Economist: Here's What Causes Higher Food Prices

The rising food prices have led to a boycott of the major grocery chains this week, something that has been criticized by the industry itself, claiming to be powerless in the face of the price rally. According to an economist, the significant market concentration within the industry, with a handful of players accounting for almost all food sales in the country, may be one reason for the prices. But the green transition also comes with a cost.

One who disapproves of this week’s boycott is Jacob Wallenberg, chairman of the Confederation of Swedish Enterprise and the investment company Investor, among others.

“I understand that people find it expensive to buy food, that people are getting squeezed. But it would be appropriate if the discussion focused on facts,” says Wallenberg to TT.

READ ALSO: Food Prices Soaring Again

According to Wallenberg, it is not individual grocery stores that have created the situation but factors such as crop failure and inflation. He also points out that the same situation exists throughout Europe and refers to EU statistics showing that Swedish food prices have increased less than the EU average over the past four years.

Standing out in Europe. Also, the green transition comes with a cost

Market Concentration

Christian Jörgensen, a Ph.D. in economics and researcher at the Agrifood Economics Centre at Lund University, is pursuing a different line of reasoning regarding the reasons for the soaring food prices – a few players account for almost all food sales in Sweden, a dominance that sets Sweden apart in Europe. Together, these players accounted for over 98 percent of food sales in 2023, with Ica having 50 percent of the market.

“It is incredibly difficult for smaller players to enter the market. And the fewer the players, the higher the risk of inadequate competition, which can lead to price increases,” he says to TT.

According to Jörgensen, this is partly due to Sweden’s many sparsely populated areas, where larger players find it easier to establish themselves, and partly because the European discount chains have never really gained a foothold here.

In addition to the significant market concentration, he believes that the prices cannot be attributed to a single factor but that several external factors may come into play.

Jörgensen is also skeptical that the ongoing boycott will have any effect on food prices, but it could lead to a debate on a more competition-promoting market. He also has no hopes that the current dominance will be disrupted in the coming years.

More Lidl Stores

Lidl is one of the smaller players in the Swedish food market, with just over six percent in 2023, but the establishment of its stores is said to have a price-lowering effect on the nearby stores as well. This has led the Moderate Party in Stockholm City Hall to call for more Lidl stores to be established in the city.

Dennis Wedin (M), opposition city councilor, gives an example:

“When Lidl opened in Hammarby Sjöstad, nearby stores lowered their prices by 40 percent overnight. It really makes a difference. As soon as you get local competition, stores are forced to start competing and pressuring prices,” he tells Mitt i.

According to Wedin, it is the municipal policy that has the power to determine where new grocery stores can be established and urges the city’s Social Democratic leadership to show initiative. The party wants to see a competition analysis every time new land use is planned and a fast track for grocery stores.

Green Costs

Another factor for the prices is something that is rarely mentioned in this context – the so-called green transition and the constantly stricter requirements for agriculture.

In an opinion piece from February 2024, smallholder and author Gunnar Rundgren discusses the consequences of numerous regulations for animal welfare, disease control, and food production.

The agricultural industry’s interest organization, LRF, has calculated the costs of climate and environmental transition for agriculture, amounting to approximately 20 billion per year – a substantial sum considering that the total production value of agriculture is around 70 billion per year.

Since the profitability of agriculture is very low, farmers’ incomes constantly lag behind other groups, the only way for farmers to cover these costs is to raise prices. But this cannot be done as long as agriculture has to compete with products from countries that can produce cheaper because they have lower wages and other costs, better conditions, or do not have to meet such high requirements – often all of these at the same time.

According to Rundgren, there is no doubt that society needs a transition to operate within the limits of the planet but also emphasizes that this comes with a cost.

Which politicians are willing to acknowledge this and ensure how we can make the transition fair and inclusive for the population at large, as well as for farmers and foresters?