Food prices are skyrocketing – why don’t politicians realise the danger?

 

Competition Authority

Food prices are threatening our economy – that’s why they are rushing

Andreas Cervenka

Reporter and economic commentator

This is a commentary text. Analysis and positions are those of the writer.

Published 18.18

Food prices have become 45 percent more expensive in 10 years. Photo: TT

Rising food prices are the last thing the Swedish economy needs right now.

But the reason why they are so expensive is no mystery.

The answer can be read in black and white in the figures of the food giants.

Do you remember when Finance Minister Elisabeth Svantesson called the heads of the country’s retail giants to a lecture about the skyrocketing prices of food?

It was March 2023. At that time, there was a full-blown crisis atmosphere because food had become 22 percent more expensive in just twelve months, according to Statistics Sweden's statistics.

The following month, prices actually fell, something for which Elisabeth Svantesson took credit.

Since then, the issue has been more obscured on the political agenda. The problem itself? It is bigger than ever.

According to Statistics Sweden's statistics, food prices are now 2 percent higher than at the crisis meeting with the food giants and a full 28 percent higher than at the beginning of 2022.

On average, Swedes spend just over 13 percent of their budget on food. Photo: Lotte Fernvall

Usury-like prices

Inflation that slows down is, in case anyone missed it, not the same thing as it becoming cheaper to shop.

Usury-like prices for butter and eggs are here to stay.

In January, food prices rose by 2.2 percent at an annual rate. In a situation where the Swedish economy has been sluggish for almost four years, the timing is unusually bad.

Food is, after housing, the thing that Swedes spend the largest share of their household budget on - just over 13 percent. Translated into kronor, it was around 350 billion last year.

In a few years, Swedes' annual food bill has increased by 80 billion just because prices have risen.

In ten years, food has become 45 percent more expensive.

The price of eggs and butter has increased sharply. Photo: TT

No law of nature

Where does all the money go? That's a question you can ask. The Swedish Competition Authority also asked this question, which published a major review of the Swedish food industry this summer.

The conclusion: that food always rises in price is not a law of nature but is due to poor competition.

One phenomenon that the Swedish Competition Authority highlighted is the so-called double marginalization or interest-on-interest effect. It occurs when each actor in the chain not only manages to pass on the cost of more expensive raw materials but also maintains its profitability along the way.

This means that small price increases on input goods lead to significant upward adjustments when it is time for the consumer to pay in the store.

The Swedish Competition Authority was able to establish in its review that this is precisely what has occurred in Sweden, and it is also confirmed by a look at the food giants' recent annual reports.

The large food giants make large gross profits. Photo: TT

Visible in gross profit

This is most clearly visible in the so-called gross profit.

It is the revenue from sales minus the cost of purchasing the goods.

Dagab, which handles purchasing for the Axfood Group and also supplies some independent stores, made a gross profit of 1.6 billion in 2019 (the last normal year before the pandemic and inflation) corresponding to a margin of 3.7 percent. In 2023, the profit had increased to a full 3 billion and the gross margin rose to 4 percent.

In the entire Axfood Group, including the Hemköp and Willys store chains, gross profit has increased from 7.9 billion to 12.2 billion between 2019 and 2024 and the margin has fallen slightly from 15.7 to 14 percent.

In ICA Sweden, gross profit has increased from 21 to 26 billion between 2019 and 2024, while the margin has retreated from 17.6 to 16.4 percent.

In Coop Sweden, gross margin rose from 5 percent in 2019 to 5.8 percent in 2023 and gross profit from 1.45 to 2.2 billion.

Profits have increased sharply for the food giants. Photo: TT

"Weak price competition"

As the Swedish Competition Authority wrote this summer:

"The fact that grocery players have been able to defend their gross profit margins to a large extent and have even increased their margins in kronor indicates that price competition is weak."

Another indicator of how favorable the strong food price inflation has been for the food giants is cash flow, i.e. how much money has flowed in once all costs have been paid.

For Axfood, cash flow from operations between 2019 and 2024 has increased from 3.6 billion to 5.5 billion, for ICA from 9.7 to 13.3 billion.

What can be done about it? The Swedish Competition Authority came up with a number of proposals in connection with its report. These include that municipalities should facilitate the establishment of new competing stores and that it should be more difficult for the giants to lock in retailers and producers using various forms of long-term agreements.

When will politicians realize the danger?

The government refers, among other things, to the fact that it has given more money to the Swedish Competition Authority to study and monitor the issue.

Otherwise, not much seems to have happened.

History shows that rapidly rising food prices in a country are a bit like inviting people to a sausage barbecue at an ammunition depot – that is asking for trouble.

Food inflation has brought down government after government around the world in the past year, and helped bring Donald Trump back to the White House.

When will Swedish politicians realize the danger?