Articles / Rubric: Companies and Markets

Demand for Cheaper Czech Food
May 2013 | Companies and Markets

Czech food producers have prepared their answer to the new leader of the Public Affairs political party, Vit Barta. A week earlier, the newly elected leader had declared that it is the producers who are responsible for the price hikes on foodstuffs, guided by the law regulating the sale of agricultural and food products. However, according to the Accounts Chamber, the high food prices can be attributed to taxes and retailers’ trying to increase their profits. Both producers and merchants deny any guilt.

After becoming party head, Vit Barta immediately took up the fight for cheap food in the grocery stores. The Czech politician has called the law on regulating sales of agricultural and food products “socialist,” since it interferes with supermarkets’ ability to pressure producers to keep their prices lower. Mr. Barta feels that the lower food costs in neighboring Germany are due to the lack of competition between producers of basic goods like bread and beer. He also said that the Czech law supports extremely large suppliers and doesn’t allow merchants to lower their prices. Therefore, the law should be repealed.

The law regulating the sale of agricultural and food products is supported by producers and helps them to improve their negotiating position against retailers. Among other things, the law requires merchants to pay suppliers within 30 days, and prohibits retailers from requiring a commission from producers for using their services and also from setting food prices lower than their purchase price.

Producers argue that Barta is just juggling figures around and doesn’t understand the market economy. They believe that the law does not actually set food prices and the figures that the Public Affairs party’s head is trying to use to back up his arguments were taken from unreliable sources.

For example, producers deny Barta’s claim that the price of wheat has risen 19.5% in the past two years while bread prices have risen 60%: “The Czech Statistics Bureau and the Entrepreneurial Bakers and Confectioners Union contend that the price of wheat increased by 30% while the cost of bread grew 17% and baked goods 15%,” said Dana Vecherzhova, Press Secretary for the Chamber of Food Industry of the Czech Republic. “Unfortunately, we don’t have any clue as to where Mr. Barta got these figures, but we can see that these calculations are just pure populism. It is beneficial to Mr. Barta that the public think of him as the only fair politician, so he pretends to work exclusively for the benefit of consumers,” Vecherzhova added.

In her view, taxes are to blame for inflated food prices, specifically VAT and the consumption tax. Retailers have also played their part in the race for profits. Vecherzhova claims that the merchants make their lowest margins, less than 50%, on the most popular products – bread and milk. For products that have high added value, the margin is often equal to the purchase price and sometimes even twice as high. Such margins substantially limit consumers’ choice and the highest quality and specialized products become unattainable. The merchants’ pricing policy makes it hard for consumers to buy quality products.

Merchants are, in turn, siding with Vit Barta against suppliers. Retailers dismiss all the producers’ arguments, accusing them of speculating with the data. According to the President of the Association of Commerce and Tourism of the Czech Republic, Zdenek Juracka, the suppliers are distorting the figures. “The Chamber of Food Industry calculates using a different formula, which gives higher figures. For example, they argue that the margin for one type of yogurt is 60-83%, while according to data from the Czech Statistics Bureau, it doesn’t exceed 45%,” said Juracka.

Retailers say the food producers deliberately choose products that have the highest margins, ignoring the fact that merchants’ average profit for 2012 was only 22.9%. This figure includes profits from sales of non-food items, which often have higher margins than food items. In addition, Mr. Juracka says that margins aren’t an indicator of the industry’s profitability as a whole. Its profitability, the retailers say, is about 1%.

Meanwhile, producers aren’t the only defenders of the law on regulating the sale of agricultural and food products; those in the higher echelons of power agree. Former President of the Czech Republic Vaclav Klaus has already said that he finds Barta’s statements comical and reminiscent of Comrade Husak (the last President of Czechoslovakia, famous for his populist statements). The author of the ill-fated law, Michal Hasek, argues that the Public Affairs party is attempting to woo the less-educated part of the electorate. But the uproar caused by Vit Barta is helping to revise the pricing policies of producer and retailer alike.

Text: Katalina Kochkina

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