Food inflation to remain at 7% until 'at least' 2023

10 June 2022

UK wholesale food prices in April were 10% up year-on-year due to high energy costs and unstable global supply as the food sector faces an “extremely challenging” environment. 

April marked the third month in a row of double-digit food inflation, with further rises expected and inflation unlikely to fall below 7% until at least next year, according to research by food supply chain analysts Prestige Purchasing.

It said increases in labour, energy, transportation and fuel costs and stretched supply of commodities such as oil and wheat caused by Russia’s war in Ukraine have all combined to put pressure on food prices.

Shaun Allen, CEO of Prestige Purchasing, said: “The food and drink system continues to be in a high level of instability with complex impacts upon both cost and availability of product.

“Simply acceding to price increases will not be an acceptable option for many operators, so actively managing supply increases using reliable market data is essential.”

He said this was a “good time” for food service companies to review menu ingredient ranges and supply models “to ensure optimum margin in the months ahead.”

James Ashurst, client director at consultancy CGA, said: “Energy costs have a direct impact on prices right across the foodservice sector, and the war in Ukraine has piled on even more inflationary pressure. Soaring prices are also starting to affect consumers’ spending, and on top of global supply issues and the after-shocks of Covid and Brexit, the outlook for the rest of 2022 is extremely challenging.”

Oils and fats went up by 6.4% in April, while food service prices for meat and poultry went up by 2.9%.

Every single food category reported inflation in April. “This unusual phenomenon has now occurred for the second month in a row, signs pointing towards more to come,” the report said.

Extreme weather events further exacerbated global food supply chains. The report noted fruit and vegetable prices witnessed “strong inflation” due to “adverse weather conditions” in Spain – a major source of UK product.

“Weather caused disruption to the majority of Spain’s growing regions, with rain, sandstorms, and heavy snowfall all hitting throughout the month. The major surprise to growers was the shock snowfall midway through the month, which was so heavy it cut off many regions of the country.”

The report said lorries were banned from travelling between El Molar, Somosierra and Guadarrma, cutting off the country’s supply chains. 

Meanwhile, a major manufacturer of sriracha hot sauce, Huy Fong Foods, told customers it was witnessing “severe shortages” of chilli due to droughts in Mexico and California, limiting supplies. 

The company said it will no longer be taking any new orders for its sriracha, and other hot sauces including chilli garlic oil and sambal oelek, before September, “as we will not have enough inventory to fulfil orders”. 

“Without this essential ingredient we are unable to produce any of our products,” it said. 

A UN Food and Agriculture Organisation (FAO) report warned supply difficulties meant food import bills were reaching “records highs”, and prices could result in greater global food poverty and malnutrition.

Upali Galketi Aratchilage, lead editor of the report, said: “In view of the soaring input prices, concerns about the weather, and increased market uncertainties stemming from the war in Ukraine, FAO’s latest forecasts point to a likely tightening of food markets and food import bills reaching a new record high.”

The report said: “Rapidly rising costs of imported food could result in lower food availability and compromised access to food in poor and food import-dependent countries, eventually resulting in a further increase in hunger and malnutrition.”

It further warned farmers may switch to producing less input-driven crops to remain profitable. This would not only lower productivity but have a negative effect on exports of key food items to international markets, “adding to the burdens faced by countries highly reliant on imports to meet their staple food needs”.

With margins of global food producers being squeezed “farmers are disincentivised to increase production, possibly protracting high prices in food markets”, it said.

It concluded that, based on current conditions, the situation does “not augur well for a market-led supply response that could conceivably rein in further increases in food prices for the 2022-23 season, and possibly the next”.

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