'Terrible' food price increases reveal fundamental flaws

The factors driving the surge in supermarket prices are numerous and interlinked: the war in Ukraine, which has crippled grain exports from that country and triggered a surge in energy prices; Brexit, which left perishable produce vulnerable to border delays while also slashing the number of seasonal workers available to grow and harvest domestic crops; rising labour costs as workers attempt to keep wages within touching distance of inflation; the strain on supply chains that came to the fore during the pandemic; and widespread crop failures in North Africa and Southern Europe, leading to a shortage of fruit and vegetables in the UK earlier this year.

But underlying all of that, Martin Kennedy has identified another culprit best described as complacency.

“We take it for granted,” he said. “We assume it’s going to be on the shelf, and that it’s going to be cheap.”

As the president of the National Farmers’ Union (NFU) in Scotland Mr Kennedy is naturally a fierce advocate of produce from the UK, which accounts for 60 per cent of all food and drink consumed here. He warns that threats to indigenous production endanger not only the agricultural sector, which directly employs 67,000 people in Scotland, but also puts all consumers at risk of being “held to ransom with food”.

“People are saying ‘It’s a terrible price, it’s an awful price’, but I think that comes back to what are our values? I completely understand that for those who are on extremely low incomes, it is difficult, but that’s where government should intervene.”

Average spending on food in the UK is now equal to about 12% of household income, Mr Kennedy said, up from less than 9% a couple of years ago. However, that is still the lowest in Europe, and the third-lowest in the world.

“If that goes up to 14%, you might think that’s quite high, and there is talk that figure might go up to 14%, but it would still be 5 [percentage points] behind France,” he said.

READ MORE: UK risks being 'held to ransom' on food security

In addition to the question of “values” there are also food security concerns as the drive by supermarkets to keep shelf prices down has suppressed farmgate prices to the point that some have given up on growing crops that fail to make any profit. Mr Kennedy maintains that efforts to keep food “cheap” are not sustainable.

“It can be done but it will only happen for a limited period of time because…if we continue to reduce our ability to produce here, then we will completely be more reliant on importing and right now that is not so easy,” he said.

“Food is starting to get tight right across the globe. We’ve gone from seven billion to eight billion people in the space of 11 years. That’s going to go up to nine billion before too long.”

Domestic production is challenged as well as costs have gone through the roof. In just one of many examples, an NFU Scotland member with a cold store for potatoes saw his electricity bill jump from £140,000 to £800,000 per year.

Labour shortages are another major constraint and there are fears this season could see a repeat of last year when fruit and vegetable crops rotted in fields because of a lack of workers to harvest them.

“The shortage of labour has really not eased at all,” said Shan Saba, a director at Brightwork, the largest supplier of staff to the food and drink sector in Scotland. “In food production we have seen a little bit of slackening, sadly due to redundancies in other sectors…but nothing significant enough to fill the gaps that have been left since Brexit.

“That has not been the case on the agricultural side, because those jobs are the ones that the locals definitely don’t want to do.”

On the import side, stricter border controls in the wake of Brexit have in some cases made the UK the “last market of choice” for European exporters who can trade more seamlessly within other parts of the economic bloc. It is an additional hurdle in a supply chain network already beset by constraints.

“Nowhere is the need for the supply chain audit and supply chain resilience clearer than in the food industry,” says Oliver Chapman, founder and chief executive of supply chain management specialist OCI.

READ MORE: Higher food prices 'baked in' as shoppers seek inflationary relief

A report last year from the Centre for Economic Performance found that Brexit was contributing to higher food costs in the UK even before the latest surge in prices. Researchers estimated a 6% increase during the two years to the end of 2021, with products such as fresh pork, tomatoes and jams that come mainly from the EU experiencing the largest price increases.

Stewart McCallum, head of food and drink at accountancy group RSM, said the UK’s heavy reliance on food imports has in addition left it exposed to exchange rates, with the relative weakness of sterling against euro and the dollar adding to inflationary pressures.

A further “Brexit differential” has been the UK government’s response to the energy crisis relative to its counterparts on the continent.

“It is interesting when you see that inflation in Europe is lower comparatively to the UK,” Mr McCallum said. “What’s happened in Europe is that some of the governments, particularly France, took more of the blow in supporting the economy with the mitigation of higher energy prices.

“The UK is looking the outlier in how quickly inflation is coming down and also the comparative levels of inflation, but that again is political choices in terms of how Europe reacted to what was a massive shock for the consumer and businesses in general.”

Tomorrow: "There are some suppliers that don't even tell you that the prices have gone up"