Editorial

The price of certain foods is rising but one should be very wary of how such increases are dealt with.

The first thing to acknowledge up front is that some of these increases are very steep, but also fully explained by the situation in international markets. The world is looking for carbon-friendly alternatives to fossil fuel. One viable alternative is bio-fuel, which is made from corn. Farmers who were growing corn for food or for animal feed were being faced with panicky demands from ethanol producers who simply could not find enough. The result? Corn prices doubled in a very short space of time. Farmers began to dedicate more of their land to corn, because they were making more money off it than off normal crops, and grew less of the other products, so their price went up too. And with corn in short supply, substitutes also went up in price.

Such sharp price increases are never welcome; given the prevailing circumstances in Malta, the timing couldn't have been worse. They coincide not only with the introduction of the euro, which has made people far more sensitive to price levels and to the threat of abuse, but also with the election. People worried about making ends meet are not the most rational of voters.

Secondly, there are mechanisms to deal with abusive price increases because of the euro changeover; whether they work correctly or not is up to consumers to decide, and do something about.

The Maltese fear a repeat of what happened in Italy in the first changeover and they will never believe the contrary, no matter how often they hear that the inflation that people perceived there in 2002 did not actually translate into inflation across all their spending categories. The Union Haddiema Maghqudin found prices had risen by five to 20 per cent but only a handful of these increases were suspicious...

The Consumers' Association wants a price freeze for six months. It means well but its idea is unfortunately not workable. If an importer cannot make enough profit on a product, he will simply not bring it in until he can charge the suitable price. If a product is made locally of imported raw materials, the manufacturer will have to cut corners to keep the price unchanged, whether by reducing standards or reducing staff. So far, 11 price stability agreements have been signed with the NECC. It ought to be borne in mind that importers cannot guarantee that prices will not increase for six months unless their suppliers match that promise - or they can afford to bring in six months' stock now!

Such arrangements may prove to be useful to ensure that living standards are not eroded but it would be wrong to think they will continue to have the same effect in the long term. If only! This happened in the case of the rise in oil prices: By subsiding the cost of water and electricity, the government mitigated the social and economic (and political) impact. When the surcharge was imposed, consumers had to think more carefully about their energy consumption. A free market and competition are the best deal for consumers because they should weed out the bad/get-rich-quick elements.

Arrangements that transmit a false sense of security are always tricky, especially in the case of essential items, such as food. In the case of wheat and corn prices, for example, one can never be too sure how long the international situation will take to restabilise. This must always be borne in mind.