What’s behind 2017’s turnaround in food prices?
In the midst of the recession that followed the 2008 banking crisis, many shoppers welcomed the disrupting influence of Hard Discounter supermarkets.
The price-cutting response of established big retailers was also well-received. Fierce competition for market share led to a period of declining grocery prices stretching back to September 2014, according to Kantar Worldpanel. But in January 2017, prices began to grow and like-for-like grocery price inflation stood at 3.2% for the 12 weeks ended 5 November (Kantar Worldpanel).
In June 2016 the UK voted to leave the EU and sterling crashed. Compared to pre-referendum levels, in November 2017, the UK pound had fallen by 11% against the US dollar and was 14% worse-off compared to the euro, hitting 30-year lows along the way. This is a serious matter for the food industry because, according to Defra, around 46% of food eaten in the UK is imported, with 27% coming from the EU.
The UK meat market is more dependent on imported pork than it is for beef and lamb, this is reflected in the price change.
Rising prices are not solely due to currency changes. Three major regulatory changes that may have also contributed to rising retail prices:
- Current government policy is for the national living wage to reach 60 per cent of median earnings by 2020.
- Employers are now required to contribute to an apprenticeship levy if their total payroll is worth more than £3 million. In retail labour costs are typically around 15% of sales value, so this may be a significant additional cost.
- The latest business rate review came into effect in April. Rateable value is based on underlying property prices, which means rises for businesses in certain areas.
The EU is the UK’s main trading partner for food and the consequences of leaving reach further than a short-term sterling decline. If the future brings a shortage of EU labour and increased dependency on UK workers, this may result in wage inflation. The entire food supply chain is heavily dependent on migrant labour.
Despite this there are opportunities in local sourcing. Among British consumers there is a strong willingness to buy British food and drink, YouGov research shows that 73 per cent will try to do so if it is available and 23 per cent say they are more likely to buy British following the decision to leave the European Union.
To read more about food price inflation in 2017, click here.
Stewart Bachelor, Analyst
Stewart.Batchelor@ahdb.org.uk, 024 7647 8852