Output prices in the agricultural sector have been rising faster than production costs between Q1 2021 and Q3 2022. The largest part of the increase in costs during this period was accounted for by Lithuanian intermediate goods and services, according to the Bank of Lithuania (BoL).
Other imported intermediate goods and services, fuels and other energy resources also contributed significantly to the increase in costs, accounting for around 15% of costs each.
Aurelijus Dabušinskas, Director of the Economics Department of the Bank of Lithuania, said that the purchase prices of agricultural products increased by around 55% in Q3 2022, while costs increased by around 25%. He said that these trends meant that 2021-2022 should be an economically successful year for agriculture.
According to Dabušinskas, this change could be due to the fact that the development of prices in agriculture tends to mirror regional trends, and that the recent price developments in Lithuania and the EU average were similar.
According to the LB, the energy price shock had a greater impact on food prices in Lithuania than on the euro area average, while the relatively high demand and the purchasing power of the population made it easier for all market participants to pass on the increased costs to the final consumer, the Bank of Lithuania says.
The Bank’s economists’ analysis showed that food prices have already peaked and cost pressures on prices will ease in the future.
According to Aurelius Dabusinas, food inflation accounted for almost 40% of headline inflation in December.
“Food price inflation is high, and it’s high in Europe too, not to mention the Baltic countries. A one-third increase in food prices is a significant change. However, similar trends in the region suggest that there are common factors and not only Lithuania-specific reasons for food price increases,” Dabušinskas said.
According to him, the food price level in Lithuania in 2020 was 85% of the European Union (EU) average, and due to the recent particularly high food prices, LB economists estimate that Lithuania will reach 98% of the EU average in 2022.
Russia’s energy blackmail and the war against Ukraine
According to the BoL, the main reason for the rise in food prices is the energy price shock caused by Russia’s energy blackmail and the war against Ukraine, as well as rising agricultural prices in the region.
It points out that the main driver of inflation until September last year was energy prices and now food prices.