The combination of persistent drought and the umpteenth heat wave throughout this year has become the main risk factor for food prices that continue to be pressured by the consequences of the war in Ukraine and, more recently, by a new rise in fuel prices. The lack of water is reducing production and the affected crops are increasing. Products such as fruits, vegetables, or cereals are especially sensitive to the effects of this severe weather phenomenon, which is causing a decline in production and cultivated area, as the Ministry of Agriculture confirmed at the beginning of the month. All of this could have very negative consequences for the behavior of food prices between now and the end of the year.
The disaggregated inflation data for July give some clues in this regard. The increase, in relation to the previous year, of fruits (11.6%) and oils and fats (20.4%) has put an end to the streak of slight moderation that the rise in prices of food and non-alcoholic beverages has been registering since February . Last month this group became more expensive by 10.8% compared to 10.3% in June -they had just done so at 12% in May and 12.9% in April-. The variation may seem minimal, but it shows how, far from easing, the pressure on household budgets is increasing.
Farmers look at the sky with concern for the harvests to come. The drop in temperatures that should occur in the coming months could help to contain oil prices somewhat, however, if the drought continues “it is likely that there will be a decrease in the harvest,” warned Andrés Góngora, a member of ‘La Información’. member of the Executive Commission of the Coordinator of Organizations of Farmers and Ranchers (COAG). That fear has led, in his opinion, the industry to raise prices in anticipation of what could happen if the lack of water continues to plague the countryside.
The general increase in fresh fruits and oils and fats takes place at a time when, according to Góngora, the level of production “is acceptable today”, which is not the case, however, with many other crops. Only the price of olive oil has skyrocketed by 38.8% in the last year and 5% in the last month and is close to 10 euros per liter.
The consumption of fruits and vegetables decreasing among the Spanish
The rise in fresh produce (fruit alone rose 11.6% compared to last year) has already forced many households to change their consumption habits. From COAG they point to a reduction of between 8 and 12% in the demand for fruit and vegetables, typical products of the Mediterranean diet that today is a little more difficult to follow in light of the labels that citizens find in the linear “The price is being a brake for many families,” says Góngora. This is already translating into “consumption stoppages” and a lower demand from supermarkets.
The Union of Small Farmers and Ranchers (UPA) of Malaga quantified this Monday 85% less mango production and 60% less avocado production due to the extreme drought and lack of irrigation. Its general secretary, Francisco Moscoso, recalled that as September approaches, producers received on average between 1.40 euros and 1.50 euros per kilo of mango, their retail price almost four times that level.
The sharp increase in prices also affects other staple foods for households, such as meat, which despite slowing the rise it had been registering in the past months (in the case of beef, sheep and poultry), in July it cost 5.5% more media than a year ago. The most pronounced acceleration has occurred in sugar (it costs 44% more than in July 2022) and is also very significant in the case of butter (17.9%).
Insufficient measures to alleviate the escalation of prices
The increasingly complex situation has diminished the impact of one of the Government’s star measures to deal with the increase in the price of the shopping basket. In this way, and despite the fact that the Executive branch ended up extending the VAT reduction for food for another six months, until the end of the year, this has only turned into a price decrease in three of the fifteen products that appeared on the list of more expensive foods: in flour and cereals, in skimmed milk and in pasta. “It has not been a forceful measure,” laments Andrés Góngora, who considers that it had to be accompanied by other measures in the form of a “bonus” or “check” for those who have lower incomes.
The lack of rain can further complicate the situation and overthrow some of the forecasts that the main study services had put on the table up to now. One example is the recent calculations made by Funcas, the Savings Banks Foundation, which places the inflation rate for all food and non-alcoholic beverages at around 7% at the end of this year and which is expected to be around 2% (or even lower) only at the end of the next.