Availability and speculations

Author: Marco Negro

In market analyses, we increasingly hear about the concepts of “price increases” and “availability”. How do these two factors affect the agri-food supply chain? What is their effect on our grocery bills?

The Italian agri-food sector has been hit by several shocks in recent years. These include: fluctuations in exports to China, protectionist and retaliatory barriers imposed by the US, uncertainties related to Brexit, and the effects of the pandemic on “out of home” consumption. In 2022, we were presented with the bill for the economic damage caused by a war in the center of the European continent, with direct effects on the price of cereals and energy costs. The year that is coming to an end has marked the definitive return of the term “inflation”, which rhymes with “speculation”.

Meanwhile, a new government, the sixty-eighth of the Republic, is tasked with analyzing many files related to this sector, which last year was worth 538 billion euros, about 25% of the national GDP. The way in which our system will react will have effects on the hundreds of thousands of families who run agricultural businesses, artisanal processing laboratories, and restaurants.

What is available

The availability of a good is closely linked to its cost or the sacrifice required to obtain it. The oldest cultures based food availability on three simple factors: the accessibility of fertile land, the hard work of cultivation, and the hope for favorable weather conditions. In contemporary times, the issue of food availability has been completely delegated to two industries: agriculture and distribution. We are no longer dealing with clever merchants at the market; now we depend on powerful economic groups that centralize both production chains and ownership of sales outlets, large or small.

A shopping trolley among the shelves of a supermarket.

In industrialized nations, basic foods, beverages, and small indulgences are practically within everyone’s reach, even in abundance, although some factors may affect the total quantity produced of certain foods. The long and arid summer of 2022, for example, reduced many productions. Coldiretti estimated a national decrease of 15% in wheat production and predicts a 30% decrease in the quantity of olive oil for the current olive harvest. However, in general, if one does not care about quality, as indeed large producers and speculative companies do not, the basic components of nutrition are widely available at very modest prices. This is a first nuance of the concept of availability. In Western economies, the production of foods containing fats, proteins, generic sugars, and carbohydrates is increasingly faster, easier, and cheaper. So why do markets react with price increases, thus triggering inflation?

What is least available

Unfortunately, in the composition of the price of a food product, the share of the cost recognized to the farm that raised a certain animal, sowed a field, or cultivated the vineyard is very modest. The remaining part of the costs is to be attributed to industrial transformation, packaging materials, and the many kilometers that all these elements have covered before arriving in our pantry. It is among these elements that we will analyze the use of the term “availability”.

The issue of energy costs has become a variable that is all too familiar, even in the economies of our families. We have by now heard various explanations from commentators and experts, with the result of not having understood much about the reasons why bills from gas or electricity suppliers have more than doubled. In any case, more or less all the explanations mention the decreased availability of fossil fuels, on which a good part of Italian energy production depends. The suspicion of large-scale speculation, however, is strong.

Processing in the glass industry.

The cost of packaging must also be taken into account in the price of a food product. All packaging materials are highly energy-intensive, from cardboard, which requires large amounts of steam to be processed, to glass, for which gas-fired furnaces are used in production. However, it should be noted that, according to all the producers interviewed, the uninterrupted series of price increases for packaging materials began in the autumn of 2021, when geopolitical tensions in Europe were not even imagined. For decades, it had not happened that suppliers adjusted their prices upwards during the year, moreover in the midst of the production period for December sales. Packaging companies began to justify themselves, talking about a reduced disposal of glass, sheet metal, paper, and even wood for pallets. Prices for bottles and jars, caps and capsules, labels and cardboard, began to rise relentlessly, with now quarterly adjustments.

The stories of diminished supply of raw materials and dependence on Russian gas have merged with an inefficient and increasingly costly logistics distribution of materials, articulated through dozens of passages on trucks and vans powered by diesel fuel. These are all factors that create opportunities for speculation and inflation; two terms that not only rhyme, but also feed off each other. Markets, in general, are disoriented. Distributors, from national to foreign ones, have found themselves with average increases well above the average value of inflation.

The shopping cart

The current scenario of abundance of food products on our markets must reckon with a climate change increasingly adverse to existing agricultural models, as well as the continuous rise in energy prices and packaging materials. The price hikes for our expenses exceed the average inflation rate. Market analysts such as IRI and GS1 Italy note the peaks in price increases in the past month of September. They also report a 4.6% drop in hypermarket sales and a 6.3% increase in sales in cheaper supermarkets. It seems that consumers, to make ends meet, are changing their purchasing habits. In these latter, so-called “discount” stores, the average price hikes are however around +14.1%, a figure referring to the month of September 2022. It is also true that the consumption of short and certified supply chain products is increasing, thanks to food and wine tourism and day trips.

Let’s revisit the concept of availability one final time. Are consumers willing to pay these new prices? Producers of food consumer goods are questioning the extent to which consumers are willing to pay more for the same product. What is the threshold beyond which the customer will abandon the product on the shelf and seek a substitute? In the arduous search for a formula to contain the rising costs of raw materials and energy, some companies have no choice but to compromise on what is less tangible: blends of imported flours for baked goods and pasta, unclear mixtures of oils from diverse sources, the production of “cheeses” made with powdered dairy processed who knows where, or pre-portioned meats.

Vucciria market in Palermo.

The reflection is individual because we all buy from street vendors, enter local supermarkets, or stock up in hypermarkets. How willing are we to choose healthy, traceable products, but inevitably more expensive? Do cuts to the family budget have to focus on the quality of food, or can we contain other expenses, so as not to compromise on the quality of our diet? Complex situations, such as the one we are experiencing, leave their mark; they shift purchasing habits and prepare the consumption style of new generations. That child, whom we now hold by the hand at the local market or who follows us with the shopping cart, learns from us adults to read labels and to give the right value to the quality of our food.

10th November 2022,

Marco Negro

Picture of Marco Negro
Marco Negro
Expert of communication of Italian wine. He has a knack for connecting people.
Picture of Marco Negro
Marco Negro
Expert of communication of Italian wine. He has a knack for connecting people.

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