06 Jul 2022
The cost of food on Australian supermarket shelves has become a headline issue with rising food prices one of the major contributing factors to the steep inflation rate.
For many decades, Australian consumers have benefitted from relatively subdued growth in food prices - particularly when compared with housing, health and education bills. However, Australian food bills have increased by more than many other developed countries because of the country’s status as a major food exporter to booming Asian economies.
"What’s driving the sudden increase in food prices and should consumers expect higher food prices in their weekly shop looking forward?”
This exposes Australian food prices to international prices more often than realised. So while food insecurity is unlikely to play the same role in Australia as in other food importing countries, global insecurity will flow on to prices on supermarket shelves down under.
Australian food and beverage prices have risen an average of 4.3 per cent in the last year and 2.8 per cent in the last quarter alone. But although consumers are faced with the increase in food prices for essentials like milk and bread, longer-term trends show food prices have remained relatively subdued compared to other household costs.
So what’s driving the sudden increase in food prices and should consumers expect higher food prices in their weekly shop looking forward?
Australian food prices have benefitted from many years of technological advances in agriculture. Domestic food prices have remained relatively low as farmers become more efficient, more productive and embrace new technologies.
Over the past two decades, food prices have risen by 62 per cent. In comparison, the cost of housing has risen 98 per cent and health and education are both up 144 per cent. While recent large increases in retail food costs may have come as a surprise to many consumers, they are built off the back of relatively low prices.
However, low food price inflation has not been exclusively an Australian trait – it has been echoed in most developed countries across the world, primarily as a result of technological and productivity advances in agriculture.
Compared with other Organisation for Economic Co-operation and Development (OECD) nations, Australia’s food prices have in fact grown more than many other developed nations – particularly from the mid-1990s onwards.
Much of this can explained by Australia’s role as major producer and exporter of agricultural goods. Demand for Australian exports has pulled local prices higher due to competition - particularly from booming Asian economies.
So does this mean commodity prices and returns to farmers are the single biggest driving factor in the cost on Aussie supermarket shelves? The same data from the United Nations Food and Agriculture Organisation (UN FAO) would tend to suggest this isn’t the case.
At the same time retail food prices in Australia have increased 138 per cent, total prices paid to farmers have increased by 111 per cent. In Canada, which is similarly positioned, food prices have only increased by 82 per cent compared with farmers’ prices which have increased by 103 per cent.
New Zealand is an outlier. Kiwi food prices have increased by only 70 per cent while farmers’ prices have increased by 161 per cent – primarily due to the wholesale shift to intensive dairy farming and New Zealand’s status as large exporting nation.
Over the past 30 years, Australian farmers’ returns have increased on par with other nations such as Canada and the United States and far more than the United Kingdom where farmer returns have only increased 69 per cent. However, retail food prices have increased by far more than the nation’s peers.
Indeed, it would seem Australia is bucking the trend. As a major exporter, Australian food prices have been increasing in line with large importing nations since the 1990s. Some of this may be due to Australia importing little in the way of unmanufactured agricultural produce (unlike the United States) meaning Aussie consumers are effectively competing with Asian consumers for local produce.
Domestically, the correlation between commodity prices is made clearest by red meat prices. Australia imported just under $US50 million worth of beef and $US8.5 million worth of sheep meat in 2021 – compared with exports worth $US7.2 billion and $US3.4 billion respectively.
Australian consumers are almost entirely reliant on domestically produced red meat and, as result, retail red meat prices reflect the upside of saleyard prices. Even so, the supermarket shelves are not a complete reflection of saleyard prices with retail prices showing evidence of being ‘sticky’ – or only rising in line withs saleyard prices, not falling.
With growing concerns over food insecurity across the world, particularly as a result of the ongoing invasion of Ukraine by Russia, can Australian consumers consider themselves isolated from the more serious impacts? In short, yes and no.
Supply will never be a long-term, sustained issue for Australian consumers. Australian producers continue to produce far more major commodities than are consumed so it is exceptionally unlikely the nation would “run out” of food.
Prices, on the other hand, will continue to increase as long as global demand for Australian produce is high. Australian producers have benefitted from increased returns and prices as a result of global trade –the most recent spike in global wheat and grains prices provides solid evidence of this. But being a very small importer of fresh produce – primarily by virtue of distance – means when local supply is disturbed, the consumer feels the full impact. This has been the case with recent flooding and vegetable prices.
While it may seem Australian food prices are isolated from the major impacts of the global food price spike, oil prices and war, the nation’s role as a major exporter and small importer of fresh food means supermarket shelf prices are more reliant on global circumstance than perhaps first realised.
Madeleine Swan is Director of Food, Beverage and Agribusiness Insights 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.
06 Jul 2022
02 May 2022