Had VAT not been cut on staple foods, price growth in that segment would have hit 18.1% in February, a figure nearly two points higher than the final CPI published by the National Statistics Institute. Yet the same logic works in reverse: meat and fish would have faced a lighter tax burden, and inflation for those items could have risen by almost two percentage points. If VAT stayed at 10% rather than dropping to 5%, inflation would have reached 14.9%; if it had remained at zero, the impact would have been even smaller.
A new report released on Tuesday by the Manufacturers and Distributors Association AECOC and PwC uses this data to applaud the government’s VAT decision at the end of last year and to argue that the discount should also apply to meat and fish. The study notes that, under the newly implemented price containment measures, the distribution sector plays a limited role in passing costs to consumers.
Only two countries in Europe have capped food prices amid high inflation in food: Croatia, with a 19.7% increase since early 2022, and Hungary, where food inflation stands at 62.4%, the highest in Europe. The association cites this as part of a broader debate sparked by Yolanda Díaz, the second vice-president of the government, which has resurfaced recently. France, for its part, reached an agreement with major supermarkets to limit shopping cart prices.
Jose Maria Bonmati, the chief executive of AECOC, emphasizes that concerns from the community are understood and that the value chain is working harder than ever to find a formula to curb price rises. He notes that every link in the agri-food chain is strengthening cooperation and dialogue to trim the burden of higher costs and support productivity.
5.7% margin
Data from the same report shows a decline in business margins within the industry as costs rise, yet the retail sector closes 2022 with a profit, around a 5.7% margin. This figure is nearly one percentage point lower than the previous year and more than a point shy of 2020, when margins climbed from 5.8% in 2019. The report’s authors say that food retail carries the largest weight in the statistics, and the early results from leading distribution chains confirm that higher input costs were partially offset by price adjustments and a tightening of margins across channels.
The analysis also highlights the Food Origin and Destination Price Index (IPOD), an indicator that tracks how much a product’s price multiplies from field or factory to the consumer. It now shows a marked fall, reaching the lowest level in five years. This trend suggests the entire supply chain is compressing margins to avoid a larger transfer of cost increases to households, according to AECOC.