The prices of several food products have already gone up, while a general and abrupt hike is expected to arrive at the start of the new year at the latest. Growing input prices will affect the cost of meat, milk, cheese and bread.
Estonia’s leading food processor HK Scan Estonia that uses the Rakvere and Tallegg trademarks has recently announced an average price advance of 10% for processed meats like franks and hams. The price hike is set to reach consumers around New Year’s.
Unfortunately, this is just the first in a long line of looming price hikes caused by growing input prices of electricity, gas and diesel fuel, as well as raw materials, packaging and labor costs. In other words, there is no aspect of production that has not become more expensive in the past year.
Simmo Kruustuk, head of sales and marketing for meat processor Noo Lihatoostus, said that various input prices started going up in late summer, with electricity becoming 2.5 times more expensive, followed by a packages price hike of 30-40% and the salary fund growing by 10%.
“The company needs to turn a profit if it seeks to invest and survive. That is why we are forced to adjust product prices by 5-7 % on average. The new prices will likely take effect in December and January. While we do not take this step gladly, we are in a situation where we cannot continue without hiking prices,” Kruustuk said.
Prices of products sporting high value added, such as smoked meats, hams, salamis and fresh meat are set to go up the most.
Meat processor Saaremaa Lihatoostus has already hiked some prices.
“Products the prices of which have not been hiked will become more expensive early next year. We simply cannot postpone the hike any longer, as input prices have run away from us. It is the fastest price hike I have ever seen,” sales director for the Saaremaa company Gunnar Siiner said.
For meat processors, the price of beef has grown the most and there is no alleviation in sight.
Siiner said that while a kilogram of beef cost from EUR 3.20 a year ago, the price has reached EUR 3.80 as of today and there is talk of EUR 4 per kilogram.
“You can do your own math in terms of how much that will affect the end price for the consumer,” he added.
At the same time, the price of pork is forecast to fall after Spanish exports to China, where the local industry is finding its feet again, are waning that is causing overproduction in Europe.
Meat processor Atria is also set to hike prices by around 5% on average, CEO Olle Horm said, adding that poultry is less affected.
But meat packers aren’t the only ones forced to hike prices.
Executive manager of Valio dairy Maido Solovjov said that the price of raw milk grew by 20% last year, in addition to energy, transport and labor. Milk makes up 60-70% of the expenses of dairies.
Valio has raised the prices of its products by 3-4% this year, while the consumer is looking at new hikes next year, Solovjov admitted.
Baked goods are also looking at a price advance of 10-15% late this year or early next one, Ragnar Koiv, head of Eesti Pagar, said.
“We are living in the conditions of constant input price hikes. Power, gas, motor fuel and cereals are all market goods and the markets are booming,” Koiv remarked.
Logistics and transport expenses make up 10% of the price of baked goods and energy another 10%, while raw material counts for half.
Head of the Estonian Food Industry Association Sirje Potisepp admitted that producers could no longer afford to ignore the drastic input price hike that would now reach the consumer.
“The situation is worrying. Estonians spend circa 45% of their income on basic needs – housing, transport and food – while the EU average is 25%. That said, the price of food was 96% of the EU average in Estonia already last year, while the income of consumers in Estonia is nowhere near 96% of the EU average,” Potisepp said.
She explained that 20% of consumers could never afford what they would like to have, 20% bought what they wanted irrespective of the price and the remaining 60% were price-sensitive.
Potisepp said the state should help food producers soften the blow for the consumer.
“We have already felt higher housing prices, while higher utility bills are still in the pipeline. The food industry could also use state support. In a situation where other EU member states are compensating their companies for high energy prices, our government should also think of the future coping of Estonian food producers.” Potisepp said that profits were down by 40% since the coronavirus crisis began and competitive ability had taken a hit.
“Production input expenses – power and gas – were several times more expensive in Estonia than in its Baltic neighbors even before the recent price hike, while we mostly compete with Latvia and Lithuania on foreign markets,” Potisepp said.
Potisepp described as double taxation a situation where the government had promised not to hike taxes, while food industries were looking at new plastics and packaging fees. (ERR/Business World Magazine)