European Commission considers new initiatives to lower food prices

Posted by Isobel Drake on 11th December 2008

The European Commission has agreed a Communication that aims to improve the functioning of the food supply chain in order to lower prices for consumers. The prices of food have come down significantly from record levels earlier this year but the underlying causes for the surge in agricultural commodity prices in the medium-term -including regulatory restrictions, insufficient competition and speculation – have not disappeared and must be dealt with.”Food inflation contributed around a third to total inflation between August 2007 and July 2008 affecting particularly modest income households,” Economic and Monetary Affairs Commissioner Joaquin Almunia said. “In the current economic slowdown it is crucial that we send a clear message that we are serious about tackling the rigidities and other factors that prevent the markets from functioning optimally. Not only would this provide for more competitive and undistorted prices to consumers, it would also protect the purchasing power of the most vulnerable citizens and support job creation.”

“Agricultural policy has a crucial role to play in ensuring food reaches consumers at a reasonable price,” Mariann Fischer Boel, Commissioner for Agriculture and Rural Development, noted. “I hope we can now remove some restrictions on international food trade through a balanced deal in the Doha Round of world trade talks.”

Today’s Communication proposes ways to improve the functioning of the food supply chain and follows up on a request by the June European Council to investigate the causes of the sharp increases in the price of food in the wake of the even stronger rise in commodity prices.

The Commission proposes to:
* Promote the competitiveness of the food-supply chain to increase its resilience to world price shocks. The High Level Group on the Competitiveness of the Agro-Food Industry will make recommendations in early 2009.
* Ensure a vigorous and coherent enforcement of competition and target those practices and restrictions that are particularly harmful.
* Review potentially-restrictive regulations. Regulations that restrict market entry need to be scrutinised and removed where appropriate while keeping in mind their environmental and social goals. This will be done in the context of the retail market monitoring exercise and the transposition of the Services Directive. Regulations that restrict the ability to compete on prices should be examined at national level. Late payments by retailers or excessive fees demanded from producers for promotional offers should be reviewed. Regulations on shop opening hours could also be the subject of consultations at national level.
* A permanent European monitoring of prices will be set up to increase transparency – enabling consumers to better compare prices.
* The Commission will examine with regulators of commodity markets how to discourage excessive volatility in the markets that benefits neither producers nor consumers.

Efforts to re-balance the global supply and demand for food, to stimulate agricultural research and open up international markets should be strengthened, the Commission suggested. Although commodity prices have decreased sharply, over the medium-term structural factors like the growth in global demand are expected to hold prices up.

“Problems in the functioning of the food supply chain, in terms of the degree of competition and regulation, have also played an important role,” the Commission noted in a statement. “There seems to be significant scope to improve the functioning of the food supply chain to ensure that the integration and consolidation of sectors go hand in hand with improved competitiveness and lower prices, as well as greater choice of food products.”

A more open trade policy is also pivotal and will be sought at the Doha Round of world trade talks, the Commission concluded.