VILNIUS - A fresh report on food prices throughout the European Union painted a dark picture about the inflationary outlook and raised questions about how the 27-member bloc intended to cope with future "food shocks."
As of April food prices soared 7.1 percent year-on-year, twice the rate of inflation in the EU and the highest annual increase in both the EU and the eurozone since 1996, according to Eurostat.
Price gains for some categories of food were astounding, if not alarming. Milk, cheese and eggs, for example, increased 14.9 percent, while bread and cereals were up 10.7 percent for the entire EU. Meat prices, by contrast, were up only 4.1 percent over the 12-month period.
As expected, the countries with the highest food inflation were in Eastern Europe. Bulgaria led the list, as its food prices soared 25.4 percent from April 2007 to April 2008. Latvia was in second place, with 21.7 percent, Estonia in third (18.3 percent) and Lithuania in fourth (18.1 percent).
Not coincidentally, these are the four countries with the highest overall inflation rates in the European Union. Latvia currently tops the list with 17.5 percent annual inflation.
So far it is unclear what Europe's policy response will be to the runaway food prices, which has been sparked by increasing demand in some parts of the world and higher commodity prices throughout.
Late in May the European Parliament called on establishing food stocks to avert a crisis in the future. MEPs called upon the European Commission to examine the role of retailers in the food chain, "as retail food prices have risen disproportionately compared with the cost of living."
Lawmakers also said that the priority should be given to food production and not biofuels, which have been instrumental in triggering higher food prices as grain farmers throughout the world capitalize on growing demand for clean fuel.
France, meanwhile, has called on measures to boost production in a "European food security initiative."
French Agriculture Minister Michel Barnier was quoted in April as saying that EU subsidies and aid should be revamped to foster food production in developing countries. He blasted "too much liberalism" and "too much trust in the free market" as reasons behind the food crisis and rioting in Africa and Asia.
"We can't leave feeding people to the mercy of the market. We need a public policy, a means of intervention and stabilization," Barnier told The Financial Times in a recent interview, adding that the EU's common agricultural policy was not to blame.
France has clashed with Britain in the past over the latter's calls to reduce EU agricultural spending, saying that more funds should go toward research and technology. Farm subsidies currently swallow up 45 percent of the EU's annual budget of 110 billion euros.
For the Baltics, food inflation represents a multi-faceted threat that, at best, indefinitely prolongs the countries' ambition to join the eurozone, and at worst, is propelling more people beneath the poverty level.
Anecdotal evidence suggests that more Balts are spending at least half of their income to purchase groceries. Hundreds of thousands of pensioners now live in poverty.
As a rule, in poorer countries a larger proportion of income is spent on food. In Denmark, for instance, food accounts for 13.7 percent of the consumer price index. In Latvia, it is 22 percent, and 23.2 percent in Lithuania. In Romania, the poorest country in the EU, food prices account for nearly 35 percent of the CPI, according to Eurostat.
For the EU as a whole, food prices account for 14.6 percent of the consumer basket of goods.
The lowest food inflation in the EU was posted by Portugal, where prices increased 3.2 percent in the April 2007-April 2008 period. Incredibly, food prices actually decreased compared with the previous 12 months (April 2006-April 2007) when they were at 3.6 percent.
No other country in the EU besides Portugal recorded a fall in food prices.
Estonia recorded the highest price rise among milk, cheese and eggs, at 35.4 percent, while Lithuania boasted the highest gain for meat products 's at 19.1 percent 's for the 12-month period.
Eurostat's report was released on June 2, the same day the European Central Bank marked its 10th anniversary. Though the bank and its founders had much cause to celebrate, the milestone comes at a time when consumer prices are spinning out of control.
Inflation in the eurozone now amounts to 3.3 percent, far above the 2 percent target set by the bank. Throughout the entire EU inflation reached 3.6 percent.
"We know that our fellow citizens are asking us to deliver price stability," ECB president Jean-Claude Trichet told an audience in Frankfurt. "We also know that price stability is a prerequisite for financial stability, a very important objective at the current juncture," he added.
