Czech retail chains promise: 'Food prices will be cheaper next year'

Retail chains in Czechia have assured Prime Minister Petr Fiala that food prices at supermarket stores will become cheaper following upcoming changes to Czechia’s value-added tax (VAT) system. This comes following considerably high inflation seen in the last 18 months, which has pushed up food prices markedly.

From January 2024, VAT for food will be moved from the current 15 percent to 12 percent as part of the government’s financial reform package that is currently being discussed in parliament.

Minister of Agriculture Marek Výborný expressed Thursday his satisfaction with the commitment made by retailers to reduce prices. The move comes amid growing concerns regarding food costs, with inflation in food and non-alcoholic beverages reaching 9.5 percent year on year in June. In January, this figure was at a sizable 25 percent.

Fiala emphasized that the government does not intend to arbitrate the ongoing dispute over the causes of high food prices over the past year. Instead, the government seeks to ensure that Czech consumers have access to quality food products at reasonable prices, comparable to neighboring countries. Fiala and Výborný also appealed to the retail chains to provide greater support to Czech producers.

Tomáš Prouza, president of the Trade and Tourism Association, highlighted that retail chains are not expected to see record profits this year, unlike some Czech suppliers that reported substantial year-on-year profit increases, including one company that achieved a 100-percent rise. Prouza attributed lower turnover for retail chains to reduced consumer spending and higher energy and logistics costs.

Fiala and Výborný expressed their interest in resolving the food price issue and posed several questions to the retail chains. Prouza noted that competition had led to price reductions for products like butter and cheese, while prices tended to stagnate in sectors with fewer suppliers.

Prouza emphasized that companies benefit from direct and indirect subsidies funded by taxpayers. Therefore, the government has a vested interest in monitoring the situation and pressuring different segments of the supply chain to ensure reasonable pricing. He also suggested that making it easier for smaller producers to enter the market, potentially through sales cooperatives, could promote competition and lower prices.

Fiala also acknowledged the influence of major players in the Czech food and agricultural sectors and emphasized the need to support smaller companies. Consequently, the government has canceled subsidy programs that primarily benefited large food producers. Fiala and Prouza agreed that facilitating smaller producers' entry into the market and reducing bureaucratic obstacles are essential steps toward achieving more competitive and affordable food prices in the Czech Republic.

Earlier this year, retailers and food companies in Czechia were criticized for selling items massively above de facto production value. For example, the Union of Fruit Growers of South and West Bohemia accused supermarkets of selling a kilogram of apples for around CZK 55, when the actual purchase price direct from the supplier was about CZK 13.

A similar issue occurred with sales of sugar; in the final quarter of last year, supermarket prices of sugar rose by 77 percent, whereas production costs increased by 51 percent. In response, then-Minister of Agriculture Zdeněk Nekula helped push through a law that would allow the Czech Office for the Protection of Competition to closely monitor the entire food production chain to ensure price discrepancies were minimized.

The government continues to engage with industry stakeholders to ensure fair pricing and promote the interests of Czech consumers and producers alike.