21 Apr 2020
In early March, as governments began putting restrictions in place to stem the transmission of COVID-19, supermarkets saw a material increase in purchasing. Toilet paper, canned goods and flour were among the items being cleared from shelves.
Now, research from the Australian Bureau of Statistics (ABS) tells a similar story – the Consumer Price Index (CPI) rose 0.3 per cent in the March quarter with food and non-alcoholic beverages rising 1.9 per cent and alcohol and tobacco rising 1.6 per cent.
"Although the mainstream media has reported panic buying led to the large jump in food prices, the answer isn’t so simple.”
The question is whether these prices movements are fully attributable to just the COVID-19 pandemic or are they also the result of restricted supply due to a summer of bushfires and ongoing drought?
Production and transportation
Although the mainstream media has reported panic buying led to the large jump in food prices, the answer isn’t so simple.
Australia exports about 70 per cent of agricultural production and only imports about 10 per cent of our food. We’re clearly not running out of food anytime soon so food price increases aren’t due to nation-wide food shortages. Indeed, Australia is listed as having the 12th best food security in the world. As a result, any recent food price increases, including for toilet paper and pasta, will be wound back in the medium-term as consumers run down their stockpiles.
While Australian exports remain in high demand from our trading partners, interruptions to trade and logistics are constraining some two-way trade - boosting local food supplies even further. The Australian aquaculture industry’s heavy reliance on export markets has led the Australian Bureau of Agricultural and Resource Economics (ABARES) to predict COVID-19 could reduce production in that industry alone by $A389 million.
While vegetable price rises of over 6 per cent in the quarter can be attributed almost solely to the ongoing drought and intense bushfire season which reduced production and hampered transportation, meat and seafood prices also rose over 2 per cent in the quarter. Beef and lamb were the standouts increasing 3.5 per cent and 2.8 per cent respectively.
To put this in perspective, during the same quarter, saleyard lamb and cattle prices rose 7.5 per cent for trade lambs and in over 14 per cent for heavy steers. So while restricted herd and flock numbers led to increased saleyard prices, only part of this came through on the supermarket shelves.
In part, this is due to most consumers focusing on purchasing ‘freezable’ and lower value cuts such as mince for their stockpiles, and in part due to the shutdown in trade in higher value cuts to cafes and restaurants. Perhaps the canary in the mine for the impact of COVID-19 on fresh food prices can be seen through seafood prices which only rose just over 1 per cent - trading off the increase in consumer and retail spending with the collapse of export and restaurant markets.
ABS retail spending data showed a 22.4 per cent rise for supermarkets in the March quarter due to panic buying, particularly for toilet paper, flour, pasta and other non-perishable goods. On top of this, CPI figures for the same period showed prices of toilet paper, hand sanitiser and personal care goods rose 2.2 per cent while ‘other cereal products’ including rice and pasta rose a significant 4.4 per cent. This clearly shows stockpiling has certainly impacted the price of some goods.
Other impacts on food supply and prices stemming from COVID-19 may come through disruptions to domestic food supplies including the potential for short-term closure of processing facilities – however such impacts are unlikely to make a significant impact on price or availability.
So looking forward, what can Australians expect from food prices?
ANZ-observed retail spend data suggest households have firmly moved away from stockpiling and are focused on holding onto their savings for a rainy day. Growth in grocery sales currently remains in positive territory – but only just.
Looking forward consumers are expected to remain cautious but how far that extends to food products, or even higher-value versus lower-value produce, is yet to be seen.
What is clear is there are many factors other than COVID-19 which are more prominent for both farm-gate and retail food prices.
The ongoing national herd and flock rebuild following the drought will continue to put upward pressure on prices, the continuing impact of African Swine Fever in Asia will continue to boost red meat demand, while continuing demand for grains for both food and feed in the face of a potentially strong cropping season is also likely to support grain prices looking forward.
Mark Bennett is Head of Agribusiness at ANZ
The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.
21 Apr 2020
24 Apr 2020