Bumper crops signal produce prices will ease

There’s some relief on the way for families struggling with high grocery bills as new analysis reveals Australian farmers will have a strong year.

Plenty of fresh food is set to hit the shelves, helping to ease the pace of inflation at the major supermarkets – particularly for popular proteins like beef and lamb, Rabobank food retail analyst Michael Harvey says.

Though he did caution that shoppers shouldn’t expect grocery bills to return to pre-pandemic levels, with much of this price growth locked in.

“We will pass the peak in terms of the headline inflation story and also the food inflation story [in 2023],” Mr Harvey told The New Daily.

“Some of the pressures on the food system have started to recede, [but] it’s going to take a little bit longer before we start to see big downward [price] pressure coming through.”

Better weather tipped

Australians are anxious to find out what will happen to grocery prices in 2023 after supermarket prices rose more than 9 per cent during 2022.

It was driven by fast rising costs for farmers and other food producers, alongside natural disasters like floods, which caused huge shortages.

There will be some relief for shoppers in 2023, but not in all categories. Photo: Getty

But Rabobank analysis predicts Australia’s farmers will be better off this year with more moderate weather forecast and fewer pressures on supply chains.

“Favourable weather conditions in 2022 – with much of the east coast having received plentiful rainfall, even too much in some cases – have provided good soil moisture levels and also filled supplies for irrigation,” Rabobank’s research manager Stefan Vogel said.

“And while the rainfall outlook for 2023 isn’t as high, this should also mean less weather disruptions for the sector.”

Fresh fruit and vegetable prices are already falling heading into 2023, and are expected to continue becoming cheaper in the March quarter.

Household proteins like beef and lamb will also be in greater supply, with consumption “softening” due to the cost of living, Rabobank said.

Beef and veal prices were a key part of the supermarket squeeze over 2022, rising 8.6 per cent in annual terms in the year ended December.

Mr Harvey told TND that many cost pressures that hurt farmers in 2022 are also starting to ease, with fertiliser prices retreating from highs and some supply issues resolving.

“There’s improvement in most of the pressure points, but you wouldn’t say everything is back to pre-pandemic [conditions],” he said.

Relief, but not for packaged foods

To what extent these improved conditions for farmers will be passed on to consumers by the major supermarkets as lower prices is unknown.

Coles and Woolworths will provide an update over the next month on trading conditions and prices in early 2022.

Retail expert and Queensland University of Technology professor Gary Mortimer predicted both chains would be quick to pass on price relief.

He said cut-throat competition with Aldi will spur both into fast action.

“Supermarkets realise they [families] are sensitive to price increases and decreases, so I think where there is opportunity to access lower cost fresh produce and pass those lower costs onto consumers through retail prices, supermarkets will,” Dr Mortimer said.

Packaged food prices won’t drop and might get more expensive. Photo: Getty

But Dr Mortimer says that many packaged food categories were still likely to become more expensive. These included snacks, bottled drinks and canned foods.

He said that manufacturing inputs, including fuel and utility costs, remain high, meaning that producers are still unlikely to reduce these prices.

“What supermarkets will do to mitigate price lifts or make it easier for families is really look at what seems to have been successful [in 2022] which was locking or freezing prices on products,” Dr Mortimer said.

“We might not expect deep discounting, but we may see shallower discounting held consistently for a longer period of time.”

Topics: Inflation
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