Why do food prices increase every end of the year?

Have food prices increased?

Absolutely yes, although this rise in agri-food prices occurs at least as an inevitable market event at the end of every December.

But at the end of 2023, the price increase comes due to a combination of inflation, supply chain disruptions related to the breakdown of previous supplier-customer relationships, as well as tariffs on some foreign imports.

We now see an undeniable fact that food prices have risen steadily since 2020 by close to 30%[1].

But inflation has slowed in 2023 and the latest data shows that the cost of groceries is not rising as fast as in previous years.

Then why another increase in prices in our country, when the general consumer cannot afford the increases so far?

Why are food prices rising, then?

Is it influenced by the same factors as in other countries, where it is observed that there is a significant increase in food prices?

Food prices in many countries are increasing due to several factors that occur in each country of the world, where more and where less according to economic, social and political specifics. These factors include inflation, labor costs, the supply chain, and natural and human disasters (conflicts of various natures in the supply countries of certain food staples).

Even in Albania, the influence of these factors is present and has its own share of influence.

Labor costs have increased by at least 18% over the past three years and tend to increase further, according to INSTAT data and our calculations.

Food costs are also estimated to have increased by 12.1% in 2023, according to our calculations.

Floods, fires and deficient prevention policies resulting from a lack of full and timely investment have led to lower than average crop yields from farms in the region, increasing consumer costs for food. Supply chain issues that have persisted since the pandemic have impacted the food supply.

The regional and internal political conflicts spawned by the political and economic elites have affected the country’s ability to import, but also to export food.

Meanwhile, the part that remains to be systematized and that depends directly on the role of government agencies and institutions is the timely action and preventive response of the institutions that seem to need to be reformed, since the measures taken over the last few years have had an ineffective effect , and may even have hindered various processes of development and growth of agricultural production, livestock and other related by-products.

The role of state agencies in helping to maintain a sustainable food supply chain in general should have intervened much differently and forcefully in terms of:

• Investments in the food supply chain, guaranteeing grants and subsidies to the food industry to the extent that is needed (according to expert studies) and not to the extent that the government plans and which continues to be insufficient, delayed and with corruption problems
• Guaranteeing technical assistance and orientations for farmers according to the needs in the supply chain, starting from the farmer who produces and ending with food producers and processors
• Conducting studies and disseminating information with all parties in the market, including all actors with direct and indirect influence and continuously analyzing the performance of institutions and the sector
• Reviewing policies and the regulatory chain by adapting to the demands of farmers and interest groups and unifying good practices through regulatory acts to increase food safety and guarantee sustainable development.

In fact, a look at the reports from the institutions that are directly related to the agro-food sector shows that they are far from being part of the solution to the problems.

However, a specific problem that is clearly visible in Albania in relation to neighboring countries is the lack of combat and the lack of work and economic informality.

The informal sector is flourishing fueled by excessive and misguided taxes and regulations and on the other hand by the reality that the government lacks the ability to enforce compliance or in other words the laws and acts it passes itself. The informal sector has reduced fair competitiveness and put businesses in the agri-food industry chain in unequal positions, giving its effect to the large agricultural sector, which is dominated by low productivity, small businesses and a fragmented sector and with the lack of tax fairness that affects the increase in the costs of doing business and necessarily encourages speculation and artificial price increases.

This level of informality is undoubtedly related to political patronage and corruption and is seen as a phenomenon that significantly worsens the forecasts of the increase in the added value of the sector and therefore the resistance to the growing influences according to the factors above. This economic phenomenon is creating catastrophic consequences for the development of agriculture, as part of the country’s economy, since, in addition to the above problems, it is affecting the worsening of socio-economic inequality until the flight of human and financial capital from the corrupt economy. Likewise, the impact on the increase in final food prices also comes through tax pressures and the government’s efforts to ask the population to support the trend of increasing public spending on infrastructure and many other expenses not requested by them.

Meanwhile, weak anti-dumping measures and de facto stimulation of imports has created a stimulating environment for the creation and strengthening of oligopolies in the agricultural and food sector, which dictate pricing policies for many products. This fact is a direct threat and impact on the business of small and medium farmers, affecting and creating a dependence on import prices and increasing their costs, forcing them to give to the oligopoly market.

Oligopoly companies are seen to control prices by cooperating with each other, ultimately providing non-competitive prices in the market. A main effect of this harmful policy for the sector and the consumer is to limit new market entrants and reduce innovation in the sector by keeping the market constantly under their control. But the problem with government action is precisely that these oligopolies never act alone. They cooperate to ensure that consumers do not have alternatives to their high prices, and the inaction of the government or the wrong measures that are taken intentionally or not help exactly along with other factors to make the Albanian consumer feel poorer than those of surrounding countries.

At the end of our analysis, it can be seen that the increase in prices at the end of the year is more the result of the inaction of the government or the partial capture of its institutions through corrupt approaches, the constant action of oligopolistic importing companies as well as the presence of a chaotic and informal market, which operates not according to the regulatory framework, but according to the law of the jungle.

[1] https://www.instat.gov.al/al/temat/%C3%A7mimet/indeksi-i-%C3%A7mimeve-t%C3%AB-konsumit/