“Food inflation contributed around a third to total inflation between August 2007 and July 2008 affecting particularly modest income households. In the current economic slowdown it is crucial that we send a clear message that we are serious about tackling the rigidities and other factors that prevent the markets from functioning optimally. Not only would this provide for more competitive and undistorted prices to consumers, it would also protect the purchasing power of the most vulnerable citizens and support job creation,” Economic and Monetary Affairs Commissioner Joaquin Almunia said.

“Agricultural policy has a crucial role to play in ensuring food reaches consumers at a reasonable price. Changes in the recent Health Check of the CAP have freed up farmers to respond better to market signals. I hope we can now remove some restrictions on international food trade through a balanced deal in the Doha Round of world trade talks,” said Mariann Fischer Boel, Commissioner for Agriculture and Rural Development.

Today's Communication proposes ways to improve the functioning of the food supply chain in Europe to deliver permanently competitive prices for European households. It follows up on a request by the June European Council to investigate the causes of the sharp increases in the price of food in the wake of the even stronger rise in commodity prices.

The Commission proposes to:

• Promote the competitiveness of the food-supply chain to increase its resilience to world price shocks. The High Level Group on the Competitiveness of the Agro-Food Industry will make recommendations in early 2009.
• Ensure a vigorous and coherent enforcement of competition at EU and national level through the European Competition Network and target those practices and restrictions that are particularly harmful.
• Review potentially-restrictive regulations at national and/or EU level. Regulations that restrict market entry need to be scrutinised and removed where appropriate while keeping in mind their environmental and social goals. This will be done in the context of the retail market monitoring exercise and the transposition of the Services Directive. Regulations that restrict the ability to compete on prices should be examined at national level. Late payments by retailers or excessive fees demanded from producers for promotional offers should be reviewed. Regulations on shop opening hours could also be the subject of consultations at national level.
• Consumers should be able to better compare prices. A permanent European monitoring of prices will be set up.
• The Commission will examine with regulators of commodity markets how to discourage excessive volatility in the markets that benefits neither producers nor consumers.

Efforts to re-balance the global supply and demand for food, to stimulate agricultural research and open up international markets should be strengthened.

Although commodity prices have decreased sharply, over the medium-term structural factors like the growth in global demand are likely to hold prices up.

The rise in prices since 2006 was accompanied by a surge in investment flows into related derivatives. The recent abrupt outflow of investment from the futures markets could be indicative of a bursting speculative bubble. But volatility concerns also remain.

Problems in the functioning of the food supply chain, in terms of the degree of competition and regulation, have also played an important role.

Food prices in Member States have reacted very differently to the changes, an indication that the EU market is still fragmented. Market consolidation will lead to efficiency gains and lower prices. But it must not worsen competition conditions at the local level to the detriment of consumers and businesses.

There seems to be significant scope to improve the functioning of the food supply chain to ensure that the integration and consolidation of sectors go hand in hand with improved competitiveness and lower prices, as well as greater choice of food products.

The promotion of an open trade policy, through the completion of the Doha Round of WTO trade talks, would be beneficial for all, including developing countries which suffer most from higher prices. By agreeing the Health Check of the CAP, the EU has taken decisive steps to help farmers to react better to market signals and exploit new opportunities, while providing a modern safety net for genuine market crises.

Background

The June Summit asked the Commission to better monitor developments in agricultural commodity and food prices; analyse the impact of speculation on agricultural commodity prices; and investigate the functioning of the food supply chain.