Agricultural settlement, TARGET PRICE | The state will raise food prices too much, says LO’s chief economist

– In the economic situation people are in now, the government attaches great importance to reducing the agreement’s impact on food prices.

This was said by the state’s head of negotiations, Viil Søyland, when she presented the state’s offer to agriculture on Monday.

The government’s proposal will result in an increase in food expenditure of 2.4 per cent. This corresponds to NOK 350 per year for an average household.

But even if it sounds modest, Roger Bjørnstad, LO’s chief economist, is not satisfied that the government plans for the price increase on food to be over two per cent. He believes the state could have stretched further.

– I probably would have preferred if it was even lower, and went more for direct transfers instead of increased prices. After all, 2.4 per cent is above what we want price growth to be.

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– Could have stretched further

2.4 per cent is therefore the price increase for all Norwegian agricultural products – from yellow cheese to Norwegian potted plants. Among the goods for which the state determines the price – including milk, cereals and potatoes – a price increase of 3.5 per cent is planned. Whereas for goods that are not in this system, such as meat and eggs, a price increase of 1.3 per cent is added up.

Bjørnstad believes the government could have gone further to keep prices down, and points out that Norges Bank has a target of a price increase of two per cent. In other words, 0.4 percentage points lower than what the state is now proposing.

– Now employees have lost purchasing power for many years. They have had no growth in purchasing power since 2015. It is time for the consumer to improve their family finances, and the agricultural settlement could have gone further in that direction, says Bjørnstad.

However, what the growth in food prices will be is far from certain.

– It is difficult to say, because it depends on a number of factors, including the chains’ mark-up, it may well happen that it will be higher, but it can also happen the other way around. I have no basis for making a better estimate.

– Norwegians have had a lower price increase for food than other countries in Europe, so a price increase of NOK 350 over the course of a year is nothing to complain about, is it?

– It is because we have a more protected food chain and more import duties. So it would just be missing. But since we have this tool with the agricultural negotiations, it is important to use it.

– The agricultural agreement helps to keep prices more stable, isn’t that good for the consumer?

– The agricultural agreement leads to more stable prices, and there are more regulated prices for consumers. We are not so exposed to the large fluctuations that international food prices could have led to. We have tools to ensure more predictability at all stages. I think that is a rather fortunate by-product of the agricultural agreement.

– What do you think would have been the right level of increased food prices?

– I am not going to give a figure, but I think it is important that we include as little as possible in the consumer prices. We are in an expensive time that has been very demanding, and have faced expensive times with strong interest rate increases. In that case, the agricultural settlement is a means of preventing further price increases for food.

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This is how the agricultural settlement affects food prices

There are two things agriculture and the state must now decide, which affect the price of the food you buy in the shop.

The first is the so-called target price. It is called the target price because it is a price agreed in the agricultural settlement, which agriculture aims to achieve. Farmers do not have the opportunity to charge a higher price than the target price, even if there is a higher demand than there is supply for a product.

At the same time, it must be possible for the farmer to cover expenses and have a reasonable income.

The target price system has been in use since the first main agreement between the state and farmers was concluded in 1950.

At the time, the aim was to secure stable and lowest possible prices for the Norwegian population. The system was supposed to prevent the unstable food prices of the 1930s and 1920s.

Today, only a few agricultural commodities remain in target price systems – cereals, potatoes, apples and some types of vegetables. It is proposed that milk will leave the system by the summer of 2024.

Milk will then enter the second model for how farmers help determine the price: the so-called volume model.

This is determined outside the agricultural settlement. The prices are set by the farmer-owned cooperatives, Nortura and Tine, normally twice a year. The cooperatives are tasked with regulating the market.

The price for, among other things, meat and eggs is set in this system.

The Farmers’ Association and the Farmers’ and Small Farmers’ Association can, during the agricultural negotiations, demand that increased income be taken out through increased prices within the volume model, but does not directly influence price formation.

The total increase in prices is estimated at 2.4 per cent. This is lower than expected price growth elsewhere in society. The 2.4 per cent is the price increase that comes from the agricultural agreement in isolation. The final price is decided throughout the value chain – and finally the price set in the store.