A strong debate anticipated the government’s announcement that an agreement with importers and major retailers was reached in which the recommended retail price on 400 food products will be reduced by 15% and remain stable for the coming months.

Although most private operators in the sector have agreed with this initiative, some in certain circles showed disagreement. These contrasting sides could reflect a number of factors. Some lobby groups suggested that private operators only joined up because they were forced to do so. On the other hand, some argued that the real reason behind this resistance is that the agreement was negotiated directly between the government and the operators, and not through them.

Some even argued that this agreement does not make sense as food inflation in Malta is diminishing and because there are other factors that are contributing to food inflation. In particular, it has been said that food inflation in Malta is being influenced by developments in vegetable and fruit prices. Thus, even if there are any deviations from inflation in other countries, this is the result of local factors, which are not under the control of importers or local supermarkets.

A look at Eurostat data on inflation in processed food items proves that this argument is completely baseless.

Back in December 2022, Malta had one of the lowest inflation rates in processed food items across the euro area. Only 12 months later, it shot to the top of the inflation league table.

The claim that processed food inflation is now much lower than it used to be cannot be used to hide the fact that prices here in Malta have deviated from those elsewhere.

Blaming transport costs does not do the trick

In December 2022, Malta’s inflation rate of processed food items was less than half that of the country with the highest inflation rate. After a year, Malta had the highest inflation rate, nearly twice that of neighbouring Italy, which is the source of most of our processed food items. Up to the first half of 2023, Malta’s processed inflation rate had mirrored that of Italy, particularly reflecting the market strength of major supermarket chains that procure their products directly from Italy. Then, in the third quarter, something changed and, while processed food inflation in Italy went down, that in Malta lagged far behind.

Blaming transport costs does not do the trick. In Cyprus, an island state with much worse transport connections, processed food inflation is a paltry 2.6% while Ireland, with its convoluted post-Brexit supply chain, has a 5.8% inflation rate.

It is clear that something happened in the third quarter that was Malta-specific and which led to Maltese consumers facing a much stronger burden than other consumers elsewhere. Across the euro area the index of processed food items rose by 0.5% between June and December while in Malta it rose by 2.4%.

The separate path taken by processed food is apparent in most of its sub-components. Take, for example, pasta. In June, the inflation of pasta products stood at 11.2% in Italy and 11.9% in Malta. By December, it had plummeted to 1.2% in Italy but in Malta it was still 3%, or nearly three times higher. In May, the inflation rate of the sub-index that includes canned tuna was 14.5% as against 14.8%.

In December, in Italy, inflation had halved to 7.4%, while, in Malta, it had remained at 14.6%, by far the highest in Europe.

Inflation of coffee prices has fallen to 2.2% in Italy from 6.5% in June while that in Malta has gone from 11.9% to 15.5% during the same period.

Inflation of frozen vegetables went from 16.1% in June in Italy to 4.5% in December. In Malta, instead, it stands at 14.3%, again the highest in Europe.

I am committed to drive these arguments home, in the European Parliament, and ensure that any negotiated text does reflect the needs of our country.

We need to protect our families and small businesses from malpractices that reduce competition and increase costs. The growth of our economy must not be taken for granted but it is to be regarded as sacred, and only if we work together can we guarantee a better tomorrow.

Steve Ellul

Steve Ellul is a chartered financial analyst and a lecturer at the University of Malta. He is a Labour Party candidate for the upcoming European Parliament election.