FDF notes continued food price rises impacting on sector investment and growth

Latest figures from the UK’s Food and Drink Federation have shown that prices again rose by significant margins of 16.8%, down just 0.1% on the previous month’s rate at the end of year that revealed the highest increases seen for 40 years, writes Neill Barston.

This is the first time for 18 months that rises have shown any sign of slowing at all, with the stubbornly high inflation rates causing considerable consumer concern as many shoppers cut back on many luxury items and focused on essential household items amid tightened household budgets.

There were in fact a number of a categories far exceeding the 16.8% rises seen last month – including low fat milk, registering a major 44% increase, cheese rising 35% in price, ice-cream up 20% and baked-goods ranges more than 17% for the period, which the FDF noted with concern. No specific figures for confectionery were release, though they are considered to be at the overall 16.8% mark, and have been compounded by further consumer complaints over continued instances of ‘shrinkflation,’ with major confectionery businesses seeking to offset some of the key increases in ingredient prices through offering smaller sized portions.

Another notable factor came with news that insolvencies continued to rise in November, suggesting December figures will show insolvencies in 2022 in the industry were double the rate of 2019.

Significantly, the FDF observed that investment has been on a downward trajectory since Q3 2021, with persistent cost increases meaning that some companies have paused or cancelled investment projects, potentially limiting industry growth.

Dr Liliana Danila, lead economist for the FDF noted that the challenging conditions were reflected by an anticipated slowdown in demand as consumers had less disposable income and faced significant tests including handling key increases in energy prices.

Speaking on the latest monthly results, she said: “These are the first signs that producer price inflation might be approaching its peak. In recent months, many pressures that built up over the last two and a half years have been easing, although we are still a long way from reaching conditions similar to those of 2019. Wholesale gas prices have declined significantly since last November, but both wholesale spot prices and gas futures are about double their 2019 prices. Global food prices have persistently fallen since March 2022, but remain at historic highs, in January being 30% higher than in January 2020. Global supply chain pressures are easing as well, while oil prices are now about 25% cheaper than in June 2022.

“It’s estimated it takes between seven and twelve months for rises in production costs to filter through to final consumer prices. This is because manufacturers use fixed term contracts both to buy supplies and sell to supermarkets. As a result, when commodity prices rise, manufacturers are shielded from these changes until they renew their fixed-term contracts. But that also works in reverse: when prices on the market fall, manufacturers will not receive price cuts until their contracts expire. This means that retail food inflation will persist throughout 2023, although, it’s likely that food inflation is nearing its peak, as base effects are about to take hold.”