Australia: food prices outpace inflation

Food and agribusiness banking specialist Rabobank has found export competition, higher petrol prices and people giving up on low carbohydrate diets are behind the rise in food prices. While inflation across the economy is now at 2.8 per cent, food prices have grown 3.6 per cent in the past 12 months. Within that 3.6 per cent, however, there have been some sharp price spikes.

A fall in fruit prices (down 5.9%) has only partly offset a steep jump in vegetable prices (up 11.6%)

Prices for vegetables (up 11.6 per cent), beef and veal (up 7.4 per cent), bread, pork and cheese (all up 6.2 per cent) and milk (up 5.9 per cent) have all grown at least twice as much as general prices. Overall food prices have only been kept down because of a 5.8 per cent fall in poultry prices, a 5.9 per cent drop in fruit prices and with only a 0.5 per cent increase in the price of wine.

The head of Rabobank's food and agribusiness research, Ben Russell, said the big increase in beef and veal prices was largely due to Australian cattle farmers taking advantage of good prices in the Japanese market. He said with American beef kept out of Japan because of fears over mad cow disease for the past year, Australian beef had filled the void � leaving less for domestic consumers.

"This reduction in supply led to very high wholesale beef prices in Japan, and an increase in demand and price for Australian beef in that market," he said. Another food becoming more expensive locally because of overseas demand is cheese.

"Traditional exporters are struggling to keep up with global demand, sending export prices to record levels," dairy analyst Tim Hunt said. "Rising retail prices just reflect an adjustment in the value of that product line as a result."

The decline in interest in low-carb diets is being put down to higher prices for two carb-loaded foods � potatoes and bread. Dr Russell said that while seasonal factors had affected the fruit and vegetable sector, there had been increased demand for bread and potatoes because low-carb diets were no longer all the rage.

Petrol prices were behind higher prices in the dairy industry, with transport � a major cost in the sector � becoming much more expensive in the past year. But it is a different story for chicken and wine.

Dr Russell said poultry prices had fallen for seven consecutive quarters, but consumption was slightly down during the past three months � possibly due to fears over avian flu. Increased production of grapes, both domestically and internationally, had put downward pressure on prices.