Prices, Costs, and Profits in the Food Chain: Insights from the Netherlands Workshop
This presentation delves into the evolution of prices along the food chain, analyzing factors such as the Covid crisis, energy prices, and geopolitical unrest. It highlights the costs and profits of farmers, processors, and supermarkets, as well as perceptions of fairness in the industry. Additionally, it provides a closer look at product pricing dynamics for items like potatoes, milk, tomatoes, and pigmeat in the Netherlands.
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Presentation Transcript
Prices, costs and profits along the chain A look at the Netherlands Workshop on The cost of food and food price inflation Brussels, 3 October 2024 Michiel van Galen Wageningen University & Research 03/10/2024 Presentation for the Committee on Agriculture and Rural Development 1
Structure of the Presentation Structure of the Presentation 1. Evolution of prices in the food chain 2. Costs and profits of farmers 3. Fairness perceptions 4. Costs and profits of processors and supermarkets 5. Key findings 03/10/2024 2 Presentation for the Committee on Agriculture and Rural Development
Evolution of prices along the food chain Agricultural prices are volatile; weather and seasonal demand / supply Inflationary pressures 1. Covid crisis in 2020 2. Energy prices in 2021 3. Russian invasion of Ukraine in 2022 4. Unrest in Middle-East in 2023 / Labour costs increases Combination of other factors Source: Eurostat Food Price Monitoring Tool. 03/10/2024 Presentation for the Committee on Agriculture and Rural Development 3
A closer look at some products in the Netherlands: potatoes and milk Prices transmit fast Spot market trading next to seasonal contracts, and pooling Prices transmit poorly Annual contracts and lots of other processing markets Source: Van Galen, M., Oosterkamp, E., Kornelis, M., Logatcheva, K., Benus, M., Janssens, B., Jukema, G., Roskam, J., van den Puttelaar, J., Herceglic , N., Jager, J., Ihle, R., & Gardebroek, K. (2022). Agro-Nutri Monitor 2022 - Hoofdrapport: Monitor prijsvorming voedingsmiddelen en aankoopmotieven van biologische producten. (Wageningen Economic Research rapport; No. 2022-069). Wageningen Economic Research. https://doi.org/10.18174/572860 03/10/2024 Presentation for the Committee on Agriculture and Rural Development 4
A closer look at some products in the Netherlands: tomatoes and pigmeat Prices transmit fast Spot market trading next to seasonal contracts Prices transmit but with a break in 2020 Introduction of sustainability labels Annual contracts, monthly payment Export markets and many products Source: Van Galen, M., Oosterkamp, E., Kornelis, M., Logatcheva, K., Benus, M., Janssens, B., Jukema, G., Roskam, J., van den Puttelaar, J., Herceglic , N., Jager, J., Ihle, R., & Gardebroek, K. (2022). Agro-Nutri Monitor 2022 - Hoofdrapport: Monitor prijsvorming voedingsmiddelen en aankoopmotieven van biologische producten. (Wageningen Economic Research rapport; No. 2022-069). Wageningen Economic Research. https://doi.org/10.18174/572860 03/10/2024 Presentation for the Committee on Agriculture and Rural Development 5
Figure 6: Family farm income per unpaid a.w.u. in the Netherlands, total agriculture and horticulture Lots of difference in income between farms The range in incomes of farmers is very large Increased costs have been incorporated in farm prices Incomes were relatively high in 2021-2023 but so were the differences between farms Figure 7: Income per household and households below poverty threshold, in Agriculture The share of farm households in low-income situation increases Smaller farms are more often in a low-income situation Differences between farm types 03/10/2024 Presentation for the Committee on Agriculture and Rural Development 6
What is fair? Conventional famers are mostly negative about the fairness of the price Division of risks between farmers and other chain actors is perceived as unfair Other factors besides price Fairness perception is better for farmers (directly) supplying major retailers Intransparency about profits and costs of other actors in the chain Adapted from: Van Galen, M., Oosterkamp, E., Kornelis, M., Logatcheva, K., Benus, M., Janssens, B., Jukema, G., Roskam, J., van den Puttelaar, J., Herceglic , N., & Jager, J. (2022). Agro-Nutri Monitor 2022 - Achtergrondrapport: monitor prijsvorming voedingsmiddelen. (Wageningen Economic Research rapport; No. 2022-069). Wageningen Economic Research. https://doi.org/10.18174/574071 03/10/2024 Presentation for the Committee on Agriculture and Rural Development 7
Cost structure of processors and supermarkets Agricultural products ~60% of processor costs Commodities for resale ~70% of supermarket costs Agricultural products ~40% of supermarket costs Personnel costs another major component Different retail formats with different cost structures Source: Statistics Netherlands. 8 03/10/2024 Presentation for the Committee on Agriculture and Rural Development
Profit margins of processors and supermarkets Source: Wageningen Economic Research. Source: Statistics Netherlands. Profit margins of processors and supermarkets are much more stable, but not extremely high In recent years some supermarkets stopped business 03/10/2024 Presentation for the Committee on Agriculture and Rural Development 9
Key findings Agricultural prices are volatile due to weather and position in chain Farm profits are more volatile than processors and supermarkets Chain structure, contracts, product requirements differ a lot: spot markets, seasonal contracts, vertical integration, cooperatives Supermarket prices are mostly following farm prices but processing, market segmentation, and contracts may make transmission incomplete and not instantaneous Farm incomes are increasing but smaller farms lagging behind Farmers perceive prices as somewhat unfair but farmers supplying larger retailers are more positive Purchases of agricultural products are ~40% of supermarket costs Supermarkets and processors did not make (extra) profits in times of inflation Presentation for the Committee on Agriculture and Rural Development 10 03/10/2024
