Trade barriers to food purchasing created by Brexit added £6.95bn to food bills for UK households since 2019 © Photo by SUSANNAH IRELAND/AFP via Getty Images
Trade barriers to food purchasing created by Brexit added £6.95bn to food bills for UK households since 2019 © Photo by SUSANNAH IRELAND/AFP via Getty Images

Why food supply chains are at risk of ‘financialisation’

A report has found Brexit trade barriers added £250 to household food bills, but experts said a broader issue of “food financialisation” may be driving prices.

Trade barriers to food purchasing created by Brexit added £6.95bn to food bills for UK households since 2019, according to research by the London School of Economics.

Food products imported from the EU have been subject to increased checks and regulations due to hygiene and sanitation rules, resulting in additional overheads to businesses to carry out these checks and ensure products comply with EU regulations.

Associate professor at the Centre for Economic Performance and co-author of the report, Jan Bakker, told Supply Management: “The Brexit-related components of food prices are only going to become more important as time goes.

“Most of these non-tariff barriers have actually not been enforced at the border yet, but the government is planning to introduce more of them. At some point, we expect another jump in food prices.”

Bakker added there “isn’t any way to make food cost less” without significant policy shift, because the EU border checks need to be completed.

City, University of London’s emeritus professor of food and health policy, Martin Caraher, explained that a broader issue of “food financialisation” is also pushing up food prices, and will continue to do so unless companies adjust their purchasing strategies.

Caraher told SM: “Food has become financialised, and people are now speculating on certain food products. A lot of the companies that control these supply chains are currently buying futures in food, and they’re cornering markets. One of the problems with this financialisation is that food has become a speculative commodity, like gold, because you can now profit from it.

“That wasn’t true in the past. Traditionally, food supply chains have used spot markets, so you just buy at market prices when you need it – but people are now buying next year’s crop. That’s normal in things like coffee and cocoa, for example, which are cash crops. But it’s now extended to things like wheat, grain, and even fruit and veg, which weren’t so much a part of speculation and financialisation.”

Caraher added that the UK’s food supply chains are also being hit by high energy prices pushing up the cost of fertiliser, on top of Brexit trade barriers. 

He predicted “prices will stabilise” for consumers, but the costs to farmers, food producers and growers will remain the same. He said production targets should be used as an incentive for subsidies, rather than sustainability as current funding is focussed on.

However, the best way for buyers to bring down their food costs is to change their procurement strategies, he said.

“Futures dealing has some benefits,” Caraher said. “Farmers know what they’re getting a year in advance. So buyers could look to farmers in Europe, smaller farmers, and lock them in by guaranteeing prices rather than dealing with the spot market, hoping the prices go up or down.

“Smaller producers are usually excluded from futures contracts, buyers only want to deal with someone who’s got 20,000 acres. But there are lots of smaller producers out there, you could deal with them cooperatively as part of a community.”

Caraher warned these contracts would still be difficult to handle, even if they ensured more security of supply at lower prices. 

“If you don’t want to deal with a co-operative, buyers could go out and deal with, let's say 20 farmers who grow carrots, for example. The problem with that is, as a buyer, you’ve got to deal with 20 different people and handle 20 different contracts, as opposed to dealing with one farmer who can grow everything you need.”

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