@Carrawaystick - the price for fresh milk in France is not that different to here (recent trip to France), but the quality (taste) was not as good. Fresh milk is cheaper in Germany and I have bought higher quality milk (from cows kept on mountain pastures supplied in glass bottles that tasted great) at a lower price than the standard milk here (I did not even buy it in a big supermarket but a convenience store in the centre of Munich).

There is a tendency for those connected to the interest groups to get overly defensive. Instead of simply doubting the quality of the data it would be considerably more useful to look at the costs of production and intermediation.

Milk isn’t that processed. It has to have a minimum of 3.5% fat (non skim milk) so all the processors do is pasteurise and remove fat (for cream or butter) as cows virtually always produce milk of over 3.5% fat.

If milk from cows falls below 3.5% cream from low fat milk is introduced. Coincidently this Spring/early summer has seen butter fat in milk fall to it’s lowest level in years due to grazing conditions.

The 6.5% you have in mind probably is butter fat and protein

Milk, it may surprise you you, is a highly processed product. At its most basic, processors aim to hold the amount of milk fat (butter fat) pretty much constant all year round. In traditional farming, the vagaries of lactating cows through the seasons and so on, this wasn’t remotely possible. In practice, this means that fat is added or subtracted from milk as needs be to keep the percentage constant (I think in Ireland it was around 6.5% but that could be completely wrong). So the amount of fat in your homogenized milk influences the price. The more fat, the more expensive I bet. I think UHT milk has a reduced fat composition - it may even have a different arrangement of soluble fats to aid preservation. Sorry the science is long behind me.

Also why is only the price of the poison tobacco mentioned? surely this is a poisonous substance with no useful purpose bar subsidies to farmers growing it in France?
Even Heroin has a use as pain relief, but tobacco?

Italian supermarket chains regularly have products on ‘promo’.

-Yes I accept that point, but it is just in recent years here I see an huge increase in these half price offers here. I remember years ago “half price” offers being a really good deal, these days it seems the practice is to over inflate the asking price so when the do cut it then it seems a better deal. I can provide no proof (that is what eurostat should have done but they took the cheap & easy option) but when I do go abroad I do like to browse in supermarkets and have just not noticed the same extraordinary amount of (apparent) deals like in Irish supermarkets of late. The UK seem to have adopted the same practice as us too.

I do think it is feasible that we have an unusually high occurrence of offers here, if they showed the data you might notice it, e.g. if there was a much large price differential here. This happens in the fastfood takeaway market here -just look at the takeaway pizza market -half price/buy one get one free offers are constantly available, while I have never once have seen an offer in a Chinese or Indian takeaway. The Italian chippers had a half price day and there were queues down the streets, as it was a genuine deal. The big pizza places have all seemed to copy each others tactics, just like supermarkets here are now all jumping on the half price bandwagon.

“NCA biannual food price comparisons (now stopped) were subject to the same criticism as you have made.”
I remember seeing the actual data on one of their reports. If there was an offer/discount they ignored it and took the price as being the original undiscounted price which is usually shown on the display price. This was biased against supermarkets who use the marketing strategy of pricing stuff high for a few weeks and then having a supposed large reduction on the item. I think in the data I saw tesco would have been top of the list if offers were accepted, but otherwise dunnes topped the list. I do notice far more offers in tesco than dunnes.

This study is saying the average price retailers attempt to charge is 29% more. The recent forfas study comparing the republic to NI was also misinterpreted by the media, some sloppy journalists concluded that the report inferred the cost of goods at the till in the republic should only be 5-6% more than in NI. While if you read the actual report it said not such thing, it talks about cost base being 5-6% more. It took no account of the fact that manufacturers/wholesalers are charging huge amounts more for goods here. If the average wholesale prices of goods to the retailers were taken into account then you would have got a very different figure about how much extra you could expect to pay at the actual till.

A sceptical attitude to the underlying data is always healthy and at face value this seems a justified point. It would be interesting to have a CSO view on how they address this kind of problem. A related issue is between discounters where the price of chicken fillets might be on average lower, but you have to buy a packet of 6 together, compared to a full service supermarket where you can ask for a single fillet over the counter. The sampling and statistical issues in these price comparison surveys must be horrendous, and I seem to remember that the NCA biannual food price comparisons (now stopped) were subject to the same criticism as you have made.

Of course the consumers do not necessarily pay the regular price. However, you seem to assume that Ireland is the only country in which such special offers are available. To see that that is not the case you only have to travel north of the border, and ideally north of Newry (there have been fewer special offers in Newry as the cross border shoppers were buying everything at regular prices).

Irish supermarkets did not invent these special offers and they are and have been available in most countries. In other words unless you are saying (and can prove) that there are more special offers in Ireland (I very much doubt that) then the comparisons referred to above are a good reflection of the actual difference in prices to the consumer.

“Prices to be collected
4.49. The object of the price surveys is to collect the
prices that purchasers actually pay to sellers to acquire
the goods and services specified on the final
group product list at the time of the survey. In other
words, the intention is to collect actual transaction
prices. Experience shows that it is neither practical
nor cost effective to collect such prices from purchasers.
The prices are collected from sellers instead.
Most sellers display the prices at which they
are prepared to sell their products. But the prices at
which products are offered for sale are not necessarily
the prices at which they are actually sold.
Unless price collectors have access to scanner
data, they cannot collect actual transaction prices.
Rather, they have to collect the prices that purchasers
would have to pay if they were to actually
purchase the goods and services specified at the
time of the survey. ”

This is not just a pedantic comment as I have noticed a growing trend/culture of “half price” and “buy one get one free” offers in recent years here. Tesco.ie currently have 218 half price offers shown and hundreds of other offers, in other european supermarkets I have not noticed this as much. I would like to see the actual data they collected. If I went to tesco today and got the average price of a pizza I expect it could well be 29% higher than average, however the empty sections in the freezers will be the ones on offer, and they usually have plenty of them.

Accepted that more of, say, Italian, milk goes into value added products like cheese rather than butter or SMP. I wish we did better and I have always been sceptical of Ireland’s 80/20 seasonality meaning we have to produce commodities from milk rather than value added. You can’t stop provided markets with yoghurt because you have no milk in December.

That said the report was comparing liquid milk prices in shops so there is a comparison to be made. But as a previous comment said, alot of European milk is UHT with a shelf life of months and is inevitability cheaper

The Irish beef specialization is quite small. Most Irish beef breeds are crosses with dairy strains put to a beef bull. Hereford and Angus crosses used form the bulk of good quality aged beef sold in local butchers. Charolais, Limousin and Belgian Blue crosses have edged these out. They kill out at a higher weights and put on muscle more quickly with a reduced fat-to-muscle ratio. In my opinion they are too lean. Both the French and Italians have beef strains that are more sheltered from contamination with dairy genes. The big French beef breed is the Saler (sorry, I am sure my spelling is off) and for the Italians the Chiannina.

I had a suckler herd of Angus crosses in my salad days, and a deal of dry stock, so this is not off the bag of a fag box musing. Anyway I have drifted way out of economic territory.

You express concern for the Holsteinisation of the Irish herd. Its worth remembering that most beef in Europe comes from dairy breeds and that Ireland is a somewhat unusual exception in having a large specialist beef herd.

We need to remember that consumers buy dairy products rather than milk and that aside from drinking milk these dairy products are somewhat heterogenous. A far higher proportion of Italian milk is converted to higher value added products (premium cheese varieties) than would be the case with Irish milk which tends to go to more generic products.

Italy is not self sufficent in milk while Ireland exports 80% of what it produces.

Taking the above into consideration is it perhaps less surprising that Irish farm milk prices are lower than those in Italy or much of Continental Europe.

BTW - Take care in making monthly price comparisons given the strong seasonality in Irish milk production. A simple average over 12 months can be misleading.

Its an interesting idea which does seem supported by some evidence. I recall when food prices, particularly beef prices, increased dramatically in the early 1970s. The government asked the NIEC at the time to investigate and it provided evidence both of price averaging (across cuts) and price smoothing (over time) by butchers. The argument would be that food retailing is more likely to respond to shocks in input prices in an asymmetric way, such that it raises retail prices when food prices go up but does not reduce them (or reduces them by less) when food prices are coming down.

Of course, if such behaviour is characteristic of food retailers in general (and the bigger ones such as Tesco operate in multiple national markets) it still leaves open why Irish food prices have climbed by more than food prices in other MS, and why they have diverged more from trends in general prices in Ireland compared to other MS.

Possible candidates for an explanation are:

1. Retail food prices reflect levels of service (convenience vs discount stores) as well as quality differences (fresh vs UHT milk). It may be that at least some Irish consumers put a greater value of these attributes than consumers in other MS. In support of this thesis, there was a good piece in the Irish Times by an NUIM economist (was it Jim O’Leary?) some years ago based on CSO food price data highlighting the huge differences in prices for apparently the same product even in the same store, let alone across different stores and different geographic regions (http://economics.nuim.ie/staff/documents/IrishTimes54.pdf). This argument suggests that Irish consumers do not shop around, but also that they do not want to shop around. The greater importance of discount stores in other MS also highlights the service component. This issue also highlights the possibility of measurement error in the data given the difficulties of comparing like with like goods across countries.
2. The cost of doing business is higher in Ireland than in other countries. There is some evidence of this, as shown in the Forfas study quoted above. But while this helps to explain some of the differences in the food price relative, it does not help to explain why we are more expensive for food than for other goods and services. Another issue which may help to explain this is the greater role of ‘mom and pop’ stores in southern Europe and the dominance of immigrants in the grocery convenience store sector in nothern Europe, both of which may mean that labour costs are particularly low in some sectors of food retailing in other MS.
3. Greater profit-taking in the retail sector in Ireland compared to other MS. Figures on this are by definition difficult to come by, but the anecdotal evidence suggests it exists. The Competition Authority has investigated the structure of food distribution, but it has not formally investigated the degree of competition that exists.
4. Structural issues in the distribution chain, such as lower population density and the fact that many food products have to be shipped across the Irish Sea and enter an independent logistics chain, whereas larger markets elsewhere can benefit from economies of scale in distribution.

I don’t have any suggestions as to relative importance of these items, I suspect all play a role.

I suspect many consumers do not realize that reductions on perishable products such as fruit and vegetables offered by the supermarkets are frequently borne by the supplier.

I don’t have any data on Irish meat cuts preferences, but front end beef cuts are out of fashion as well as most beef offal (though contrast between a butchers’ window in Thomas Street and one in Blackrock is still interesting). Same is largely true for pork. Lamb fares better. Ignoring the rendering regulations, most of the unwanted cuts are shared out between commercial burgers, low quality mince, and dog mince - and canned products. There must be an economic cost to rejecting these cuts and offal.

Another point is that Irish importers have increasingly concentrated on stocking saleable no-waste cuts, e.g. the famous ’striploin’. A gradual shift away from unprocessed carcass importation. Finally, the Celtic Tiger carried away many native butchers and boners from the meat trade. The factories responded by importing more labour and meat and rejigging their product lines to take account of changing tastes.

Perhaps, the neatly wrapped polystyrene supermarket tray isolates the consumer overly much from the farm to fork trip.

It migh be worth looking at these and the equivalent data in levels using Stephan von Cramon-Taubadel’s [European Review of Agricultural Economics, 1998(1):1-18] asymmetric price adjustment model to see whether there have been upward revisions in the retail price in response to positive price shocks and no (or more limited) downward movement in retail prices to farm level price declines (negative price shocks).

von Cramon-Taubadel found evidence for such behaviour in German pig meat market prices and they (from the data this post has been discussing) look pretty good relative to Irish prices. If we find such asymmetries then we then have to explain why they are present. As you say Alan a topic worth of another post!

http://www.dairyco.org.uk/library/market-information/datum/eu-milk-prices—dg-agri.aspx

Farmers aren’t getting a big cut of the milk price, someone else is.

I was wondering, though, if the high cost of meat in Ireland doesn’t have as much to do with the fact (or at least my perception) that Irish people increasingly buy their meat from supermarkets rather than the butchers.

In my experience, butchers’ meat is almost always cheaper than that in Tesco and its competitors. There’s no real reason why this should be - and anecdotal evidence suggests that supermarkets in the UK do indeed sell cheaper meat than the local butchers do.

Could it be that (a) Irish people are a bit thick and buy inferior meat for more money, or (b) that Tesco’s distribution line, which works very well in the UK and Europe but is arguably redundant on a small island like Ireland, imposes needless extra cost on farm produce? I’d certainly like to see Tesco’s meat and dairy margins compared with Dunnes or Superquinn, and whether the indigenous companies actually make bigger margins.

First, Antoin’s point that most Irish foods are zero-rated for VAT purposes, so that if we were to look at the Eurostat price relatives on a tax-exclusive basis, Irish food prices would look even less favourable than they do, bad as the figures are. It would not be right to increase the Irish price relative by 21% (as the mirror image of a tax-exclusive comparison) because presumably if VAT were imposed on food, some of the incidence would be borne by the supply chain and not all would be passed on to final consumers. But even if we were to assume that only half were passed on to final consumers (allowing also for the fact that not all foods and non-alcoholic berages are excempt), it would be sufficient to make Irish food the most expensive in the European Union. Or to put it the other way round, if we adjust the price comparison to a tax-exclusive basis, this would probably put Irish food prices at the top of the league.

Second, Kevin points out that the trend in Irish prices relative to other MS prices has not been even. In 1995, relative to the EU-15, the Irish price level for food and non-alcoholic beverages stood at 90.4. By 2001 we were at 111.8 and by 2002 we were at 118.4. Since then there has been relatively little change to the figure of 121.8 (Thx, Kevin, for the link to the annual data series going back to 1995. In my Morning Ireland interview yesterday morning, I had only looked at the Statistics in Focus data which start in 2001, and thus missed the sharp divergence in price trends in the six years prior to that).

The first issue to sort out is how much of what is happening behind these figures is due to the way food markets operate, and how much to general economic trends during the Celtic Tiger period. One way to do this is to compare the trends in the price relatives for food and non-alcoholic beverages with the comparative price level indices for GDP for EU-15=100. This identifies factors affecting the Irish food market which are distinct from developments in the economy as a whole, both expressed relative to developments in these price levels in the EU-15. Expressing the data as the ratio of the food price relative to the price level relative, the data are as follows:

1995 101.7
1996 100.7
1997 105.2
1998 104.3
1999 101.7
2000 104.5
2001 101.8
2002 106.3
2003 105.5
2004 105.0
2005 103.8
2006 102.9
2007 105.2
2008 105.4
2009 108.6

What conclusions might be drawn from these figures? First, while the series bounces around a lot, there was a clear jump in 2002 which was the year Ireland adopted the euro which is a factor Kevin identifies as important in driving relative food prices. But then we would have to argue that food prices were more sensitive to adoption of the euro than prices in general, and one wonders why that would be the case?

Looking at averages to smooth out the fluctuations, the average difference between the difference in food prices and prices in general between Ireland and the EU-15 was 3.3% in the period 1995-2002 and 5.2% in the period 2003-2009. This suggests that specific food market factors have contributed more to the divergence between Irish and EU-15 prices in the later period compared to the earlier one.

Finally, it is worth drawing attention to developments between 2008 and 2009. The ‘raw’ comparison of food price relatives between these two years in Kevin’s figures is 121.1 for 2008 and 121.8 for 2009. If we control for the general improvement in our overall price level vis a vis other MS in 2009 compared to 2008, then the deterioration in food market performance is even more stark, with my index moving from 105.4 to 108.6.

This is all the more puzzling given the food price announcements in 2009. In May 2009 Tesco announced their ‘change for good’ campaign to counter cross-border shopping. This included sourcing products direct from the UK suppliers rather than from Irish agents to get the benefit of a depreciating sterling as well as new ‘planograms’ in store. In announcing results for their sales figures to February this year, Tesco Ireland claimed that it cut prices of 12,500 products by an average of 20% since May 2009 (Irish Times, 20 April 2010). Other supermarkets and fascia chains claimed to have followed suit; for example, SuperValu claimed in June 2009 that it had introduced price cuts which would cut the price of an average weekly trolley of goods by 23 per cent (Irish Times, 30 June 2009).

Now, it is true that, in absolute terms, Irish food prices did fall in 2009 compared to 2008, from 111.0 to 107.2. Indeed, this was the government’s and IBEC’s position on the Eurostat figures yesterday (quoted by Michael Hennigan in his comment above) when they claimed that food and drink prices had fallen by 8.6% last year. But what the price relative series tells us is that food prices in other EU-15 MS also fell, and even by a little bit more. The most obvious candidate for this trend is that agricultural prices in 2009 were coming off the rebound from the extraordinary high price spike in 2007-08, so there is little evidence of any effect of Irish retailers pricing strategy in these figures.

Why this should be the case would be the subject for another post!

“During his three-year tenure, Clifton will be attached to Trinity College, Queen’s University in Belfast and University College Dublin in turn.

There is no obligation to compose any poetry…”

Do POP’s (Professor of Poetry) get paid the same as POE’s (Professor of Economics)? I think we should be told.

Are POE’s obliged to produce anything?

In terms of retail beef price comparisons I would suggest that you surf over to the cso website and take a look at the monthly data on Irish retail prices (in euro) for beef. These would suggest (based on your prices of Italian T-bone) that prices in Italy and Ireland are not radically different (the Irish average price in April 2010 of sirloin was just over €13/kg).

Thanks for that information. I wonder is this comparing like with like (in grade and breed terms)? In some cases factory hung meat for the Irish supermarkets might be as little seven days, maybe 14 and at pinch in the ‘up market’ shops 21 days. Ivan Yeates pointed out over 15 years ago that the ‘Holsteinisation’ of the Irish beef herd was degrading quality. Was he listened to?

However, prices in ireland for meat haven’t always been higher than in Italy. If you download the dataset I referenced in a earlier comment and divide the Irish PLI for meat by the Italian PLI you will see that until 2000 the Irish meat basket was actually lower than the Italian one. Things in ireland have since gotten more expensive. In 2009 Irish meat prices were 8% higher than in Italy.

In terms of retail beef price comparisons I would suggest that you surf over to the cso website and take a look at the monthly data on Irish retail prices (in euro) for beef. These would suggest (based on your prices of Italian T-bone) that prices in Italy and Ireland are not radically different (the Irish average price in April 2010 of sirloin was just over €13/kg).

Your point about lamb prices points to an important issue to remember when comparing retail meat price levels in different countries the meat products might come from the same species but that doesn’t mean that the associated retail products are the same. Irish ham isn’t parma ham and Irish (heavy) lamb isn’t the same as Italian (light) lamb.

At the farm gate cattle prices in Ireland are lower than in italy. Last weeks average r3 young bull price in Ireland (€305.1/100kg) was 8% lower than the R3 young bull price in Italy. This reflects in part the lower costs of production in Ireland.

At the retail level, as most of the comment in relation to this point has acknowledged, prices in Ireland are higher than the average EU level. Ronan L’s suggestions as to why prices in Ireland have increased relative to those elsewhere in the EU (in 2009 they were 10% higher than the EU15 average) probably explains much of the increase. How much of the increase is due to increased margins at the retail level we don’t know, though as Edgar mentions above anecdotally one hears of high margins in food retailing in Ireland.