Rising prices: Who is to blame for the high food prices?

Grocery shopping in the supermarket or at the discounter has become a nuisance for many people.

Rising prices: Who is to blame for the high food prices?

Grocery shopping in the supermarket or at the discounter has become a nuisance for many people. Because groceries have become more expensive by more than 20 percent in the past twelve months. This is largely due to increased raw material costs. However, the suspicion is being voiced more and more often that large food companies are using the high inflation to raise prices inappropriately and thus increase their own profit margins.

"More than a third of the recent increase in food prices" in Germany cannot be explained by traditional drivers such as raw material costs or the development of energy prices, reported Andy Jobst, inflation expert at credit insurer Allianz Trade, in a study published on Monday. "There seems to be increasing evidence of profit-taking and insufficient competition in areas with particularly high price increases, such as producers of dairy products and eggs, but also non-seasonal vegetables and fruits," said the industry insider.

Consumer centers are sounding the alarm

Jobst is not alone in his assessment. The German consumer centers have also already sounded the alarm. "Some food price increases are neither justified nor understandable," they recently judged. That is why politicians and the cartel office need to take a critical look at retailers and food manufacturers in order to check whether companies are using the situation to improve their own earnings.

The trade sees the blame above all in large brand manufacturers. The bosses of the two leading German supermarket chains Edeka and Rewe, Markus Mosa and Lionel Souque, have repeatedly accused large international consumer goods manufacturers of demanding price increases that are incomprehensible. The boss of the drugstore chain Rossmann, Raoul Roßmann, recently told the "Lebensmittel Zeitung": "Rossmann also has trouble with some suppliers who demand excessive price increases."

"We are observing that food manufacturers in particular are hungry for profits. They have increased prices much more than retailers," said Allianz Trade industry expert Aurélien Duthoit. Food producers in Germany would have increased around 18.8 percent in 2022 compared to the previous year, while food retailers “only” 12.6 percent.

Allegations rejected by several parties

However, the Federal Association of the German Food Industry described the allegations of "enrichment assumed for the entire industry" as "insubstantial". Given the purchasing power of the four major German retail chains, it seems difficult to imagine that manufacturers could generate disproportionately high profits.

Even the big brand manufacturers don't want to put up with it. "We firmly reject this," said the German subsidiary of world market leader Nestlé. The profit margin fell noticeably in Europe in 2022. The company only partially passed on additional costs of several hundred million euros. At Coca-Cola, too, it was said: "We have not passed on our cost increases in full to our customers in the food trade and in the out-of-home market."

Competitor Unilever (Langnese, Pfanni, Dove) emphasized that the company's key figures made it clear that the group was not able to pass on increased raw material prices and energy costs either globally or in Europe in 2022. The consumer goods giant Mars, which, in addition to chocolate bars, also sells foods such as the pasta classic Miracoli and an extensive range of animal feed from Whiskas to Frolic, also rejected the allegations.

Warning against one-sided assignment of blame

Trade expert Martin Fassnacht from the WHU business school in Düsseldorf warned against one-sided blame. "On the whole, I don't think that the accusation of price gouging against the brand manufacturers is justified. That may apply here and there to the really big ones, who have more opportunities to push through price increases with their strong brands. But not otherwise," said he of the German Press Agency. If the trade complains loudly about this, then it is ultimately about profiling itself towards consumers.

In fact, the prices here and there are now slipping again. After butter and coffee had become a little cheaper again in the past few months, large retailers such as Kaufland, Lidl and Norma also permanently reduced the prices for numerous cheese products from Gouda to Emmentaler on Monday. The reason for this is the lower raw material prices, it said.

Hopes that the wave of price increases in the food trade will now abate quickly overall would probably be premature. In any case, the experts from Allianz-Trade expect that food prices in Germany will rise again by more than twelve percent this year. "For next year, the outlook for food inflation is better," Jobst said. However, in many cases this means that prices have stagnated. "Experience has shown that price increases that have been implemented are rarely withdrawn."