Grocery prices could fall by as much as 15 per cent: Agricultural expert

Posted by Daniel Palmer on 19th January 2009

Grocery food prices could retreat by up to 15 per cent in some cases, according to an agricultural expert, as lower fuel costs and strong overseas harvests force the price of food staples down from the record highs of last year. Dairy and meat prices could be among those to decline, according to Mick Keogh, an agricultural expert at the Australian Farm Institute.

Mr Keogh advised that the economic deterioration has reduced farming costs, while northern hemisphere harvests had been very good. “Certainly the input costs that go into food production on farms have come back quite substantially over the last few months. Fertiliser prices have reduced, fuel prices have come back, chemical prices have reduced,” he said on ABC radio this morning. “We’ve also seen a substantial downturn in global grain markets as record harvest have come in, in places like Eastern Europe, Kazakhstan and Russia. And they’ve flowed onto the export markets. So, a lot of grain-based products will also, you would think ease a bit in price. Things like pork and poultry, and that of course goes through to dairy and feed-lot beef and those sorts of things.”

NZ dairy co-operative, Fonterra, recently reported that global dairy prices had plummeted by around 50% since July as demand dropped, and those declines are starting to filter through the supply chain. Mr Keogh said that dairy companies had begun reducing the prices they offer to farmers by up to 15 per cent. “You would anticipate that that would flow through into dairy products on supermarket shelves in the not too distant future. Because of course it’s not a product that’s stored for a long time,” he told the ABC. “So, that you would expect to see fairly quickly, that may then flow through to things like poultry prices because that’s predominantly grain-based. But just how quickly, it’s a bit hard to tell at the moment.”

organic food basket

John Cummings, Chairman of the National Association of Retail Grocers of Australia (NARGA), noted that price rises had begin to level off, with some products beginning to decline in price. “We were looking 12 months ago at estimates of prices of produce in Australia going up by 10 to 25 per cent. I think that pressure has totally come off now with the current economic situation,” he said on ABC radio. “All fruit and vegetable and meat products are very high transport costs, and as diesel is coming down, we should see pressure going off the rises in those areas, and in some cases we’ll see a lowering of prices, especially in fruit and veg.”

How much food commodity, and grocery, prices fall may depend on the length of the global economic downturn, with the UN’s Food and Agricultural Organization recently warning that food commodity prices could be on the up before the end of the year. Plantings and output could drop drastically if the fall in demand continues, potentially putting great stress on prices once the global economy recovers, according to the FAO.