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Price competition lowers food costs

The retail cost of foodstuffs in Finland has declined over the past two years, following a decision by supermarket chains to use pricing to battle for market shares.

Kaupan kassalla
Image: Heikki Saukkomaa / Lehtikuva

The S-Group supermarket chain was the first to announce in 2015 that it would trim food prices for consumers by cutting its own margins and upgrading the efficiency of its operations. At the same time it pledged not to squeeze foodstuff producers in order to be able to lower its own prices.

A review of prices 2015-2017 by Jaana Hellman, who heads development for price indexing at Statistics Finland, shows that the sector has responded with overall lower retail pricing of key foodstuffs such as bread, meat and dairy products.

Bread down 2%

According to Hellman, retail prices for bread have fallen slightly more than the decline in production prices. Her figures show that during the period of 2015-2017, prices paid by consumers went down by 2%. During that same time prices paid to grain producers fell by 1.7% and bread producers’ prices were down only 0.4%.

While lower grain prices have helped bring down the cost of bread, that is only part of the story.

"There shouldn't be too direct a connection made between these two since the share of the price of grain in the production and consumer prices of bread is rather small," Hellman notes in a Statistics Finland blog post in Finnish.

Other factors affecting the price of bread include logistics costs, wages and energy. Grain prices are influenced by world market prices and the size of reserves on hand.

Close to 5% less for meat

According to statistics, consumer prices for meat went down 4.5% during 2015-2017, mainly because of lower meat processing industry prices. Industry sources put that figure at a good 5%.

At the same time, prices paid to livestock producers were up 0.8%.

Milk prices creeping down

Overall, consumer prices for milk and other dairy products declined by some 3% during the period under review.

Hellman points out that a good portion of the observed decline was a result of the so-called "milk crisis."

"In 2014 Russia imposed import restrictions on agricultural products and in 2015 the EU ended milk quotas. As consequence of the resulting milk crisis there was a significant fall in producers' prices for milk," she explains.

According to Jaana Hellman, depressed raw material prices are one reason for continuing lower consumer dairy price levels.

The grocery market in Finland is dominated by two chains. The S-Group commands 46% of the market, followed by Kesko’s K-Group at 38%.

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