THE HIGH COST OF EATING: CAUSES OF INTERNATIONAL DIFFERENCES IN CONSUMER FOOD PRICES

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 food price difference is the extent of protection of agricultural products at the farm level. A second important influence is the 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 or low price levels due to temporary factors affecting exchange rates.
The degree of protection of agricultural products is treated both as an exogenous factor and as an endogenous one. In the latter case, it is explained by climatic conditions and, presumably, the political influence of the agricultural sector or a general desire to retain an agricultural sector despite poor growing conditions.