Dearer food on the menu By Jenny Wiggins, Consumer Industries Correspondent
Published: August 8 2007 21:37 | Last updated: August 8 2007 21:37
While the Bank of England warned on Wednesday of a “particularly uncertain” outlook for food prices, food producers were clearer: they think prices will keep going up.
Prices for all kinds of food – from staples such as meat and bread to more indulgent goods like coffee and chocolate – have risen this year as stronger global demand for agricultural raw materials pushes up the cost of ingredients for food producers.
Restaurants and cafes have already begun to pass on increases, with coffee chain Starbucks raising prices on cappuccinos, lattes and other drinks in the UK by 3 per cent at the end of May.
Food-price inflation has slowed in recent months, dropping 0.4 per cent in July from June, according to the British Retail Consortium. However, both the consortium and the Bank of England have warned that the recent flooding could revive pressure on prices.
Kevin Hawkins, the director- general of the BRC, said this month that food-price inflation was “impervious” to interest rate changes.
“If, as a result of [July’s] heavy rainfall, food inflation increases over the next few months, a further hike in interest rates will do nothing to curb it.”
The floods damaged vegetable and grain crops and are expected to result in relatively poor harvests for vegetables such as peas and broccoli, meaning that prices could rise around Christmas.
Industry analysts say they expect frozen pea manufacturer Birds Eye to put prices up by about 10 per cent this year. Birds Eye said on Wednesday that while it expected lower harvest volumes, it had not yet made a decision on prices. “We will evaluate the full effects at the end of the harvest.”
Flour millers say unprecedented rises in wheat prices over the past 12 months may lead to further increases in bread prices early next year. The National Association of British and Irish Millers (Nabim) said: “Across the board, we’re going to be feeling further price inflation than we initially thought a month ago.”
Prices for the best kinds of breadmaking wheat have almost doubled to £175 per tonne over the past 12 months as demand exceeds supply. Yields on this year’s UK wheat harvest are expected to be 10 per cent lower than last year, in part because of the flooding. Europe’s wheat crop will also be smaller than expected after drought in eastern Europe and wet weather elsewhere.
Wheat futures traded on the Chicago Board of Trade hit 10-year highs on Wednesday amid concerns that the US Department of Agriculture’s monthly grain report, released on Friday, will lower its wheat production forecasts. “We fully expect them to cut a little bit off world production,” Nabim said.
Meanwhile, specialist fish manufacturer Young’s this week warned of an “upward trend” in seafood prices, in part due to stronger demand in Asia as economies expand and incomes rise. The company said it expected its prices to increase some 5 per cent over the next six months.
Meat is one food that might actually fall in price, following the food-and-mouth outbreak. Meat producers are worried that a long export ban would force them to sell meat in the domestic market, pushing prices down.
The National Beef Association asked retailers and processors on Wednesday not take advantage of farmers’ vulnerability and reduce slaughter cattle prices.
Even if the overall trend for food prices is up, the Bank of England pointed out, the increase in households’ spending on food can not be attributed solely to food inflation. It warned that retailers are encouraging consumers to switch to more expensive brands.
Food analysts say that supermarkets have been tapping into consumer demand for healthy and ethically sourced foods and pushing organic and premium own- label ranges, because they can charge more money for them.
Christopher Gower, a food analyst at Man Securities, said: “If you’re Tesco or Sainsbury, you want people to buy premium products.”
