The Finnish Competition and Consumer Authority (FCCA) is currently conducting a study on the structure of food prices and price transmissions, i.e., how changes in, for example, agricultural production costs propagate through the food chain.
The structure of prices is examined by means of price margins, which refer to how the consumer price is divided among each stage of production in the food chain. Based on preliminary findings, there are differences between products and product groups, both in terms of price margin changes and price transmissions. The interim report of the study will be published in spring 2024.
The prices of food products, like many other products, rose exceptionally fast in 2022. At the same time, it was difficult for producers to shift the increase in input prices to producer prices. The FCCA’s study examines the functioning of the food market by examining the competitive conditions of the market. The transmission of market signals from one level to another is one of the key features of the functioning of the market.
The equilibrium of functioning markets is determined by supply and demand. As circumstances change, the market seeks a new equilibrium through price changes. By finding out how the market will settle in this new equilibrium, it is possible to obtain information on the actual functioning of the market. Based on the results, it may be possible to assess which factors contribute to the functioning of the market and the food supply chain.
For the study, the FCCA has collected food price data from food chain operators, which includes consumer price, purchase price of the grocery retail chains, industrial sales price, and raw material costs at product level as a monthly average between January 2015 and April 2023. The data collected from companies is combined, for example, with information on the prices and costs of producers from the Natural Resources Institute Finland. Under the Competition Act, the FCCA has the right to claim confidential information as well to investigate competitive conditions.
The study examines the reasons for changes in price margins and price transmissions for various food products
According to preliminary findings, there are differences between products and product groups, both in terms of price margin changes and the characteristics of transitions. The study is in progress, and it is not yet possible to identify the cause of these findings.
Food price margins refer to the share of producers, the food industry, the grocery retail chains and the state (VAT) in the consumer price of a food product. In the research literature, price margins have typically been calculated using accounting data and generally available price and cost data. The advantage of FCCA research is that it uses actual and detailed price data.
The price transmissions concern the links between producer, industrial and consumer prices in the chain. For them, the intensity, speed, direction and characteristics of the transition are examined in the case of price increases or price decreases.
The FCCA’s study is largely based on comparisons. Both price margins and price transmissions are compared between products and product groups, store sizes and private label products of retailers in relation to industrial brand products. When differences are observed in the comparison, the study examines the reasons behind the differences.
Interim report on the study in spring 2024
The aim of the FCCA is to publish an interim report on the research project in spring 2024. The interim report compiles observations on price margins and preliminary results on price transmissions. The final report and other possible outputs will be published later.