By Bertrand Benoit in Berlin Updated: 8:41 p.m. ET Aug. 3, 2007
German consumers are blessed with some of the cheapest food in Europe. But the uproar over rising food prices that broke out in Berlin this week suggests that this golden era may be coming to an end.
The federation of milk producers last weekend announced hefty price rises for milk, yoghurt, cheese and butter. By mid-week, animal fat was front-page news, and on Friday Bild carried a half-page headline about an impending surge in the price of bread.
Snap polls of retailers showed that Aldi, the country's leading food retailer, was planning to raise milk product prices by up to 50 per cent from next month, while others confessed that they had already begun re-labelling their stock. Story continues below ↓advertisement
Economists, too, choked on hearing the news. "We will have to watch the supermarkets closely," said Elga Bartsch at Morgan Stanley.
Though milk products account for only 1.4 per cent of the average shopping basket, the lively debate could create "perceived inflation", she said. With an expected slowdown in exports later this year, anything that could get in the way of a rebound in domestic consumption is bad news for Germany's robust recovery.
In a country that has made bargain-hunting a national pursuit and where prices are subject to minute scrutiny by consumer lobbies, it did not take long for rumours of profiteering to spread. Horst Seehofer, the consumer minister, accused retailers of unleashing "a price spiral" that bore no relation to the raw material situation.
The Bundeskartellamt, the competition regulator, called the price rises "strange" and said it would look into the issue, while the European Commission said the reported mark-ups were "not warranted by the overall market-supply situation on the EU internal market".
Retailers and food producers reacted by blaming a familiar culprit: globalisation. Increased demand from Asia's booming economies had combined with record-low yields in drought-plagued Australia to upset the balance between supply and demand, they said.
The "milk powder revolution" and the increasing worldwide reach of global food retailers meant sellers were also faster in shifting milk products across the globe, said Stefan Tangermann, an expert for agriculture and trade at the Organisation for Economic Co-operation and Development.
A similar combination of rising demand and poor cereal harvests explained the looming bread disaster, Bild wrote.
But although Germany appears more affected by price increases than other European Union countries, statistics suggest an upwards correction was due.
A crowded food retail market characterised by cut-throat competition and microscopic margins means Germany has the fifth lowest prices in Europe. In the decade to 2005, prices had remained largely stagnant.
As a result, said Gesa Koglin, an economist at the BVE, the food and drink industries federation, "Germans allocate 11.3 per cent of their budget to food, less than anybody else in Europe apart from the Dutch".Additional reporting by Andrew Bounds in Brussels
