Food makers are warning of price hikes – here’s why

Shoppers will face higher food and drink prices if manufacturers are made to absorb costs from Government policies over the next few years, a report by the Food and Drink Federation (FDF) has warned. The group estimated that the price of food and drink shopping per household will rise by more than £160 per year.

The report, Eating into household budgets: the Government’s recipe for food price inflation, also said poorer socio-economic households would see their shopping bills jump by 11%.

It comes as IGD’s latest Shopper Confidence Index revealed that a small dip in confidence in June was down to concerns about rising inflation. According to the survey, 79% of shoppers expect food and grocery prices to increase in the year ahead, and 14% expect them to rise significantly, up from 8% in April 2021.

The Office for National Statistics said June’s inflation rate had risen to 2.5%, the highest in almost three years, partly due to increased food prices.

New policies raise prices for producers

The FDF said policies including reforming Extended Producer responsibility for the disposal of post-consumer goods (£1.7bn), a Deposit Return Scheme on food and drink packaging (£850m) and the introduction of promotional restrictions in foods that are high in fat (£833m), sugar or salt, are estimated to cost the industry at least £8bn, with small producers being among the hardest hit.

Further taxes on salt and sugar were outlined in Henry Dimbleby’s recent National Food Strategy report in order to boost healthier diets, but the FDF fears that these costs will also be passed onto consumers.

“Food and drink manufacturers are close to breaking point,” said FDF chief executive Ian Wright. “Through the last 16 months our workers have made truly heroic efforts to keep the country fed. Yet now they face a combination of challenges which threaten to deliver food price inflation to already hard-pressed households.”

While he added that “pressing concerns” around sustainability and obesity must be tackled, he said members are already doing so on an “epic scale” through net zero commitments and reformulation. “The Government needs to understand the costs of the changes it is demanding and the impact it would have on the cost of household food and drink shopping.”

Food producers’ margins are being squeezed by soaring global food commodity prices, which have risen by 17% since the start of the year. In May 2021, global food commodity prices were up 40% year-on-year.

The FDF has called on the Government to reconsider policies and reform the “regulatory architecture” in order to ensure future policies are effective. With 97% of all food and drink businesses being SMEs, the FDF warns that these businesses are more greatly exposed to the risks.

Will food prices rise in NI?

While the FDF’s report estimates how food prices will rise in the coming years, retailers today are warning that price hikes could be just around the corner for consumers in Northern Ireland.

Marks & Spencer chairman Archie Norman said customers in Northern Ireland could face higher prices if new customs rules due to Brexit come into force as planned in October. But it’s not only the multiples – fine food businesses are also considering price hikes if necessary. RH Amar, which distributes more than 40 food brands to the wholesale and symbol sector in Northern Ireland, said delays and additional documentation caused by the Northern Ireland Protocol have caused the company delivery issues.

“So far, we have managed to hold prices steady for our customers, but we can only absorb the current extra layers of administration and inherent delays for so long before we will have to put this under review,” said Karen Jones, category controller at RH Amar. “The situation is certainly concerning.”

“The end to the NI grace period looms in the mind of every British retailer with supply chains in Northern Ireland,” said Helen Dickinson OBE, chief executive of the British Retail Consortium. “If no action is taken, then it will be the people of Northern Ireland, with half of the discretionary income of GB households, who bear the brunt of this stalemate – meaning less choice and higher costs for essential food purchases. Already, new red tape is causing delays, there are surging additional costs, and we are seeing challenges to ‘just-in-time’ supply chains.”