‘My coffee has gone up $6,500 a year’: Australian businesses emerging from Covid crisis struggle with food price hikes

Joanna Wilson, a Melbourne cafe owner, dreads opening a letter from one of her suppliers, knowing it likely will include a warning of yet another price increase.

Her business has already had to deal with a 25% jump in milk prices and 60% rise for some vegetables over the past year.

"My coffee alone has gone up by $6,500 a year. It's everything though, bread, vegetables, milk," she says during a recent post-lunch lull in trading in the suburb of Brunswick.

Whether it's cafes or food producers, from FourN' Twenty pies to suppliers of fresh fruit or baked beans, businesses across the country were already dealing with Covid disruptions. And then Russia invaded Ukraine, ensnaring two major food exporting nations in conflict, and cloaking Moscow in sanctions.

It's a pressing dilemma for firms like Wilson's John Gorilla cafe just emerging from the Omicron wave of the pandemic: how much of the higher costs can they pass on to customers without crippling their businesses?

"There are people who say 'I'm more than happy to pay those prices to keep you open', but then there are other people who'll leave a Google review complaining it's outrageous," she says.

"I feel like I can't put my prices up."

Wilson estimates costs for raw ingredients alone have climbed $20,000 in the past year, with more to come. For example, her customer favourite, avocado piquillo - a dish of poached eggs on sourdough toast with avocado, sweet chilli pickle, piquillo pepper, rocket and feta - now costs almost 25% more to make.

Economist Saul Eslake said it's likely many businesses that are raising their prices have a genuine need to, noting the growing list of those intending to do so in the future.

SPC, a fruit and vegetable processor based in Victoria's Goulburn Valley, has flagged their prices will rise by 10 to 20%, a move necessary to stay viable, it has said.

Jesse Feldy, owner of the New Order cafe in Melbourne's inner south suburb of Prahran, said it's inevitable some of his prices will be hiked. A majority of his suppliers have warned him in writing in the past few weeks that the prices are on the way up.

"It affects our bottom line at the end of the day," Feldy said. "We're here as a small business to make money. I love hospitality, but it's also not a hobby. It's something I need to support my family."

Eslake says the rising prices underscore the problem of slow wage growth. It will increase pressures on policymakers to ease pressure on low-income earners who typically fork out a bigger proportion of their cash on food than higher-paid ones.

"The cost of that should be imposed on those in the top half of income distribution or businesses who are the winners from high energy and food prices - like grain growers, and coal and LNG producers," he said.

In 2021, inflation in Australia reached 3.5% compared with a 2.3% rise in wages. Official inflation data for the first quarter of 2022 won't land until late April.

In the meantime, surveys are showing a drop in consumer confidence.

Eslake said it remains unclear how the market disruptions, particularly from the war in Europe, will pan out: "We don't know the extent to which further price pressures induced by the conflict in Ukraine will be sustained."

"If there's a peace deal, the oil price could drop," he said. "But there could still be an impact on food prices because Ukraine is one of the largest wheat exporters, and they may not have a crop this year so prices would then remain elevated for the next year."

With Ukraine accounting for 12% of global wheat trade, according to Rabobank, the price of wheat has soared to all-time records. Sanctions on Russia, another major grain exporter, could last beyond the fighting, should a peace agreement be hammered out.

"We also don't know what will happen with the Covid-19 outbreak in China and how that might impact global supply chains," Eslake said.

Rod Sims, the outgoing chair of the Australian Competition and Consumer Commission, said there was little scope for the market watchdog to intervene.

"What's going on at the moment is so clearly due to international events," he said. "There's really not much we or anybody can do about this."

The ACCC had been seeking changes to merger laws to do more to curb market concentration and to secure the addition of an unfair practices provision that would make it easier to pursue those trying to take advantage of people affected by the east coast floods. The regulator's main power is to call out such behaviour to discourage price gouging.

However, "we haven't seen any evidence" of such behaviour, Sims said, adding if people do see proof of such action, "they should absolutely report it".

As Feldy mulls which of his menu items will be more costly for customers, he's wary of making his cafe uncompetitive. "Who is going to budge first?" he said.

"It's not just us, prices are going up everywhere. People will come in and complain about the price of petrol," he said. "It could soon also be the price of coffee and the price of booze."

"I wouldn't want to be the one that jumps first because I know what's going to happen," Feldy said. "People will be frowning and saying 'that's a pretty expensive cup of coffee'."