The functioning of the food supply chain and its effect on food prices in the European Union

The sharp fluctuations in food price inflation at a time of great uncertainty about the economic outlook have raised questions about the functioning of the European food supply chain. While the observed changes in food prices in EU Member States can be linked to developments in the global demand and supply for agricultural commodities, inefficiencies in the functioning of the food supply chain, in terms of competition and regulation, may have played an
important role as well.

In particular, an analysis of the transmission mechanisms linking agricultural commodity prices with producer and consumer prices shows that the shock caused by the upsurge in agricultural commodities and energy prices in the second half of 2007 and the first half of 2008 was absorbed differently across EU Member States. Crosscountry differences in the regulatory framework appear to have contributed to this fragmentation of the European Single Market. Moreover, there are indications of differences
in the conditions of competition across Member States. Finally, consolidation is taking place throughout the food supply chain. While such consolidation can lead to efficiency gains, it may also worsen the conditions of competition to the detriment of consumers and businesses.