– Farmers could face huge losses – E24

The price of cocoa has risen sharply in the past year due to a poor harvest, and experts believe the same could happen to other foods.

June 2024 was Hottest month in June Globally, it is the second hottest in Europe. Experts are now warning that this extreme heat is affecting food prices.

– Extreme heat makes agricultural products less available, and leads to higher food prices due to increased demand. This applies, for example, to fruits and vegetables, explains Anne-Sophie Daloz, climate researcher at Cicero.

study Annual global food price inflation could rise by as much as 3.2 percentage points a year over the next decade, a European Central Bank study suggests. Rising temperatures must be part of the reason.

Politics plays a big role

The summer of 2022 clearly showed how drought and crop failures have led to higher food prices. Statistics Norway (SSB) reported a 6 percent increase in vegetable prices and a 5.3 percent increase in fruit prices in Norway compared to 2021.

Daloz fears this trend will continue, affecting farmers and consumers alike.

– Farmers could face significant crop losses and higher production costs due to the heat. The climate scientist says the health of field workers is affected by higher temperatures, and irrigation and cooling costs are rising.

She believes consumers may end up paying the increased costs, affecting the entire value chain.

Bodhild Veltveit, vice president of the Norwegian Farmers' Association, agrees, but adds an important point:

– Politics also plays a big role. She says that in the agricultural negotiations we are “looking into the glass ball” and assessing the economic challenges we may face.

Veltveit believes that political decisions can ease this burden on consumers.

– Politicians could choose to use budget money to cover part of the costs to farmers, rather than allowing the full cost increase to be passed on to the market, she says.

In the 2024 agricultural settlement, it was agreed that farmers will receive NOK 3,015 million in support. Of this, NOK 2,217 million comes from the state. The government gives farmers money to cover their expenses, so that consumers do not pay more for their food. The goal is to make Norway more self-sufficient in food and to keep food prices stable.

Cocoa can be omitted.

Although the government is taking measures to support Norwegian consumers and farmers, agricultural settlement has little impact on the prices of imported food.

Bjarne Schieldrop, senior analyst at SEB, believes this is because the Norwegian economy is closely linked to international markets. That is why we notice when the prices of the food we import rise.

“We have already seen examples of this with cocoa and timber prices in recent years,” says Schieldrop.

The impact of price changes will be significant for Norwegians depending on the type of food or raw materials involved, the chief analyst explains.

“We can manage without cocoa, but it will be difficult when wheat, corn and rice become more expensive. These foods are eaten all over the world, and we have a big problem when many places are stunted. Then there will be shortages and higher prices here at home,” he adds.

Price pressure from abroad

Norges Bank uses its key interest rate to dampen activity in the economy. When interest rates rise, households spend more and buy less. Businesses then have to lower their prices.

The central bank cannot control inflation abroad, but it can influence it at home, according to Handelsbanken chief economist Marius Günsholt-Hoff.

– He says the Norges Bank will maintain confidence in its inflation target, even if price increases come from abroad.

Higher import prices from abroad are weighing on inflation here at home. This could affect when Norges Bank is willing to cut interest rates.

– In a situation where prices are rising faster, Norges Bank will continue to try to keep inflation expectations low towards the target. This will prevent high price growth from causing companies and households to also expect high price growth in the future. This may seem self-fulfilling, the chief economist explains.