OPINION
What is the outlook for future food
INFLATION?
Mike Meek, procurement director at allmanhall, an independently owned food procurement expert, examines whether a rise in food prices is inevitable. HOW USEFUL IS CPI (CONSUMER PRICES INDEX) DATA TO PREDICT INFLATION? It is quite customary for organisations to want to measure the change in prices over time. The Office for National Statistics (ONS) monthly inflation and pricing release of CPI data is often the principal index of choice. It is the official measure of household inflation, and it is easy to access and requires little expertise to distribute. CPI food data is very useful, but not when used in isolation. It is a backwardlooking index that measures historic price movements via a weighted household basket of retail goods. Determining to what extent retail prices have changed over the past year may not help those that need to budget for the future. WHAT IS THE OUTLOOK FOR FUTURE FOOD PRICES? Global food prices A good place to start is to examine what is happening to global food prices as these have the greatest pull-on UK food prices. • Global food prices have been steadily climbing over the past 12 months (FAO Food Price Index +33.9% higher than prior year). • Global food prices are significantly higher in real terms than those in both 2018 and 2019. We can in this instance rule out ‘base effects’ distortion as price indexes are well above pre-pandemic levels. • All five key commodity groups have increased significantly on a global level. 38
These are vegetables oils, cereals, dairy, meat, and sugar. • 2021 global food prices are nearing those of 2011, which still represents the 60-year high. • Global shipping costs are at a ten year high fuelled by Chinese demand for iron ore, a key ingredient of steel. This impacts food prices as 60% of global food miles are attributed to sea freight. • Broad based industry wide inflationary pressures across ingredients, packaging, transportation, and labour are more likely to lead to foodservice cost increases. The active management of food wholesalers, product ranges, brand management and adopting a category management approach will help to offset impacts. WHAT PRICE CHANGES ARE UK FOOD MANUFACTURERS EXPERIENCING? May ONS Producer Price Index showed significant increases in the prices that UK food manufacturers are paying for their inbound raw materials, leading them to pass on price increases via a rise in outbound goods (these are prices passed on to retailers and wholesalers). • Inbound cost increases (costs to food manufacturers) - 12-month home food materials increase of +9% - 1-month increase of 3.7% • Outbound cost increases (costs from manufacturers to retailers and wholesalers) - 12-month rate of 3.1% - 1-month rise of 0.7%
It takes time for changes in food commodity prices to feed through the supply chain to caterers, typically three to six months. Changes in food commodity prices do not pass through in full, as consumer food prices include the shipping costs of primary food commodities, the processing, marketing, and packaging of food, and final distribution costs such as transport costs.
WILL THE UK LABOUR SHORTAGE OF DRIVERS AND PICKERS IMPACT FUTURE PRICES? It certainly has the potential to drive up costs if the shortage is sustained for a prolonged period. A shortage of 60,000 drivers has the potential to push up wages and in turn goods prices. There is plenty of anecdotal evidence to suggest that foodservice distributors and manufacturers September 2021
