Food Prices in Australia

Note to readers: This post was written some time ago and in a particular context. However, I have noticed that it is still drawing hits. For those interested, try the Grocerychoice site. This does not provide detailed item information, but does provide broad indicative data for food prices across Australia.

Earlier this month I put up a post suggesting that this had so far been a very good election campaign measured by content. Then both sides seemed to go the dogs so far as I was concerned.

In the case of Labor it was the announcement of an inquiry into food prices, something that everybody knows will have no meaningful impact. Now I have no objection to the collection of data. But in policy terms it's really a stunt.

Then listening to some of the responses I decided that while it was a stunt, it might not be a bad idea after all if only to educate people. Too many middle class Australians fail to realise that for many Australian families today, the rise in food prices is a very real issue.

Let me start with a basic statistical fact that I heard quoted tonight. It is, I think, statistically correct that as measured by ABS numbers, average incomes have risen faster than food prices. But this is misleading at a number of levels.

To begin with, the comparison should be expressed in terms of after tax incomes, money in the pocket as compared to changes in food prices. Then you have to take into account the way in which incomes have risen faster for some than for others. Then, too, you need to consider shifts in other household costs, especially rents and petrol where costs have recently risen very sharply.

All this means that the amount of money hundreds of thousands of Australian families have to spend on food is no more, in many cases is less, than it was two years ago. So shifts in food prices hurt.

Now look at price patterns.

Start with a litre of milk. At present, this appears to range in price in Sydney from around $1.21 for a cardboard carton of supermarket brand to $2.40+ for a plastic branded bottle, say Pura, at a servo.

This example says no more than something we all know, that prices for the same good vary from location to location. Anybody in Sydney knows that supermarket prices at Bondi Junction are higher than they are at, say, Eastlakes where I shop. The gap is even bigger if you move outside the chains.

Now if you have a car and can afford petrol, then you can afford to shop around. Not everybody is so lucky. Many actually have to buy at nearby locations even though prices are higher than average.

Now add to this some actual price movements.

The drought led to higher grain prices. In turn, this means that chicken prices (generally the lowest price meat) have risen by about a third over the last fifteen months. Lamb, on average the most expensive meat, has also risen sharply. Whereas the price of a leg on special used to be as low as $4.99 a kilo, it's now around $9. A beef roast that was once $9-$10 for a piece of meat is now $14.

Vegetable prices have shifted too, and sharply recently because of the cold weather. Beans that used to be regularly on special for less than $3 per kilo are now unobtainable. Zucchini is still there, but its per kilo price has shifted from just under $3 per kilo to over $9.

Few poorer Australians can afford lamb cutlets, once a standard dish for all, at $2 per cutlet. In our case, two cutlets each (not a lot) works out at $16 for the family. For many people, this is a lot more than the average amount they have for the total meal.

It is still possible to provide a major meal for four people for $12-$14, but it is becoming harder.

To many Australians this is less than they would spend on an entree, and they find it hard to imagine actually spending only this much on a major meal. Yet the reality is that there are an increasing number of Australians who have no choice but to live at at or close to something approaching a subsistence level.

This is the group that notices even a small price shift, say $2 per chook, because it makes it harder for them to afford it. When you are budgeting this tightly, small shifts become important because they mean that you will have to give up, say, a loaf of bread to compensate.

Poorer Australians have always known this problem. Today they have been joined by an increasing group of middle Australians, especially the growing number on contract work, who suddenly face a major income drop when they still have to try to service rents, school fees and credit card debts created in better times. This is the group that our welfare agencies are seeing for the first time.

Let me try to illustrate with a few numbers.

Assume, say, that you are paying rent or home loan repayments of $480 per week. This is not an unusual position in Sydney. Add to this school fees (say $470 per week rising at twice the rate of inflation), $300-$400 for ordinary living costs. Already you need an after tax income of $1,350 per week before clothes, credit car payments, insurances etc.

Now assume that family income stops. Suddenly your financial position is deteriorating by around $1,500 per week, $15,000 after just ten weeks.

I have taken a middle class example. You can run very similar numbers for areas such as Western Sydney where high mortgage payments and declining house prices have put many families into a financial vice.

The examples I have given raise all sorts of issues.

There is, for example, the dynamics raised by contact work itself, dynamics that are forcing all sorts of changes onto firms and individuals. As a simple example, firms are now paying much more for staff than they used to because they are now paying agency fees of up to 40 per cent on top of payments to individuals.

At this point, I would simply make the point that the growing concern about food prices reflects real problems facing an increasing number of Australians.

Postscript 25 July: the hollowing out of the middle class

Who would have expected that the issues that I raised in this post would have dominated the airwaves the following day (today)?

Part of the trigger here was release of the latest Consumer Price Index figures that show a major CPI increase caused by just the things that I was talking about, higher food, transport and accommodation prices. Part was the release of new data showing the continuing crisis in housing affordability. In turn, this led to commentary about the big increase in previously middle class families seeking food relief.

All this deserves a lot more than I can say here. I will come back to the topic when I have absorbed the latest data.