Fears for independents and SMEs as food inflation soars

Official figures show food and drink inflation reached 19.1% in March, far above the headline rate of inflation which is currently 10.1%, for the increase in the cost of an average basket of goods and services.

Food prices across Europe have surged since the Russian invasion as producers grapple with soaring energy, fertiliser and ingredient costs triggered by the conflict, as well as poor weather affecting harvests in several countries worldwide. Indeed, Russia and Ukraine are among the world’s largest agricultural commodity exporters. 

Some of the sharpest rises have been in olive oil which has risen by 49%, milk by 38%, and ready meals by 21%.

Rising food inflation puts pressure on indies
While this overall inflation rate saw a small drop last month, food and non-alcoholic drink inflation is continuing to rise.

This is putting pressure on small businesses who simply can’t absorb the price increases and are forced to pass this on to their customers.

Andrew Goodacre, CEO of the British Independent Retail Association (BIRA), explained, “The small fall in inflation is a concern, but a bigger worry is the rise in food inflation – now at almost 20%. With so much consumer spending being spent on essentials such as food, there is less disposable income for the discretionary spending that so many smaller retailers rely on. 

Indeed, small retailers are suffering much more than the multiples. As Tina McKenzie, policy chair of the Federation of Small Businesses (FSB), told Speciality Food, “Inflation has been a stubborn problem for any small business over the past year, and it is particularly acute for food and drink firms. With many customers affected too, in many cases it’s been impossible for small firms to raise prices to cover the full costs.

“Food and drink production requires a lot of energy. But the closure of the Energy Bill Relief Scheme means many small businesses are likely to see their bills shoot up by three to four-fold, as prices revert back to the high rates they signed up to last year. 

“Though already being stretched beyond their limit with rampant inflation, more than half of small businesses also face late payment of invoices by their big business customers, which have much greater buying power to mitigate the rising costs.”

Government intervention
With prices continuing to rise, independent retailers are in dire need of government help to survive. 

The FSB are pushing for the intervention of government ministers. Tina told Speciality Food, “We’ve put forward a list of proposals to the government to put an end to this worsening late payment culture, including giving audit committees of large firms oversight of payment practices and report on progress in their annual report.

“There’s also a need to overhaul the business rates system. Increasing the threshold for Small Business Rates Relief to £25,000 would remove thousands of small businesses out of the bottom of this regressive tax altogether and provide some much-needed help as firms adapt to price rises.”

Andrew added, “I would like to see some investigation into the food supply chain to ensure that we are not experiencing unnecessary increases, because inflation on non-food items is much lower.

“I also hope the Bank of England does not use these latest figures as a reason to increase interest rates. Interest rates are proving to be a very blunt instrument for inflation because the rise in prices is not driven by consumer demand. 

“Increasing interest rates would further restrict any economic growth and the Bank of England has to look at other ways of reducing inflationary pressures.”