Agriculture and Food specialists at the Central Agency suggest maintaining stable prices for essential goods in the social sector
In an effort to address rising food prices and support essential food producers, the Central Bank's Centre for Macroeconomic Analysis and Short-Term Forecasting (CMASF) has proposed a comprehensive price freezing initiative. This is the first time such a suggestion has been made by the CMASF, and it includes categories like meat, eggs, bread, potatoes, and other essential food items.
The measure, if implemented, would mark a significant departure from the past 15 years, during which price freezing has been used only a few times to stabilize prices on buckwheat, sugar, and sunflower oil. State involvement in logistics and storage would be necessary to ensure even distribution of goods, according to Vladimir Eremkin, senior research fellow at the Structural Research Laboratory of the Institute for Economic Research of the Presidential Academy.
One aspect of the proposed initiative involves long-term contracts between retail chains and producers for egg sales. These contracts could provide much-needed stability to suppliers, enabling them to invest in and grow their production, as demonstrated by retailers like Aldi UK, who have already adopted such contracts to meet commitments like 100% cage-free eggs.
Such contracts support transparency and alignment along the supply chain, helping companies meet animal welfare commitments and regulatory deadlines. They also influence pricing strategies and market dynamics, allowing retailers to negotiate predictable prices and reduce wholesale price volatility impacts.
However, these contracts also present challenges. Balancing supply and demand, absorbing transition costs, and managing price margin pressures are key concerns. Meeting stricter welfare standards, such as cage-free, requires substantial investment by producers, which must be absorbed or compensated in contract terms. Retailers' promotional offers for white cage-free eggs can create negative margins for producers, which may limit their profitability.
Despite these challenges, long-term contracts provide crucial stability and alignment benefits in the egg supply chain. They play a pivotal role in achieving sustainability goals and enhancing consumer transparency, as demonstrated by retailers and producers working together toward 2025 cage-free or similar standards.
It remains uncertain whether retail networks will voluntarily support the price freezing initiative. Food prices continue to rise, with food inflation reaching nearly 12% in June, and many farmers have already started to reduce their flock of laying hens due to reduced profitability. The CMASF suggests retailers and producers sign long-term contracts specifying fixed prices, supply volumes, and mutual responsibilities as a means to mitigate these issues.
References: [1] FAO. (2020). Global Food Trends 2020: Towards sustainable diets. Food and Agriculture Organization of the United Nations. [2] British Retail Consortium. (2019). The impact of Brexit on food prices. British Retail Consortium. [3] KPMG. (2018). The future of food: Navigating the food and drink supply chain in a volatile world. KPMG. [4] Compassion in World Farming. (2019). Cage-free eggs: A guide for retailers and food service companies. Compassion in World Farming.
Finance ministers are encouraged to consider the proposal made by the CMASF, as implementing the price freezing initiative could potentially alleviate food inflation and help essential food producers maintain profitability. The long-term contracts suggested by the CMASF between retail chains and producers, particularly for eggs, could prove beneficial in maintaining stability in the food-and-drink sector and fostering transparency in lifestyle choices, given the growing emphasis on sustainable and ethical food production practices, as demonstrated by retailers adopting cage-free egg commitments.
