Global hike in food prices leaving sour taste in Malta

If your weekly food bill has gone up take solace in the fact that the rest of the world is grappling with a global crisis.

The prices of basic food items such as pasta, bread, milk, oils, cereals and butter have seen a sudden increase over the past months.

Economist Edward Scicluna is forecasting that high prices and shortages - which have caused riots in Bangladesh and Haiti - are here to stay.

"This problem looks like it will continue for quite a number of years, even as far as 10 years. When these things happen the world will adjust but it will take time," he told The Times.

Apart from the rocketing fuel prices, Prof. Scicluna points to China and India where millions of increasingly-prosperous people are eating more.

"People are no longer relying on just a bowl of rice, they rightly expect more. High-income people now want a full meal and it's one thing if this was the case in a small island like Malta and another when you think of the millions in China and India who are expecting better and more varied food," he explained.

Food prices are also soaring due to bad weather in key food-producing countries and the increase in land allocated to biofuels. The cycle of bad news continues when a few exporting countries decide to limit their exports and consume the produce themselves.

The head of the UN World Food Programme summed up the global food shortages as "a silent tsunami, which knows no borders, sweeping the world".

While Malta has not yet reached a situation of hoarding or food riots, it is still feeling the pinch - a one-litre milk carton has just gone up by €0.07 (3c) and importers are about to raise the price of flour, which will affect the price of bread.

According to the National Statistics Office, in one year (2006-2007) the price of margarine and butter went up by 5.4 per cent; refined oils by 4.9 per cent; fresh bread and pastry by 2.9 per cent, pasta by 2.7 per cent and milk and milk products by 1.7 per cent.

Tower supermarket managing director Philip Borg said supermarkets had no direct control on prices but he had seen the cost of food go up across the board.

The prices of different brands of pasta lining supermarket shelves have increased twice in five months, in some cases by as much as 15 per cent, while prices of some brands of butter, bread, cereals and oil have gone up due to poor harvest and fierce competition for food supplies.

These situations have a ripple effect on the feed of animals, which, in turn, forces farmers to raise the price of meat.

Peter Axisa, chief executive officer of the Ta' Qali Producers' Group, said rabbit feed had gone up to €7.70 (Lm3.31) from €5.15 (Lm2.21) for a 25-kilogramme bag in a matter of one year while wheat had seen an increase of €9.81 (Lm4.21) for a 50-kg bag.

"I used to buy a bag of chicken feed for €5.12 (Lm2.20) but now I pay €1.28 (55c) more. The rise in raw materials is bound to have an effect on the end prices consumers pay for chicken, rabbit and red meat," he said.

Mr Axisa also pointed to biofuels as one of the culprits. If the price is favourable, farmers will obviously switch to ethanol production, which is not good news for the consumer.

Franco Busuttil, managing director of Francis Busuttil & Sons, echoed a similar sentiment, saying that though the company tried to soften the blow by absorbing some of the price increases there was a limit.

"Foodstuffs are increasing in price across the board. For example, the main ingredient in mayonnaise is oil, so if oil increases by 30-40 per cent as a raw material, the product will obviously increase in price. Everybody is feeling the pinch from the present global situation," Mr Busuttil said.

So what was the global impact on the local economy?

Prof. Scicluna said that from an economic point of view there was the equity and distributive issue coupled with inflation and competitiveness.

"Being a consuming country, when the price of imports starts going up, the terms of trade are against us and relatively we get a little bit poorer, in the sense that we have to spend more to get what we had in the past."

The pockets of lower-income families will be worst hit because this sector of society spends some five to 10 per cent more on food than their wealthier counterparts.

Looking at how the present global crisis impacted competiveness in Malta, Prof. Scicluna said one had to see how other countries were coping.

"Competitiveness is a relative, not an absolute. It all depends on how each country is managing to keep prices from spilling over into an inflationary spiral."

Summing up the situation, Prof. Scicluna said the present state of affairs needed a firm hand and good management.

"Like any issue, it's a challenge. Other countries are facing it; some have riots. This is an economic shock. Now we need to see how resilient the economy is - and by the economy, I mean us - to cope with it, manage it and let it cause the least damage to our system."

Though there is little the government can do to specifically limit the global impact on Malta, it is seeking to mitigate inflation by lowering direct taxation and giving cost of living increases.

"Subsidies should only be used to limit temporary inflationary impacts, in turn limiting the second round effects," Finance Minister Tonio Fenech said.

Mr Fenech said the government, through the NSO, was conducting the Household Budgetary Survey to help align the Retail Prices Mechanism in order to make the wage adjustment more comparable to household needs. "As painful as it sounds, our economy needs to gradually adjust to these realities," he added.