Do you feel that food prices have been rising? You’re not alone. Drink and food prices in the UK are up by 19% from the previous year. What used to be a regular grocery run of £50 will now cost at least £60. That’s the sharpest increase felt since 1977.
The United States is also feeling the pinch food-wise. The price of foodstuff in the country increased by 7.7% between April 2022 to April 2023.
The astounding rise in food prices is due to several factors. Inflation and supply chain issues due to the pandemic have done a number on food costs.
The issue has become so serious UK Prime Minister Rishi Sunak hosted a food summit. There were many mixed reactions to the event. It’s acknowledged as a step forward. But the general consensus was Downing Street failed to tackle key issues. As such, there’s a lot of uncertainty about where to find a solution to this crisis.
It was understandable for food bills to go up last year. Russia’s attack on Ukraine affected the food and energy supply. Prices for those items have already gone down. So why are grocery bills higher than before? There are many reasons but experts have noted several vital points about the issue.
Prices Have Been Unbelievable but are Improving
Russia’s asinine invasion of Ukraine had far-reaching consequences. It resulted in an unbelievable increase in grain and fertilizer prices. The price of sunflower oil and other materials also went up. The disruption of supplies from Ukraine led to price hikes in foodstuffs.
UN’s food agency reported that the wholesale prices for grain, sugar, oils, and meat skyrocketed by 20%. That was the average rate during the first few months of the invasion. But the prices of such products have since gone down.
It’s a different scenario when it comes to retail and food production though. These are energy-intensive sectors. Businesses in this sector don’t receive the same level of support given to households. This has resulted in companies seeing their bills double or triple.
Companies also have to deal with labor shortages and wage increases. There’s also the rising cost of living. Employers have to increase salaries by 9%. That loss is then transferred to the product or service.
Profit Margins on Food are Low
Every stakeholder in the food chain was then shocked when their bills came. But there have been issues on whether the burden of higher cost was fair.
The truth is many food companies have very slim profit margins when it comes to cost and revenue. One study used cheddar as an example. The cost of a piece of this cheese in the market is £2.50. The farmers’ costs are about £1.50 and the rest are then taken up by the retailers’ overheads. That means the profit is only around 3.5p. This will become shared among the supermarket and the farmer.
The problem appears when the cost of supplies goes up. Producers will have a hard time absorbing the added cost.
Farm-to-Fork Price Changes Take Time
Supermarkets are always quick to publicize price cuts on popular items, like dairy. The question now is why are food prices falling only on certain items. Why aren’t they going down everywhere?
It’s common knowledge that retailers are quick to increase prices. But it takes them ages to lower them when product prices go down.
The harsh truth is that contracts for goods and services are always agreed on months in advance. So producers and retailers are all locked on those high rates from the previous year. They can’t change their prices for months.
That could change soon. The inflation food retailers are experiencing is slowing down. This should have a domino effect on the grocery shelves. But it will take around six months before consumers can see and feel the changes.
There’s no way of knowing if retailers are using this to bolster their profit margins though. These companies only publish a breakdown of their prices once a year.
Prices Could Be Lower in Other Countries
Brexit is another issue UK consumers are contending with. The policy adds more red tape to the challenge of food importation. It’s why many citizens are wondering if they’re paying more for groceries than other consumers in the EU.
The good news is they’re not. That’s what economist Michael Saunders found in his research for Oxford Economics. He said food prices in the UK are often 7% lower than the EU average. Bread, fishes, and meats are especially cheap. Saunders credits this to the country’s competitive supermarket sector.
Saunders compared today’s prices to that of 2015. He said the average price of groceries in the UK was more expensive compared to others in the EU. He said this was in part due to the small influence of retailers like Aldi and Lidl.
Lower Bills Not Happening Any Time Soon
The Resolution Foundation believes households will see an increase in grocery bills. The independent think tank says households could see their food bills go up by £1,000.
The group says that consumers can get some grocery items at a much lower price. But there’s a small chance that people will see the return of the low food bills they enjoyed pre-pandemic.
It’s because the price of many items remains higher than they did before 2020. This covers everything, from energy to raw ingredients. There are also other factors in play. For example, there might be new policies around imported food items. These might not have become implemented yet.
There’s also the issue of more farmers moving away from the business. The prohibitive costs are pushing them out. There are also more food production businesses collapsing.