaring prices for things like wheat or olive oil that you know, as an economist, demand and supply, I mean, high prices are also a way of deciding who gets none. It's a rationing mechanism when
there's a shortage of something. You know, who has got much less food over the last year, and how bad has it been relative to the expectations we might have had when a year ago when Russia invaded Ukraine.
You know, I think actually the world's adjusted pretty well to the invasion. You know, no question, the Black Sea was a big producer of wheat and maize and f oils like sunflower oil, and once particularly the a few months after the war started, we saw this big rise in prices. And you know, but by about June or so of the of last year, prices had started to come down again, and in fact, by about the fall they were back to pre war levels. That hasn't been
the case for food price inflation. And I think that's a very important distinction to make between commodity prices and actually retail food prices, which is, you know what consumers
are facing. And then the develop developed economies like the UK or the US or member states of the European Union, the commodity value is such a small share of the overall food costs, right So if you go to look at a loaf of bread, you know that's five to ten percent of that value of bread that you're purchasing in a grocery store is actually the price of whek. So we can go up a lot, but the price of bread not so much. But by the same token, all of those other post farm gate costs get built
into the price of food. So what we're seeing in a lot of economies right now is overall very very high rates of inflation. So that's affecting energy prices, it's affecting processing costs, it's affecting wage rates. All of these things have built into very high food prices. That's one. Some of that is less the case in developing countries where maybe that post farmgate share of the overall food cost is smaller that the price of the underlying commodity
means more. But there unfortunately those countries haven't seen quite the price decline as we've seen on global markets. Why because the dollar has remained so high and is actually
appreciated against some of those commodities. So if you go to say Egypt, and look at the price of wheat that you know is used bread as a huge staple in a country like Egypt, those prices have increased substantially, and you know, right after the war began, But they haven't declined nearly as much as they have on global markets.
Why because the Egyptian pound has has lost value relative to the dollar, and because commodities are most commodities are denominated in dollars, that means in local currency, so those prices haven't fallen nearly as much.
You've actually highlighted a good point. I mean, we have looked at some of the causes of Eurozone inflation over the last year, the increase in the inflation rate, and interestingly, our economists found that a big chunk of the increase, not just in the food sector, but across the board was from European companies expanding their profit margining margins, which I guess some people would call price gouging. So there's definitely a lot of things going into that higher price
in the shop in the shops. But you know, we tend to blame one way or another the Ukraine invasion by Russia with these issues. But I feel like I was hearing about serious problems with fertilizer prices and some commodity markets long before Russia's invasion.
Is that right?
Yeah? No, absolutely, And if you were to look at commodity prices generally, and that's certainly the case for wheat, in maize, in vegetable oils, they were all rising prior to the invasion. I mean, this was the big concern, even prior to Russia invadeing Ukraine, as we were looking back in January twenty twenty two at very tight global
stocks and we're looking at fairly high prices now. The expectation was that farmers would respond and by the end of the year we would have rebuilding the stocks that didn't happen because of the war, And I think that is the war has had definitely an impact there. But when we talked about those commodity prices down to pre invasion level, they are still running very much above levels of say two years ago or back to twenty twenty. Even in the case of energy prices or fertilizer prices.
They're down eighty percent from there from the peaks that we saw in the spring of twenty twenty two, but still one hundred percent above where they were in January compared to January twenty twenty. So, yes, prices are high. They have come down a lot, but they're still high relative to historical levels.
And I guess when we think about higher energy prices, we often forget that that feeds that has also affected fertilizer prices, which then affects future crops of countries years into the future.
Right, And don't forget that energy costs are very much embodied in food. Food costs ultimately, I mean transportation, all the transformation, depending on and even at the farm level, some crops are very very energy intensive, you say, particularly when you factor in fertilizer and other products.
COVID was another sort of force on making us think about this that people realized when we had these supply chain issues globally, that dependence on just one or two suppliers for anything, whether it's you know, widgets or grain, is not necessarily a healthy thing. Do you think do you see efforts by countries by agricultural businesses to broaden their sources of supply. Is that one lesson that comes out of all of these experiences COVID, Ukraine invasion and other things.
Yeah, I know, there's no question. I think the market actually has responded pretty well, particularly bulk trade. Weak corned countries were able to source alternative sources for their products. There wasn't a case where we just ran out of wheat. People were able to find wheat around the world. I think the longer run, as we look forward, I think the real key is flexibility to be able to pivot and seek alternative sources. I'm not sure that you necessarily
would diversify just for the sake of diversification. It's a strategy and it's much like an insurance product. You have to look at what the cost of diversification is. So if I'm Egypt and I'm looking across the Mediterranean at a very black sea area looking at very cheap source of wheat, if I were to say, well, I'm not going to import from them because I want to diversify to a much more higher cost supplier, that's the cost
you have to pay. And so I think the if you look at what Egypt was able to do by contrast, is they were able to pivot import from India, import from the EU, and so I think having that flexibility is was really important. And that does mean having the ability to tap alternative sources. So I'm not saying that
diversifications the wrong strategy. I'm just saying that you don't diversify just for the sake of diversification, that you need to be able to be flexible to pivot to other areas, to find sources when there are disruptions, and the obvious disruptions that we're seeing right now, and I think unfortunately the long run disruptions because of the continued low prices in Ukraine and we're seeing you know how that's affected plannings in the fall last year, they are now affecting
supplies this year. The ongoing war, the fact that it's very, very costly to ship product out of Ukraine right now, all that has longer term significance for the region.
I guess the final question is whether any of this has accelerated or changed the attitude to some of these exciting technological break throughs that we hear about in other parts of the economy, whether it's robotics or AI or genetic engineering. Is there is the debate around deploying that in agriculture and having a second or are we at this point a third or a fourth green revolution. Has that debate changed in the space of the last few years.
Well, I think two thousand and seven, eight, twenty ten, eleven they were real wake up calls because we're under invested in agricultural productivity for so many years. That's and now seeing this over the last year, particularly with starting actually with COVID and now seeing the problems in the Black Sea. Yes, you're right. I think that there's increasing calls now to increase productivity in areas like sub Saharan Africa, areas where we see big gaps between yield potential and
actual potential and then our actual production. And then the other issue is fertilizer. You know, unlike where you know, wheat has grown in a lot of areas around the world, you know, something like potash, you're talking about just a handful of countries that are major producers. And so I think, you know, interest in things like green fertilizers and other
sorts of technologies which are still a ways off. I think there's renewed interest in putting more research dollars into that area to again, in this case, you know, look at more sustainable ways of increasing improving productivity.
So that's Deephonomics for you folks. We have one week we had grand financiers in la and the next week we're talking about potash. Joe Glaba, thank you so much for helping us out with this.
Glad I could be of help.
Well that's it for this food focused episode of Stephonomics. We will be back next week. In the meantime, you can get a lot more economic insight and news from the Bloomberg Terminal website or app. This episode was produced by Mangus Henrikson, Yang Yang and Summer Sadi, with special thanks to Alessandra Milaccio, Irina Angel and Joe Glauber. The executive producer of Stephanomics is Molly Smith and the head of Bloomberg Podcasts is Sage Bowmen.