Next time you pack your groceries onto the trolley at the supermarket checkout, glance at the few bags you have filled and wait for the final tot to come up. You just know that things are more expensive. Yes. Food prices have risen in recent months for the first time in three years, writes Paul Kelly
This is a far cry from the unconditional consumer bonanza promised by the Government and its advisers as it got rid of the Groceries Order.
If we genuinely want to do something about prices, it would be helpful to take a close look at the real causes. A medium-sized Irish food manufacturer brought me through his factory recently. He asked me to look behind everything I came across and to see it all in terms of cost.
The cost of the energy that kept his plant running had risen by close to 30 per cent over the two years 2004-2005. The collection and treatment of waste had risen by almost a quarter. His demonstrable anger rose further when he spoke of the rise in local authority rates. These had increased over 20 per cent during the two years.
"There it is," he said "the local authority spends at will and passes onto business the shortfall between this and what it receives from central government. It is heartbreaking to see their increases in staffing and payroll while I am meeting my staff to explain why we have to tighten everything even further if we are to survive."
Everything is a cost. These costs are rising much more rapidly in Ireland than in the countries with which we compete. This includes wages which have risen by 10 per cent during the last two years, which is twice the wage growth rate of our competitors in Europe.
So with wages rising rapidly and with non-pay costs to business rising by a cumulative 16.7 per cent over the period 2004-2005, businesses are squeezed. As the general rate of inflation rose by just 2.2 per cent in 2004 and 2.5 per cent in 2005, there is little public awareness of the scale of this problem.
It is now clear to any honest observer that the abolition of the Groceries Order will not deliver lower consumer prices. The State took advice from the Competition Authority - whose analysis was subsequently shown to be selective and questionable. It was nonsense to suggest the abolition of a single piece of 1987 legislation was the magic formula by which we could have 1980s food prices, but pay 2006 wages, energy and other costs.
The real issue remains the high cost of doing business in Ireland. If you charge someone a high price for your time or your goods, it must be passed on and will eventually come full circle and back to you as higher prices.
Where this comes badly unstuck is that Ireland exports 85 per cent of what it produces. In the food sector, this percentage rises to 90 per cent. Internationally trading companies cannot pass on their costs. Intense competition across the oceans and continents of the world drives down the prices that we can charge our customers.
We need to take stock of what we are doing to this country. First we should set down the facts of what is happening. We must avoid allowing ideological economists, who have never set foot on a factory floor, to seduce politicians into naïve policies.
The State should institute a detailed examination of price formation in the Irish grocery sector. This should establish, in a totally transparent manner, the relationship between cost inputs at all stages of the supply chain and the final price of grocery goods.
Second, the State must develop a policy on energy pricing that makes it possible for Irish enterprises to compete on an even footing with other countries.
Third, the many elements of Government need to talk to each other, and to industry.
We should have a comprehensive end-to-end development strategy for the food industry that will address the challenges it faces through escalating costs, lack of cost recovery, restructuring, reform of Common Agricultural Policy and a new World Trade Organisation (WTO) deal.
Finally, it is in the public interest that we have conditions of fair trade in the marketplace. These must work in practice as well as theory and be effective in banning predatory pricing.
The food sector plays a strong role in the Irish economy, supporting 50,000 jobs directly, 60,000 jobs in distribution and the livelihoods of 120,000 farmers (all of whom are consumers as well).
It is important for the overall health of the Irish economy that these jobs are retained. All of us have a strong interest in ensuring that the Irish food industry can keep output prices low: we benefit directly as consumers and indirectly as these Irish enterprises contribute to the Exchequer.
Paul Kelly is director of Food and Drink Industry Ireland, part of the Irish Business and Employers Confederation (IBEC)