Lifestyle & Culture

Too good to last? Why food in Europe is cheaper, better than in the U.S.

I just got back from my local market in Eindhoven with lunch … two avocados and a tomato, everything ripe to the point of perfection. Total cost? 80 euro cents.

In the last few weeks, I’ve paid an average of 4 euros ($4.50) per bottle at the Albert Heijn supermarket chain for wines from Chile, Australia, Spain and France. No, not Chateau Cheval Blanc, but pretty good tipple. I get a nice package of prosciutto for 2 euros. Cheese here is ridiculously cheap. I mistakenly bought 500 grams of smoked salmon at the farmers’ market last weekend for 7 euros not knowing that 500 grams is enough to feed a family of four for two meals.

If you’re reading this in the United States, or have just arrived in Europe, you’re thinking, “No way … avocados are at least a buck a piece. A bottle of decent wine is $10 minimum. Cheese is $12 a pound. And smoked salmon … forget about it.”

AC98B282-21D2-458E-96FD-404F886BDE80It’s one of the odder (and happier) anomalies of being an expat in Europe. If you’re getting paid in dollars, your buying power decreased as the euro rose in the past month. But even with that, prices are still noticeably lower here in Western Europe – and food quality generally higher (thanks to advanced hothouse technology) – than in the U.S.

Last summer, on our scouting trip to Europe as we put together Dispatches, we hit the Saturday market in Eindhoven.

Cost of living is always an issue in a startup as you try to calculate your personal burn rate. My wife Cheryl and I assumed food costs were going to be maybe 20 percent more expensive in Europe vis-à-vis the euro-dollar exchange rate. But instead, we were surprised to find that even with the euro bouncing up to $1.15 last summer, food in the Netherlands, and in Europe in general, is LESS expensive than even our home base of Louisville, Ky., which is known for its low cost of living.

If you go to the weekly farmers’ markets, food is even cheaper. Which is all good, right?

For consumers, yeah. But is it sustainable? What’s going on behind the curtain? Well, a lot of things. (We promise to keep it simple and not wear you out with EU trade details and macroeconomics.)

To be sure, farm subsidies in the European Union are a factor in keeping prices down. More European countries than you’d suspect are huge net exporters of food, including the Netherlands and Denmark, which keeps prices low.

But the biggest reason food is cheap is that just a few retailers control a huge portion of the European supermarket business, most notably Germany-based Aldi, according to the experts. And those supermarket chains relentlessly pressure suppliers to keep prices low. (Interesting tidbit: Aldi, which owns Trader Joe’s in the U.S., has been two distinct companies – one based in Essen, one based in Mulheim an der Rurhr – since a family split in 1966. However, they often act as a single enterprise. Go figure ….)

Steve McCorriston, professor of agricultural economics at the University of Exeter Business School, tells Dispatches food prices are likely lower in Europe than the U.S. because of competition in the retail sector. That sector is dominated by four or so retailers including Aldi,  a deep discounter that essentially functions as the Wal-Mart of Europe.

IMG_0057In the U.S., the competitiveness of the retail sector arguably is less intense, Professor McCorriston said. “Maybe this reflects geography (markets are more spread out) whereas the location choice of retailers in Europe (or in my experience, the U.K.) gives lots of choices in a narrowly defined area.”

This view also reflects the overall insights of the regulatory authorities such as the U.K. Competition Commission, which recently investigated competition in the U.K.food sector, McCorriston added.

Robert Ackrill agreed with McCorriston that the U.K., for example, is a market structure that favors consumers. “The practical consequence of this has been margins being squeezed at the producer end of the supply chain,” said Professor Ackrill, who teaches at Notthingham University Business School, Nottingham Trent University.

Complaints from farmers did lead to the government setting up the Groceries Code Adjudicator, which monitors how supermarkets behave towards farmers and other suppliers.

I also spoke with Maarten Kuiper, a young Dutch activist, about corporate pig farming in the Netherlands. Kuiper told me essentially that countries such as the Netherlands and Denmark produce three times more food than they consume. Of the 25 million piglets produced every year in Holland, only 7 million are consumed here, he said. The rest are exported to China. So, there’s serious over-production in some – excuse the pun – agricultural silos.

IMG_0168Kuiper was recently in s’Hertogenbosch near Eindhoven, working at a pop-up information center called Kop tot Staart, or “Nose-to-tail” in English. Nose-to-tail is how pork production works here … every inch of the pig is used for something, with very little waste other than the waste from the actual animals. Nose-to-Tail’s mission is to inform the Dutch public about the environmental impact of corporate pig farming in Holland. But Kuiper said the issue goes deeper than that. Because of pressure to keep prices low from what is essentially a supermarket cartel including wholesalers and retailers, farmers have a difficult time earning a reasonable living.

“Grocers say consumers won’t pay,” he said.

Most of the competitive pressure is exerted on suppliers including farmers “which fits with the point made by Maarten and why suppliers are faced with lower returns,” McCorriston said.

Because local national market conditions and market structures are more important than any EU-level policy, price and quality vary across Europe, to be sure. When we lived in Germany as U.S. government employees, we often used our commissary over the German supermarkets, because the commissary was subsidized, and therefore cheaper. Uncle Sam deemed it in the best interest of national security that military families be able to buy Cheerios for $2 per box rather than $5 in a state-side for-profit grocery.

One of the biggest questions that could force up food prices is the United Kingdom leaving the European Union, which is first and foremost a trade regulating entity.

If the Brexit happens, British farmers would lose between 17,000 euros and 36,000 euros in direct subsidies, according to a recent Financial Times post. This would mean the UK would have to either replace that income through its own subsidies, revert to World Trade Organization rules or say goodbye to a lot of its farmers … and hello to higher food costs.

For the time being, you can eat like a king for pauper prices. But think about this as you’re savoring that beautiful prosciutto you can get at the grocery for a couple of euros.

Of the richest families in Germany, three are in the supermarket business. Karl Albrecht retained personal ownership of Aldi Süd, and with a personal wealth of 17.2 billion euros, he was the richest man in Germany before he died in 2014. The co-owners of Aldi Nord, Berthold and Theo Albrecht Jr., are close behind at 16 billion euros. Dieter Schwarz, owner of Lidl and Kaufland came in third, with a fortune of 11.5 billion euros.

No farmers made the list.

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