On 1.4.22 the Retail Association in Germany announced a second wave of price increases, ‘certainly in double digits,’ while below-cost sales by agricultural and food suppliers continued in Italy.
Inflation and stagflation
Lockdowns and movement restrictions on the unvaccinated had already challenged physical retail in Germany. On 1.2.22 HDE director Stefan Genth estimated a laughable growth in sales in physical retail (+1.2%) compared to online retail (+13.5%). (2) But rising energy costs-before the war-had forced an average increase of 5 percent ‘across the whole range of products,’ he later clarified. (1)
Inflation had thus exceeded (and thwarted) growth forecasts even before the conflict. And the worst is to come, with stagflation (the crass of stagnation and inflation). (3) Causes and symptoms are obvious:
– domestic consumption is held back by falling ‘real income’ and concern, not only about energy and food (4.5) but also about the economy and labor, (6)
–exports to the Old Continent are set for a similar decline, those to Asia potentially at risk as diplomatic relations tighten.
Germany, second wave of price hikes in retail and discount stores
The giant ALDI–famous worldwide for its motto ‘Less isMore’ (less price, more product)–had raised the prices of about 180 items in Germany in the second half of March. And other supermarket chains had followed suit as Europe’s second-largest food retailer, with 12,600 stores and €125.3 billion in sales(Retail Index, 2020).
Just today ALDI is introducing new prices, with increases ranging from +20% to +50%. Meat, butter and animal products are ‘significantly more expensive‘ for suppliers, and so for distributors and consumers. Rewe (ranked third in the EU with 8,369 supermarkets and € 63.7 bn in sales), Edeka (ranked fourth in the EU with 3,600 stores and € 61 bn in sales) and Globus will in turn be forced to raise retail prices.
War economy
Eurostat gives +7.5% as the average inflation rate in March 2022, compared to the previous year. Netherlands +11.9%, Spain +9.8% Germany +7.6%, Italy +7%. (7) Little better for now France and the UK. (8). ‘Since the beginning of the war in Ukraine, there have been increases in purchase prices that we have not experienced before‘ (Florian Scholbeck, Aldi Nord, 1.4.22).
‘We will soon be able to see the impact of the war reflected in price labels in all supermarkets.’ (Josef Sanktjohanser, president of Handelverband Deutschland, HDE)
Price increases and fears of shortages have already caused compulsive purchases of cooking oils and flours. Some supermarkets in Germany and Italy have imposed purchase limits. In Spain, the government has given the green light to food rationing, having regard to the blockage of wheat and sunflower supplies from Ukraine and Russia, oil costs, and drought. (9)
Sales below cost, the Italian anomaly
Italy is the closest country to Germany in both energy dependence on natural gas and the role of the domestic food industry (third and first in the EU, respectively). Suppliers of agricultural and food commodities in Italy, however, continue to be denied recognition of extraordinary increases in production costs by buyers.
Below-cost sales-only theoretically banned in Italy, with Legislative Decree. 198/21 (10) – are thus leading the protagonists of Italian agribusiness production to collapse. Farmers and ranchers, artisans and SMEs, but also small and medium-sized industry – with tragic impact on employment and the country’s economy.
Conflicts of interest and undercutting, the cancer
Conflicts of interest (i.e., private corruption) are the real cancer of the system-country. The ‘supply chain agreements’ that took place in 2020-2021 between agriculture, industry and GDO representations laid the groundwork for the UTPs(Unfair Trading Practices, dir. EU 2019/633) directive to be effectively disapplied in Italy. (11)
Mario Draghi’s government – under the orders of the Coldiretti magic circle, as also seen in the NutriScore case – thus entrusted controls on below-cost sales to the superheroes of ICQRF, 360 inspectors already overburdened with a range of supervisory tasks over 3 million businesses in Italy. (10)
Metastasis and treatment
The metastases of conflicts of interest and below-cost sales in Italy-where the food industry is the leading manufacturing sector-are corroding the economies of territories and aggravating those uncertainties that contribute to the crisis even more than the (already tragic) real economic data.
The cure to undercosting is simple, we need to immediately implement Leg. 198/21 verifying the real costs of producing agricultural and food products. This will lead to an increase in retail prices that is inevitable anyway, the lesser evil than a crisis that can cause unprecedented levels of unemployment.
Curbing the crisis
Curbing the crisis is equally simple. Stop sending arms to a third country in conflict and stop sanctions that have affected Europe far more than Russia. Transfer to welfare the resources just allocated for increased spending on armaments, so that confidence and domestic consumption can reactivate the system.
Forget about buying unsustainable gas from fracking at stratospheric costs, which would, among other things, reduce the international competitiveness of our industries. Natural gas must remain the intermediate step toward renewables to which only investments will have to be directed, without taking steps backward.
Dario Dongo
Notes
(1) German consumers to be hit by further price hikes in supermarkets. The Local De. 1.4.22, https://www.thelocal.de/20220401/german-consumers-to-be-hit-by-further-price-hikes-in-supermarkets/
(2) Inflation to cancel out German retail sales growth in 2022 – HDE. Reuters. 1.2.22, https://www.reuters.com/world/europe/inflation-cancel-out-german-retail-sales-growth-2022-hde-2022-02-01/
(3) Stagflation in Europe ‘to hit real incomes’. DW. 3/21/22, https://amp.dw.com/en/stagflation-in-europe-to-hit-real-incomes/av-61201112
(4) Dario Dongo. Gas and electricity, a crisis foretold. GIFT (Great Italian Food Trade). 3/20/22, https://www.greatitalianfoodtrade.it/mercati/gas-ed-energia-elettrica-una-crisi-annunciata
(5) Dario Dongo. Food security, thesis and antithesis of the European Parliament. GIFT(Great Italian Food Trade). https://www.greatitalianfoodtrade.it/idee/food-security-tesi-e-antitesi-del-parlamento-europeo
(6) IFO Institute. Short-Time Work in Germany Somewhat Lower. 4.4.22, https://www.ifo.de/en/node/68837
(7) Eurostat. Flash estimate – March 2022. Euro area annual inflation up to 7.5%. https://bit.ly/3u5DyLi The details at https://bit.ly/3NXfbaD
(8) Brad Gray, Simon Neville. Supermarket sales surge at Aldi and Lidl but plummet at Asda and Morrisons as prices rise. Herts Live. 3/29/22, https://www.hertfordshiremercury.co.uk/whats-on/shopping/supermarket-sales-surge-aldi-lidl-6874537.amp
(9) Dario Menor Torres. Spain. We have food rationing in stores in anticipation of the worst. The Subsidiary. 1.4.22, https://www.ilsussidiario.net/news/dalla-spagna-da-noi-ce-razionamento-di-cibo-nei-negozi-in-previsione-del-peggio/2316419/amp/
(10) Dario Dongo, Maria Rosaria Raspanti. Unfair trade practices. From Antitrust to ICQRF, the needs of the agribusiness production chain. GIFT (Great Italian Food Trade). 3/29/22, https://www.greatitalianfoodtrade.it/idee/pratiche-commerciali-sleali-dall-antitrust-a-icqrf-le-esigenze-della-filiera-di-produzione-agroalimentare
(10) Dario Dongo. Unfair trade practices, double-down supply chain agreement. GIFT(Great Italian Food Trade). 7.3.21, https://www.greatitalianfoodtrade.it/mercati/pratiche-commerciali-sleali-accordo-di-filiera-al-doppio-ribasso
Dario Dongo, lawyer and journalist, PhD in international food law, founder of WIISE (FARE - GIFT - Food Times) and Égalité.
