Commodity prices have been rising fast in recent months

University of Exeter academic leads €1 million research project on food prices

Professor Steve McCorriston from the University of Exeter Business School will be leading a €1 million research project on factors determining food prices throughout the EU.

The research consortium involves researchers from 13 universities across the EU including Germany, France, Belgium, the UK, Spain, Italy, Austria, Hungary, Slovenia and Slovakia.

The 3 year project officially started on January 1 and is financed by the European Commission. The Exeter share of the project is €199,000.

The recent significant increases in the world prices of many food and energy commodities has ignited considerable concern among governments globally and other stakeholder groups concerned with the impact of high world market prices on domestic food price inflation across Europe as well as in many developing countries.

The causes of the commodity price spikes include economic growth in emerging economies, particularly China and India, with this being reflected in rising demand for food, high energy prices and the switch to bio-fuels particularly in the US. This has been compounded by a range of short-term factors including adverse weather conditions, low levels of stocks across many countries, uncertainty in financial markets and the depreciation of the US dollar. In recent months, commodity prices have again risen sharply, exceeding the commodity price spike of 2007-2008.

However, the impact on domestic food prices has differed country by country. Specifically, while the average food price change for the EU as a whole for the period from mid-2007 to late 2008 was around 5-6%, in many EU states the change in domestic consumer prices for food was 4 to 5 times the EU average. In addition, the change in domestic consumer prices for food typically, but not always, was less than the change in domestic producer prices. The EU average for producer price changes over the same period was 1.5 times greater than the EU average for domestic consumer price changes for food. In some cases, the opposite was observed. For example, in Hungary, against a background where consumer prices rose by more than producer prices, the change in domestic consumer prices was almost three times the EU average.

The obvious concern is the impact on households, particularly in countries where expenditure on food accounts for a relatively high share of total consumer expenditure. Even in countries where food expenditure accounts for a relatively small share of the household expenditure, there are still important distributional issues as the impact on the poorer sections of society can be considerable even though the national average suggests a smaller impact and, more broadly, issues for European monetary authorities with high food prices currently fuelling domestic inflation throughout the EU.

Steve McCorriston explains “The overall objective of the project is to develop a greater understanding of pricing issues in food markets throughout the EU, to understand the links between world market prices and retail prices for food in supermarkets, and why these factors may cause the pricing of food throughout the European Union to be as varied as it has been recently.”

He added “It is particularly significant as it demonstrates our willingness to engage with international partners in a project which will have a major impact on both policymakers and the private sector.”

The partner universities are: University of Nottingham; Toulouse School of Economics; University Cattolica del Sacro Cuore; CREDA, Barcelona; Vienna University of Economics and Business; University of Bonn; University of Kiel; University of Gottingen; Hungarian Academy of Sciences; University of Primorska, Slovenia; Slovak University; Centre for European Policy Studies, Brussels

This research received funding from the European Community’s Seventh Framework Programme (FP7 2007-2013) under grant agreement number 265601. 

Date: 3 February 2011

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