2023-10-22 16:56:55
Producer prices in Germany are currently falling at a record pace. For September, the Federal Statistical Office reported a decline of almost 15 percent compared to the same month last year – there has never been a greater decline since the surveys began in 1949. And that only one month after the previous record of 12.6 percent, which the statisticians set in measured in August. This is actually good news for consumers.
Ultimately, it’s about the prices that manufacturers charge for their products before they are further processed or put on sale. This means that producer prices are something like the harbingers of consumer prices that have to be paid by consumers, for example when shopping in the supermarket.
“Germany is making clear progress in combating inflation,” says Sebastian Dullien, scientific director of the Institute for Macroeconomics and Business Cycle Research (IMK) of the trade union-affiliated Hans Böckler Foundation. According to him, lower energy prices and a base effect led to the sharp decline. Nevertheless, Dullien warns against exaggerated expectations – because, according to him, consumer prices usually react more slowly than producer prices.
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This can be demonstrated wonderfully at the milk market. It is true that consumer prices for dairy products have passed their peak. “The price declines here are noticeably less pronounced than in wholesale prices or even price developments on the world market,” report observers from the ZMB Central Milk Market Reporting.
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“Only butter prices in food retailers have temporarily fallen back to around the level of autumn 2021. However, consumers will have to pay significantly more for drinking milk, cream, cheese and quark in autumn 2023 than before mid-2022,” says Managing Director Monika Wohlfahrt.
“No potential for discounts”
And the industry sees no scope for improvement in the foreseeable future. “I don’t see any potential for price reductions,” says Peter Stahl, President of the Dairy Industry Association (MIV). The price paid out by dairies is noticeably lower than in the previous year. The MIV expects the national average to be 45 cents per kilogram of raw milk in 2023, which is around 15 percent less than in the record year of 2022.
However, the level remains high. “For German milk producers, this would be the second highest milk price that has ever been paid in recent decades,” describes Stahl.
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But the cost pressure is even greater in other areas, says the manager, whose main job is chairman of the Hochwald dairy. On the one hand, Stahl cites “the continued very high energy and electricity costs” and, on the other hand, expensive collective agreements. And now there is also the increase in the truck toll.
On Friday, the Bundestag approved a tightening of toll regulations. From December, the tax for road transport will be expanded to include a CO2 component, meaning classic diesel trucks will have to pay more. In addition, the toll requirement will also be extended to vehicles with a permissible total weight of 3.5 to 7.5 tons. The dairies would have to pass on the corresponding additional costs, says Stahl. Because they can no longer be achieved through optimization.
He now sees politics as having a duty to ensure better framework conditions. The increasingly poor location factors would present companies in Germany with major challenges and reduce their competitiveness compared to their European neighbors. “There is a risk of an exodus in the industry, including dairies,” warns Stahl.
According to the dairy association, structural change is also threatening on the producer side. “Politics and food retailers will influence the development of milk production through additional requirements for animal welfare and environmental legislation and will ensure increased structural change in some regions,” predicts the MIV.
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Animal welfare is right and important. However, the aim must be, firstly, to enable practice-oriented implementation and, secondly, to offer a reliable perspective. “Investments in stable construction and animal husbandry are made over decades and not just a few years,” says association boss Stahl.
“As a result, we will have less milk in Germany”
There are currently around 51,000 dairy farmers in Germany. But many can no longer find a successor, according to the dairies. Others would not receive permits to convert their stables. “As a result, we will have less milk in Germany in the future.”
The result of the high prices for dairy products in this country was and is a noticeable reduction in consumption in almost all sectors of the industry, as figures from market researcher NielsenIQ show. In recent months, retailers have tried to counteract this with price reductions and are also demanding discounts in current negotiations, citing lower raw material costs.
DWO_WI_Milchprodukte_mw.eps
Source: Infographic WELT
In return, the dairies point not only to the costs in other areas, but also to rising spot market prices and higher world market prices for, for example, milk powder, butter and cheese and thus to a trend reversal in raw milk prices. This is also supported by the fact that milk deliveries have been declining for months, which could even lead to a shortage in the second half of the year.
In addition to the dairy industry, there are other sectors in the food segment where price reductions are far from certain in the coming months, despite falling production costs. Because some foods have become more expensive, as the September producer prices from the Federal Statistical Office show. Sugar, for example, has become almost 85 percent more expensive, processed potatoes 28.5 percent, and fruit and vegetable products 17.2 percent.
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