Food price rises 'inevitable' as sanctions bite
21 March 2022
Karen Betts, Chief Executive of the Food and Drink Federation
The world is uniting against Russia’s brutal invasion of Ukraine. The UK government’s decisive action on sanctions has support from across the food and drink industry, as we watch an escalating human tragedy unfold before our eyes. We agree a cost must be imposed on President Vladimir Putin and his government for their actions. Russia cannot invade its neighbour and remain part of the global economy and trading system.
But our members are well aware of the implications that sanctions, trade restrictions and the supply chain disruption that flows from them will cost UK businesses and shoppers. This will translate into food price rises and, possibly, temporary shortages.
The situation is more acute because the pandemic, during which global supply chains struggled to meet unpredictable demand, pushed up prices. With Ukraine and Russia — for different reasons — no longer exporting goods to most nations, global shortages loom that exacerbate existing inflation.
The UK is not dependent on food supplies from Ukraine and Russia, but we suffer the impact from the price rises caused by shortages in world markets. This month, global wheat prices spiked at more than 80 per cent higher than a year ago. Sunflower oil — 80 per cent of it produced by Ukraine and Russia — is rapidly becoming unavailable, pushing up the cost of alternatives. Other products, such as white fish and the wood pulp used in packaging and labels, are becoming scarce as supplies from Russia and Ukraine dry up.
Food and drink manufacturers are in a bind. They cannot see a let-up this year in the inexorable rise of input costs — ingredients, raw materials, energy and so on. One company told me it expects energy costs to rise by up to 500 per cent this year. Businesses are urgently stripping further costs out of their processes. But there are limits. With margins squeezed suddenly and severely, higher prices are inevitable.
The UK already has a mounting cost-of-living crisis. Now food price rises will run alongside rapid increases in household bills, fuel and borrowing costs. Incomes are under significant pressure, with low-income families particularly vulnerable.
The government cannot do much about prices in global markets. But it can mitigate food price inflation in the UK and eliminate gaps on shelves.
We have three suggestions. First, these pressures are unprecedented and the response must be too. Supply chains will be highly unpredictable in coming months. The UK and devolved administrations must allow the industry to use safe, alternative products where ingredients become unavailable, often with little notice — starting with sunflower oil. If we are to keep products flowing freely, manufacturers need swift agreement on substitutes.
Second, the UK’s prized food security and resilience must be guarded fiercely. Our manufacturers and producers are in every part of the country — and we want to keep it that way. We need a robust, cross-government mechanism, a National Food Security Council, to work alongside the industry and enable us to respond collectively, and fast, to the impact of supply chain disruptions. Some effects are already clear but others will take longer to understand. We need to react to immediate issues of ingredient and energy costs and the longer-term impacts of fertiliser, petrochemical and CO2 shortages.
Third, ministers must urgently remove complexity and cost from upcoming regulation. Businesses must be able to focus on keeping afloat and feeding shoppers. From new packaging rules to where food promotions can be placed in shops, we urge ministers to pause, reflect and consider whether regulation is fit for purpose — and whether now is the time to pass additional costs to consumers.
The government has more power over how the crisis in Ukraine affects the UK than it thinks. It should use this power wisely.
This article was orginally published in the Financial Times.