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Food prices down but retailer profits steady, research group says

The Finnish food industry's earnings were largely unaffected by a decline in consumer prices between 2012 and 2016, according to a new study.

Paistia on syöty palanen.
File photo. Image: P. Maguire / AOP

A new study carried out by the Pellervo Economic Research group (PTT) showed a clear change in the relationship between the food industry and the retail grocery sector in 2012-2016.

PTT's research found that although retail food prices dropped over that period, the food industry's overall share of the trade actually increased. However the producers of the raw inputs used to make those products - farmers - did not see significant change in their share of the trade.

The research group said consumers were the biggest winners during that four-year period.

Food prices in Finland began to fall in 2014 and continued to drop until last year. The drop in prices came later than in other EU countries, but the declines continued for a longer period of time, according to PTT.

Grocery prices were also affected by taxation policy. In 2009 Finland reduced the VAT on store-bought food from 17 to 12 percent. The following two years government ratcheted up VAT by a percentage point each year to 14 percent, where it currently stands.

PTT also examined changes in price margins seen among the various players in the industry, including the processing, retail, farming and taxation sectors. Specifically, the researchers looked at the years 2008, 2012 and 2016.

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Image: Mikko Airikka | Yle

The report showed price variations for dairy, meat and grain products and how earnings from retail prices were divided between each sector. The study found that similar trends were seen across all product groups - the processing sector's share of food prices increased while the retail sector's share declined and the producer's share remained relatively steady.

Dairy producers receive about one-third of the end price of milk and dairy products

According to the report, the processing sector's share of meat prices clearly increased at the same time the retail sector's share saw declines. The meat product category included domestic livestock, including pork, poultry and processed meats.

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Image: Mikko Airikka | Yle

Grain product price shares were also examined, including flour, cereal, bread and biscuit products.

In 2012 more than half of retail prices of grain products went to the food processing industry, but just four years later that sector's share rose to nearly 80 percent.

Those gains came from the retail sector, according to the study. The farming sector received about seven percent of the end price of food products in 2016, which is less than 2012 but a slightly larger share than the sector received in 2008.

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Image: Mikko Airikka | Yle

As the end price of foodstuffs has dropped, so too has overall turnover throughout the industry. The decline in cash flow also means less revenue for the state, even though VAT on foods was hiked by one point to 14 percent in 2013.

Even though overall cash-flow has decreased due to declining retail prices, PTT said the retail sector have managed to improve their bottom lines by streamlining their operations and have reduced their margins.

The research group said it is concerned about the future of Finland's food industry, saying that further development requires growth in revenue - not share percentages.

During the autumn of this year several food industry firms have reported poor results, including companies like meat processer HK Scan and processed meals firm Apetit Group.

Processed foods company Raisio's turnover numbers this year were weaker than the previous year and similar results were reported by the processed food company Atria.

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