Food price inflation could be tackled with instruments that promote competition - Bank of Latvia

RIGA - Food price inflation could be tackled with instruments to promote competition, Bank of Latvia President Martins Kazaks said on Thursday at a meeting with Economics Minister Viktors Valainis (Greens/Farmers) and Acting Chairman of the Competition Council Ieva Smite.

The President of the Bank of Latvia presented the bank's conclusions on food price inflation indicators. During the meeting, they discussed the instruments within the competence of each institution to address the situation.

During the meeting, Kazaks emphasized that inflation in Latvia had been rising, which was largely due to food prices. Moreover, consumer prices in the food group are rising faster than producer and import prices. The Bank of Latvia has not observed a downward correction in food consumer prices, when global energy and food prices fell after high inflation during the energy crisis.

The President of the Bank of Latvia notes that this suggests that competition may not be fierce enough at certain stages of the food production and marketing chain.

"In this situation, the most effective instruments would be those promoting competition. The Memorandum of Cooperation just signed between the Economics Ministry and the industry is a step in this direction. The Bank of Latvia is ready to support the ministry in in-depth data analysis, which would allow to assess the effect of the measures taken so far and to evaluate the further steps needed," said Kazaks.

At the meeting, Uldis Rutkaste, Head of the Monetary Policy Department of the Bank of Latvia, presented the bank's analysis and conclusions. Currently, price increases are supported by changes in food and services prices, while energy products tend to become slightly cheaper. Food price inflation, including alcohol and tobacco, reached 7.6 percent in April, while excluding alcohol and tobacco it was 7.4 percent.

The Bank of Latvia believes that it would not be in line with free market and competition principles to control mark-ups added by producers and traders. In a free market, competition between producers and traders is important, forcing them to find ways to offer their products at a lower price.

The Bank of Latvia supports various pro-competitive measures, such as the possibility to easily compare product prices and to inform consumers about the lowest price offers, the entry of new players into the market and more active competition monitoring of dominant market players in order to promote a more consumer-friendly market offer. These would be the steps in the right direction which could have a positive impact.

As reported, on May 27, Valainis signed a Memorandum with industry on reducing food prices.

The memorandum provides for the introduction of a low-price food basket, a price comparison tool and the promotion of locally sourced products in shops.

The signatory traders' organizations include about 75-80 percent of the market players, including Top!, Elvi Latvija, Aibe, Narvesen, Maxima, Lidl, Rimi and others. At the same time, the ministry continues to work with those retail chains that are not in the Memorandum.