Food prices remain stuck at stubbornly high levels

By Dimitra Manifava

Retail prices for basic commodities remain at particularly high levels in Greece, in spite of shrinking disposable incomes and a drop in demand, according to Eurostat data presented this week by the Development Ministry.

Eurostat figures show that Greece is among the most expensive countries in the European Union, and in certain cases, such as dairy products, it has the highest prices in the whole bloc. Dairy products in this country cost 31.5 percent more than the EU average in 2011, while prices rose an additional 1.17 percent in the first eight months of 2012.

This is mostly attributed to the reduced domestic production of cow?s milk and high producer prices. Data from the Hellenic Organization of Milk and Meat (ELOGAK) show that producer prices in the period from January to July 2012 averaged out at 0.46 euros per liter -- 10.38 percent higher than last year -- while the EU average was 0.29 euros/lt. One proposal supported by many professionals and some within the government that could contribute to a drop in dairy prices is for the shelf life of fresh milk to be extended from five to seven or eight days.

?We are expensive. It?s even worse than anticipated. We have not seen the correction in prices we had expected,? an official at the Development Ministry said this week, expressing serious concern about the level of prices for a number of agricultural products in the coming months, such as wheat and potatoes, as production will likely be reduced.

Bread and cereal prices in Greece were 15.8 percent higher than the EU average in 2011, while there has been an additional increase of 0.5 percent in the last month that is worrying, given fears of a further rise in the international price of wheat.

According to Development Ministry sources, the main reasons behind this price inflexibility in Greece are: the very necessity of those products, which means demand will always exist; the maintenance of market distortions; the high cost of transport combined with the need to ship products to the country?s many islands; and high taxation.

Greece?s creditors have been pressuring the government over the level of retail prices. Their representatives in Athens have reportedly told the development minister in meetings that the price inflexibility may be put down to the possibility that while people?s nominal disposable incomes have dropped, their actual spending power may not have fallen by the same extent.

The ministry?s policy is now based on two pillars: intensifying checks and introducing harsher penalties to correct distortions as well as lifting regulatory obstacles.

There still is a considerable margin for price reduction, the ministry believes. Earlier this week, Deputy Development Minister Thanasis Skordas dismissed claims by the Federation of Greek Enterprises (SEV) regarding their inability to slash retail prices, saying: ?Have the industries recently exhausted their options for modernizing production in order to reduce costs? Why did they not become more extrovert earlier, instead of targeting a market of just 10 million consumers??