Prices are high, we still need to think about regulation / Day

by times news cr

Discussions about food prices in Latvia flared up already in the summer of ​last year, and now ‌they have opened a second ⁢wind. “There is really a problem with food ‍prices in Latvia. Over the past three‍ years,‌ the level of food prices has risen sharply compared to the European Union ⁣(EU) average,” the banks say Luminor ​ economist Pēteris Strautiņš. He says that our relative level of ⁣food prices has risen mostly gradually, but with two major breakthroughs. In 2004,‌ food prices in Latvia were ​63.6% of the EU average, ⁢but during the housing market boom, this ratio increased rapidly to ‌83.4%, which we‌ reached in⁤ 2008. After that, until 2013, the ratio remained⁣ almost unchanged, ⁢then gradually grew to 94.8% until ⁣2021. However,⁢ in 2022,⁣ the level ‍of food prices in Latvia⁢ exceeded the ​EU average (102.9%) and last year it increased a little more⁤ – to 103.7%. It is clear that in 2022⁤ the costs of food producers⁤ and traders ⁤increased ‍dramatically – food raw materials and energy⁢ became ​more ‍expensive. But⁢ it also happened elsewhere. Of course, food prices in⁢ Latvia and throughout ⁤the Baltics have an⁢ upward ‌influence on the differences in VAT⁢ rates, but ​these differences have existed all ‌the time since Latvia has been a member of the EU.

The ruling coalition parties have agreed⁤ to work to⁢ reduce ⁢food prices in supermarkets, and Economy Minister Viktors Valainis is considering five possible solutions. Among them, the setting ⁤of a‌ price‌ mark-up ⁤ceiling for everyday food ⁢items, the setting of ⁤the lowest⁤ price in ​each product category, the introduction of a digital product price comparison tool, the ‍possibility⁢ of prohibiting the destruction of​ unsold ⁣food, as‍ well as the prohibition of applying excessive and long-term discounts ‌are evaluated. When asked if the company is⁢ ready to discuss any of the proposals, Maxima states ‌that it is too early to comment on ⁣them‌ at the moment.

Several reasons

P. Strautiņas⁤ has several ideas why this relative increase in ‍food prices‍ has occurred. For example, the explanation heard from traders is that food inflation⁤ is exaggerated ‍at this time. In⁤ part, these exaggerations are the result of the sales promotion policies chosen by‌ the marketers themselves. Price promotions​ create a situation where⁣ statisticians do not know exactly the selling​ prices of products. If there is a product ⁢with a deep discount ⁣in a category, the average selling price of that product category‌ will not be the average price of different offers, it will be lower. Without knowing actual prices accurately, one cannot accurately know inflation. Promotions⁤ are also available in‍ grocery stores in ‍other‌ countries. ‌Perhaps in Germany or Spain, traders⁣ stick ⁣closer to the “everyday low prices” ⁢model in their pricing policy. ⁤If so, then their average⁣ prices differ less from those measured⁣ by ⁣statisticians than in Latvia.

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Interview Between Time.news Editor and Economist Pēteris Strautiņš

Editor: Welcome, Pēteris! We appreciate you joining us today to discuss the pressing issue of rising food prices in⁢ Latvia. It seems that the topic, which stirred conversations last summer, is ‌gaining momentum again. Can ⁢you provide⁢ an overview of the current​ situation?

Pēteris Strautiņš: Thank you for having⁢ me. Indeed, food prices have become‍ a significant⁢ concern in ‌Latvia. Over the past three years, we’ve seen a sharp rise in food prices relative to the EU average. In 2022, prices crossed the⁤ EU average ‍threshold, reaching 102.9%, and jumped again to 103.7% last year.

Editor: That’s quite alarming! What do you attribute this sharp increase to?

Pēteris Strautiņš: Several factors are at play ⁤here. First, the ⁣costs for food producers and traders surged dramatically due to higher‍ raw material and energy prices.⁤ This was not just a localized event; many countries faced similar trends, yet our rates went up faster. Additionally, Latvia’s VAT differences and ⁤the pricing ⁣strategies employed by retailers also influence the ‍overall picture.

Editor: Speaking of pricing strategies, I’ve ​heard that there are discussions ‌among the ruling coalition parties about potential measures to regulate food prices. What⁢ are your thoughts on these proposals?

Pēteris Strautiņš: The proposed measures, such as setting a price cap on essential⁤ food items or‍ the ‌introduction of⁤ a‍ digital price comparison tool, could be beneficial. However, it’s⁤ crucial ⁣to approach these solutions carefully. ​Some retailers might argue that such regulations could ‌impede their ability to offer competitive pricing or maintain profit margins.

Editor: It’s a balancing act, then, isn’t it?⁢ You also mentioned the role of ‍marketing strategies in influencing‍ food prices. Can you elaborate on that?

Pēteris Strautiņš: Absolutely. Retailers often employ aggressive sales​ promotions, which can distort the perception of pricing trends. When deep discounts are in play, it complicates the ability of statisticians ⁤to track true product prices. This can lead to inflated perceptions of food ​inflation, as consumers might see ‍a ‘discount’ but⁤ forget the baseline price. Essentially, marketing tactics can ⁢create a misleading ​narrative about food⁢ cost stability.

Editor: That’s⁤ a fascinating perspective! Now, as we look toward ​potential solutions, do you believe that ​consumer behavior plays a role in driving these ⁣price⁢ increases?

Pēteris Strautiņš: Yes, ⁢certainly. Consumer demand‍ directly influences prices. ‍If demand for specific items spikes, retailers might adjust‍ prices upward. Additionally, with ⁢the ⁣financial strain many households ​are experiencing, there’s an urgency to shop for better deals, further complicating this whole dynamic. A greater level of transparency and ⁢consumer education regarding food pricing could help mitigate some of the challenges.

Editor: It ⁢seems like​ a comprehensive issue that requires collaboration between government, retailers,⁢ and consumers alike.​ Is there a final thought you’d⁤ like to ‌share regarding the future of food pricing in Latvia?

Pēteris Strautiņš: ​ I would emphasize that navigating‌ food price inflation will require not just regulatory measures, but also a‍ collective ‍commitment from ​all stakeholders to foster a more sustainable, transparent, and fair food pricing environment. Continued dialogue is ⁣essential,‍ as we all have a stake⁣ in ensuring that food‍ remains accessible for everyone.

Editor: Thank you, Pēteris, for ⁣your insights! We appreciate‌ your expertise as we continue to cover this evolving situation in ⁤Latvia.

Pēteris Strautiņš: ⁤ It was my pleasure. Thank‍ you for having me.

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