Food price inflation realities

This month, I have two main reflections for readers. Foremost are the missed opportunities for Irish agriculture because of obsessive constraints on food production in the name of environmental compliance. Then, there is the red herring that is the analysis of the Central Statistics Office (CSO) Consumer Price Index changes as a proxy for farmer incomes.

Continuing increase in food output values

As illustrated in Table 1, the 2025 preliminary estimate of agricultural output should see a continuing increase in the value of Irish output across most of the product categories. This is really good news from an overall Irish economy perspective because the value of Irish agricultural output is now likely to exceed €13.5bn. While this number is of itself impressive – given that pre milk quota abolition (2009-2014), Irish agricultural output was stuck at around the €6bn mark – the economic reality of this €13.5bn figure is that because Irish agriculture is so embedded through its expenditure in the local rural economy, the broad economic multiplier impact is in excess of a €20bn figure.

We can glean two major takeaway points from the agricultural output figures. This increase in the value of output is not necessarily the driver of food price inflation and, secondly – and more importantly from an Irish economy perspective – the severe constraints put on livestock numbers in the name of ‘environmental compliance’ means that a significant opportunity to increase Irish agricultural output, boost the Irish economy and, in particular, meet the ever increasing global demand for sustainable grass-fed meat and dairy  products are currently compromised.

Table 1: Agricultural output price index 2025 – preliminary estimates (excl. VAT). Source: CSO.

Food inflation

In terms of the food inflation issue, Economics 101 will suggest that food prices as measured monthly by the consumer price index will, over time, correlate with agricultural output prices. This, unfortunately outdated and simplistic assumption, does not reflect real-world experience, primarily because retailer pricing policy has a bigger impact than local raw material prices and increasingly because we as consumers don’t necessarily consume food produced locally.
Furthermore, a combination of pricing regulations and retailer buying power has left the agriculture sector as an outlier when it comes to recovering increased costs from market returns over the long term. In Ireland, we export up to 95 per cent of our beef and dairy output and therefore, the Irish consumer price index, insofar as it does represent food price inflation, only reflects 5 per cent to 10 per cent of local Irish agricultural output.
The recent example whereby the October price index for liquid milk is increasing while producer milk prices – reflecting global price movements – are falling, demonstrates this disconnect.

Retail price realities

The consumer price index measures changes in prices that food retailers (supermarkets and discounters) charge to Irish consumers and as any in-depth examination of retail grocery pricing has shown over the last 20 years or so, prices of individual food items reflect retail price policies.
Specifically, particular pricing reflects retailer footfall strategies. In other words retailers ‘promote’ (loss lead) certain fresh foods, including milk, cheese, beef, pork and fresh vegetables, which are regularly discounted to the extent of low- or no-margin prices or even below-cost in order to attract customers into the shop.
The retailers, because they sell up to 15,000 items, or SKUs as they are known, can recover this discount offer by charging bigger margins across a vast range of products. The fresh food supplier cannot do this and is effectively subsidising retailer profits.
To underpin this chronic low-margin reality, Irish and UK/EU law prohibits grocery suppliers from setting prices through what is called a ban on resale price maintenance. As mentioned previously, this constraint does not apply to pharma companies or indeed mobile phones, cars, electricity or a range of other non-food products.

Preference towards retailer

Irish competition law favours retail buying power and the Competition Act was amended in 2006 abolishing a ban on below-cost selling. Competition law has no remit to reflect on the impact of low pricing on farm products or indeed regarding the sustainability of food supply chains. Retail food prices will also reflect processing costs whereby agricultural raw materials are converted into meal components and will also reflect distribution costs which, because of Ireland’s relatively low population density, are high.
Finally, people/employment costs, which have risen quite substantially in recent years, are very relevant to what is a relatively labour-intensive business. Furthermore, food is consumed not just in homes based on grocery purchases, but through eating in restaurants, hotels and, increasingly, takeaway outlets.

Analysing food inflation data

With these caveats and insights in mind, the latest figures from the CSO showing food inflation in October 2025 are quite interesting, as illustrated in Table 2. The chart shows the annual change in prices as well as the changes since 2016. Grocery food by this measure shows annual increase in prices paid to supermarkets and discounters across a range of food products of 4.5 per compared to overall inflation across the board of 2.9 per cent.
This price index also shows grocery prices having increased by 20.7 per cent since 2016, while overall inflation has been 25.8 per cent. So, food price inflation has been lower than general inflation since 2016 and, indeed, when CSO figures back to 2011, show negative real food price inflation over that period.
The price index for restaurants and hotels has increased by 3.3 per cent in the year and by 40.0 per cent since 2016 – almost double grocery food price increases and double overall inflation, which of itself suggests that the people costs of ‘serving food’ are a bigger driver of inflation than the basic food ingredients, despite recent upward price movements in meat and dairy.
Very clearly, any analysis of food price inflation should reflect the core fact that this price is the price paid to retailers by consumers and also, by law, no recognition of the cost of production is mandated in this price setting.