OREANDA-NEWS. April 22, 2011. The rising cost of food is one factor leading to higher inflation in the Baltic States and negatively affecting the buying power of households, revealed SEB’s Baltic Household Outlook, presented in Tallinn, reported the press-centre of SEB.

Agricultural produce is becoming more expensive not just in the Baltic States, but all over the world. At the same time, food generally is less expensive than other goods groups in Lithuania than in neighbouring Latvia or Estonia. The greatest rise in the cost of food has taken place in Estonia, although it remains most expensive in Latvia.

Growth in demand for foodstuffs in developing economies and poor weather have led to shortages and higher prices. In February 2011 the Food Price Index of the UN Food and Agriculture Organisation rose for the eighth month in a row, reaching its highest level in both nominal and real terms since January 1990.

At present, the index is 12% (in real terms) and 5% (in nominal terms) higher than in 2008. “Food accounts for around a quarter of all household spending in Estonia, and it’s already 10% more expensive than this time last year,” explained SEB Pank economist Hardo Pajula. “Since the Commodity Research Bureau’s world foodstuffs sub-index rose by 47% in March – the fastest rate of change in the last 36 years – it’s only to be expected that there will be increased pressure on household spending.”

SEB Bankas analyst Julita Varanauskiene says: “Price rises are the biggest worry for consumers at the moment. Surveys have shown that Lithuanians are most worried about increasingly higher prices. There is a great deal of sensitivity in terms of food prices – by which I mean everyday items; primary goods – and that’s understandable, since some very basic things like bread and milk have already gone up in price.”

Compared to the other Baltic States, Lithuania nevertheless has the lowest food prices. The cost of foodstuffs did increase in the country in 2010, but at a slower pace than in its neighbouring states.

"A survey conducted by the Central Statistical Bureau in Latvia pinpoints more expensive food as one of the main reasons for the financial well-being of families falling away,” said SEB Banka analyst Edmunds Rudzitis. “The cost of everyday items and services has shot up in the last year. Families here are spending more than 23% of their income on food, more than 16% on their homes and more than 13% on transport, so these three biggest groups alone eat up more than 50% of the family budget. And the fact that the cost of food and housing is continuing to rise remains a big issue here."

According to a study carried out by SEB based of figures from Statistics Lithuania, people in the country are spending more than their neighbours on bread and other grain products as well as on meat and fish (despite the fact that these items are cheaper in Lithuania); Latvians are spending more on fruit and vegetables; and Estonians are spending more on milk, eggs, cheese and sweets. The cost of fruit and vegetables in Latvia rose by 16% and 20% respectively in 2010, while milk, cheese and eggs in Estonia became 16.5% more expensive – factors that may influence consumption habits in these countries.

Although more costly food restricts the buying power of households, price rises are good for the agricultural sector and the food processing industry. Both of these play a large role in exports in the three Baltic States – 10% in Estonia, 17% in Latvia and 18% in Lithuania.