The High Cost of Eating: Agricultural Protection and International Differences in Consumer Food Prices

Abstract

Prices of food vary greatly among the developed countries, and some countries' food prices have been consistently far above the OECD average. The main explanation for persistently high food price levels is the extent of protection of agricultural products at the farm level, partly explainable by the desire to retain agriculture in the face of poor growing conditions. A second important influence for some countries is a high level of VAT on food. A third is deviations of aggregate country price levels from the levels that would be predicted from their per capita incomes, presumably because of omitted characteristics of the countries' economies, such as, possibly, inefficient or monopolistic service sectors. In addition, there are occasional episodes of high price levels due to temporary factors affecting exchange rates. The issues raised by these large food price differences are relevant to understanding real income differences among countries. They are also relevant to the current round of GATT negotiations, in which agricultural protection is a frequent stumbling block, and to the European Community's hopes of increasing competitive pressures through the creation of a freer internal market.