Australia’s cost of living is among the highest in the world, despite our low inflation rate. In this series we explore what consumers can expect from the big ticket items - petrol, power and groceries - in the year ahead.
As we start a new year many of us have resolutions to eat healthier, but for some, the price of food plays a critical role in staying the course.
What can we expect for food prices in 2014?
The price of food is affected by a multitude of local and international factors including food production, preparation and transport costs, degree of competition in the marketplace, regulations and policies, climate and weather conditions, trade, oil prices, and currency exchange rates.
This makes it difficult to predict exactly what is likely to happen to food prices in the year ahead. The Food and Agriculture Organisation of the United Nations argues that “food markets are becoming more balanced and less price volatile”. This indicates global food prices are set to remain relatively stable. The US government generally supports this view.
In Australia, data from the Australian Bureau of Statistics suggests food and non-alcoholic beverage pricing has increased at a slightly lower rate than the overall inflation rate (2-3%) over the last five years. But some industry analysts expect greater food price rises this year.
Food supply and availability
One of the main underlying factors that impacts food prices is the amount and type of food available. Australia produces enough food to feed [60 million]((http://www.chiefscientist.gov.au/wp-content/uploads/FoodSecurity_web.pdf) people.
This indicates that, in 2014, there should be enough food available for our 23 million residents and a substantial amount available for export. But despite the overall abundance of food in Australia, some communities have an inconsistent supply of foods, particularly healthy foods. This is a problem for many remote communities and some other low-socioeconomic groups. In the year ahead, continued food supply problems in these areas are likely to further push up their food prices.
In 2014, major weather events such as floods, cyclones or other disasters could affect food production and pricing, but these are difficult to accurately predict. Importantly, the Australian food supply is very diverse. This means that single bad weather events are only likely to affect the price of a few products. This was evident when the price of bananas skyrocketed after Cyclone Larry in 2006, but other food prices remained relatively stable.
Changes to national food policy can have an impact on the food system. While the former Labor government released a National Food Plan in 2013, the current government is set to release a new agricultural policy in 2014. While the details of this policy are still under development, it remains unlikely that new national policies will have a major impact on food availability and prices this year.
Price of healthy compared with unhealthy foods
We know that price is one of the most important influences on the food choices people make. We also know that the price of healthy food is a major barrier to optimum nutrition, particularly among vulnerable groups. Given that poor diet contributes at least 14% to the burden of disease in Australia, it’s important to consider not just food prices overall but the relative price of healthy foods compared with unhealthy foods.
In Australia and internationally, there is surprisingly little information on the relative cost of healthy diets and meals compared with unhealthy diets and meals. But there is some indication that prices of some healthy foods have risen more in Australia in recent years than prices of similar unhealthy foods.
Food-related taxes can have an impact on the relative price of foods. Internationally, Mexico has recently introduced a tax on soft drinks and unhealthy snacks, and several other governments are considering similar taxes. In these countries, these taxes would have the effect of making unhealthy foods more expensive relative to healthy options.
While there is no indication that the Australian government is considering implementing a soft drink tax, there has been talk about amending the Goods and Services Tax (GST) to apply to all foods. This would have the effect of increasing the cost of fruit and vegetables and other non-processed foods by 10%, and would have negative impacts on the health of the Australian population. However, even if there were tax changes, they are unlikely to be implemented in time to affect food prices this year.
In considering what lies ahead for food prices, it’s also important to consider food affordability. As a proportion of total household expenditure, food and beverages make up an average of around 19% of the budget. This is a far lower proportion of our income than our grandparents used to pay for food. But, with 12% of Australians living below the poverty line, these average figures hide some of the food security difficulties many Australians face.
We know that wealthier Australians tend to be healthier. Diet-quality, obesity prevalence and health outcomes are generally worse in lower-income groups.
In 2014, people who are already doing it tough will find food more or less affordable depending on personal circumstances and broader economic and social conditions. Food price rises of just a few dollars a week can strain these consumers before other Australians feel the pressure.
Chances are that, overall, food prices will go up basically along the lines of inflation. But there is the risk that certain products will go up by more than that, and these are likely to be the healthy ones. This could pose a risk to health, particularly for low-income groups.
This is the third piece in our Cost of living series. Click on the links below to read the others.