Vegetable prices soar again despite import liberalisation

Consumers are paying much more for fresh fruit and vegetables than they used to in 2004 even if the liberalisation of food imports upon Malta's accession to the European Union should have put down prices.

Data provided by the National Statistics Office upon a request by The Times show that the price of vegetables increased by almost 24 percentage points between November 2005 and November 2006 - second only to the price of sugar which soared last year. The price of fresh fruit also increased, by almost 12 percentage points, in the same period.

Upon accession, there had been a drastic decrease in overall food prices which was linked to the opening up of the local market. In 2003, when there was still a number of protective levies limiting the volume of vegetables imported from the EU, the vegetable index stood at 172 percentage points.

Upon accession, it dropped to 126.9 percentage points as trade barriers were lifted and competition from imported produce pushed prices down. The quantity of imported aubergines, mushrooms, beans, cucumber, onions and courgettes was 15 times more than what was imported before Malta joined the single market. In 2005, vegetable prices went down by a further two percentage points.

The price of vegetables, fruit and potatoes rose last year when compared to 2005, soaring way above those prevailing in 2004. The trend does not reflect an increase in farmers' profit margins, which continued to fall constantly and gradually since 2001, with a more pronounced drop through fierce competition from imports over the past three years.

The data echoe concerns expressed last month by Central Bank governor Michael Bonello, who cautioned that the sharp increase in the food index in November indicated that "existing price setting mechanisms were not delivering the outcomes expected in a liberalised market environment".

An approximate data gathering exercise carried out by The Times shows that consumers paid between one-and-a-half to three times more than what farmers obtained for selling their produce at the Ta' Qali vegetable market last Thursday.

The Food Price Index increased by 3.5 per cent in November 2006 - double the rate at which it rose the previous year. With its huge weighting in the Retail Price Index (RPI), food is a major contributor to inflation.

The same trend occurred in the Harmonised Index of Consumer Prices (HICP), where the index for food and non-alcoholic beverages increased by 3.9 percentage points from a two per cent increase of November 2005.

Besides having a direct effect on families' purchasing power and wages, a high inflation could jeopardise Malta's plans to join the euro next year.