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Kāpēc sviests un kafija Rīgā maksā vairāk nekā Lisabonā? Leandro Silva norāda, ka Latvijas pārtikas cenas ir mākslīgi uzskrūvētas – bieži divreiz augstākas nekā Portugālē, lai gan izmaksas to neattaisno. Pie vainas ir ne tikai augstais PVN un valdības pasivitāte, bet arī lielveikalu stratēģija uzturēt augstas cenas un imitēt atlaides.
Publicējam redakcionāli nekoriģētu autora viedokli oriģinālvalodā (angļu):
The price you don’t have to pay
When I first came to Latvia from Portugal, my main impression was not the gorgeous forests, or the fantastical Midsummer celebrations. My main impression was the unreasonable food prices that seem to defy not only the laws of economics, but also physics.
The standard justifications for such travesties usually follow the same lines. Latvia is a small country. Transport costs are expensive. The VAT is high. And so on. If someone is really desperate, they will try to blame the Russian invasion of Ukraine. But none of these justifications tell the whole story.
First of all, it is important to keep in mind that, in retail economics, price variations of 10-30% are monumental differences. Entire companies live or die within these margins. It is not uncommon for food distributors to base their entire business model on margins of 5-10%, meaning a producer might apply only a 10% margin. This small window will have to fit all of his costs, and hopefully leave some profit at the end.
I make this point to say that the arguments that attempt to justify the high cost of living in Latvia are good enough to justify some variation; but certainly not all of it. I often see products with markups exceeding 200%, a profit margin that I have never seen in Portuguese supermarkets.
As an example, let’s take a Portuguese basic staple - olive oil. In Latvia, a standard 750ml bottle of extra virgin oil is sold for prices ranging from 9€ (a price which Rimi generously calls a “discount”) all the way to the insanity of 17€. This is happening well after olive oil prices have collapsed all over Europe. In Portugal, the same product frequently retails for less than 5 euros, without discounts.
Yes, Portugal is a major producer of olive oil. The smallest quantity to import it from Portugal (the farthest EU producer from Latvia) is just one pallet with about 600 bottles of 750ml. At its origin, a bottle of extra virgin olive oil (the highest quality) easily costs between 3,50€ and 4,50€. After adding the cost of transport (around 50 cents per bottle) and the VAT (21%) we’re still left with a product costing between 4,84€ and 6,05€. Taking the most expensive price, at a standard supermarket markup, a bottle in Latvia should cost between 7,26€ (20% markup for discounts) and 9,07€ (50% markup, for a standard price). But that’s not what we see in Latvia. And we are talking about the import of a very small quantity. With 140 stores, and over one billion euros of revenue in Latvia, a retailer like Rimi is in a position to import much bigger quantities of this product.
Some products can be understandably more expensive in Latvia than in Portugal, like certain vegetables and fruits, due to the local climate and a bigger reliance on imports from distant countries.
But there is a very large range of products, from basic milk products to processed foods from large brands where supermarkets rely on extremely high standard prices. They later use these unreasonable prices to create fake, artificial discounts to fool the consumer into thinking they’re getting a great deal.
At the end of the day, you can justify it in a simple way: it’s a choice. Rimi, like other supermarkets in Latvia, wants to sell olive pomace oil (a byproduct of olive oil production that has no connection to the real product, that is largely unknown to consumers in olive oil-producing countries). And they want to sell it at an extraordinarily high markup as well. Why should a supermarket sell a bottle of extra virgin olive oil for 10 euros when they can sell a bottle of olive pomace oil for 10 euros and a bottle of olive oil for 15, thus achieving much higher profit margins?
This dynamic is present in most food prices in Latvia: it’s a choice. Supermarkets make the choice of inflating the prices for basic staples to achieve higher profitability. They know that the consumer base in Latvia has a low purchasing power. Latvians have the lowest disposable income in the EU (Eurostat, 2023), the 3rd lowest GDP per capita (Eurostat, 2024), and the highest inequality in the EU (Eurostat, 2020), in terms of mean consumption expenditures. At the same time, Latvians have one of highest proportions of income spent on food (Eurostat, 2020). Price levels for food are above the EU average (Eurostat, 2024), while GDP per capita in Latvian is at 71% of the EU average (Eurostat, 2024).
In other words, supermarkets know that they cannot survive on the rich alone. They must eat the poor too.
Portugal is by no means a price paradise. The Portuguese often complain that they find lower prices in the supermarkets of their richer neighbour, Spain. Portuguese immigrants in Germany will often call back home to express their astonishment at the local lower prices. But the difference I’ve seen between Portugal and Latvia is still stark enough to make one wonder about the reasons for this price inflation.
Is it a question of scale? With a population of 1.8 million, Latvia is hardly a consumer paradise for corporations. Except that all the three biggest supermarket groups in Latvia (Rimi, Maxima, Lidl) operate in all three Baltic countries. For all intents and purposes, for a supermarket chain, the Baltics can easily work as a single country, with a mere 295 km and 314 km separating Riga from Vilnius and Tallinn, respectively. That forms a healthy consumer base of 6 million people, not even counting the millions living in the nearby Polish regions (where Lidl also operates), less than 700 km away.
Is it perhaps geography? Latvia is a small country on the edge of Europe, after all.
Except that Portugal is also a country also on the edge of Europe, far from most of its neighbours), and the country still manages to have a lower price index than Latvia. Portuguese independent supermarkets (with 1-3 branches) often manage to achieve lower prices than large chains, especially in products aimed at lower-income segments and products from major global brands (Unilever, Nestlé, etc.), mostly due to their lower cost structure. They achieve this by piggybacking on large-scale distributors. A cash-and-carry company in Porto can easily buy entire trucks of a single product, and sell it in smaller quantities to these small regional supermarkets. And they still manage to outcompete large supermarket chains. If a lonely Portuguese supermarket in a town with a 100k people can achieve lower prices than Pingo Doce (5 billion in revenue and 480 stores), there is no way the population size of Latvia can be used as an excuse. I have not seen this ecosystem of local, independent supermarkets in Latvia.
The truth is that logistics in the EU are highly integrated. A Portuguese distributor can wake up on Friday, call his Polish supplier and still have time to order one single pallet (600kg) of meat or cheese, which will arrive by Tuesday. The following smaller scale logistics, between Riga and Vilnius, or between Riga and Daugavpils, is no different than logistics that occur between different Portuguese cities.
Yet I regularly encounter basic products, such as butter, milk, meat and coffee, at higher prices in Latvia than in Portugal. And these are products in which Portugal does not rely on any significant advantage. According to the European Commission, at a producer level, Portugal has the 3rd cheapest milk in the EU, but Latvia is not far behind, at number 5. Poland, a major supplier of meat to Portugal, is geographically much closer to Latvia, but I regularly encounter more expensive Polish meat in Latvia, be it pork, chicken or beef.
One could indeed argue that Latvia has higher average prices because of its higher VAT (21%), while Portugal has three rates for different food products, between 6% and 23%. Yet one could also argue that Latvia also has its own advantages (geographical proximity to major producers like Germany and Poland). What could possibly explain why a 200gr container of Nescafé powdered coffee costs 12,59€ in Latvia and 7,14€ in Portugal (a staggering 76% difference!)? What can explain that a bottle of high-end sunflower oil costs 1,89€ in Portugal and up to 7,89€ in Latvia, when Latvia is much closer to the world’s leading producer, Ukraine? Why in the world would a bottle of Casal Garcia wine, a low-end Portuguese green wine, cost 3,49€ in Portugal and an unbelievable 8,99€ in Latvia (when it’s sold at a discount!)? Even when accounting for excise duty rates that increase taxes on alcohol even more, it still does not account for such massive price differences. At the end of it all, I maintain my previous argument: food prices are high in Latvia because local companies want it.
Is it a question of market power? Do Latvian supermarkets have extraordinary control over consumers?
Not exactly. Market shares for Latvian supermarkets for the three major players are divided between Rimi (28%), Maxima (28%) and Lidl (12%) (OECD, 2024). This indicates a highly concentrated market, where the top players dictate conditions. Yet, in Portugal, which, again, has lower average prices than Latvia for food, the three major players are Continente (26,4%), Pingo Doce (21,5%) and Lidl (13,1%). Slightly different realities, yes, but hardly earth-shattering differences.
What are we left with, after it’s all said and done? Many factors come in play, like the difficulty in finding real estate for new locations, especially in Riga (OECD, 2024), but food prices are high in Latvia mostly because of a combination of two major factors.
One, a generalized strategy of unofficial price alignment, where supermarkets tend to follow each other on prices. No one rocks the boat too much. No need to start a price war when everyone can remain quiet and keep making money. A 2024 OECD report has found that high variations in prices for the same products in different supermarkets is proof of the high level of power that these companies hold over suppliers.
And two, the government. Heavy taxation and lax governmental oversight. The Latvian government can and should use all the tools at its disposal, despite the difficulties in legally proving the existence of collusion, or to find a criminal standard for the abuse of a dominant market position. But the government can facilitate the entry of competitors. It can increase price transparency.
And most importantly, it can and should do something about the unreasonable VAT levels that are still applied to many basic foodstuffs. If nothing else, the tax decrease would force companies to react accordingly, while giving them no excuses to blame the government.
This is not a simple situation by any means. An unhealthy market structure with weak competition is not a crime. Established supermarket companies are very well entrenched. Given the prices I’ve seen in Latvia, my imagination sometimes veers into the financial equivalent of a nuclear bomb: price controls. Of course Latvians know too well the difficulties of living in an economic system that uses such weapons of economic destruction. But at the end of the day, Latvians should ask their government to do a very simple thing, something that supermarket companies themselves seem to refuse to do: let free markets work. Real free markets.
EUROSTAT, https://ec.europa.eu/eurostat
CAPOBIANCO, Antonio (2024). Competition in the Food Supply Chain – Contribution from Latvia. Global Forum on Competition, France. https://one.oecd.org/document/DAF/COMP/GF/WD(2024)28/en/pdf
Autors ir pārtikas tirgotājs, kas specializējas importā uz Portugāli.