The UK food industry says domestic policies, not global pressures, are forcing grocery bills higher, as food inflation in the country outstrips that of other wealthy economies.
Living wage increases, new regulations and a backed-up planning system are among the factors driving up grocery bills, according to food producers.
The annual rate of price rises in the UK was 5.1 per cent in August, higher than in Germany, France and the US, where rates varied from 1.8 to 3.1 per cent, and the highest since January last year.
Manufacturing trade body the Food and Drink Federation expects food and drink inflation to hit 5.7 per cent by December, blaming the “financial burden of government policies” such as increases to employer national insurance contributions and a new packaging tax.
Meat and dairy producers, meanwhile, have sounded the alarm over rising labour costs and slowing production, warning that they and the farmers that supply them are reluctant to invest in additional capacity when burdened by mounting costs.
“We’re in a vicious cycle,” said Ranjit Singh Boparan, owner of the country’s largest chicken producer, 2 Sisters. Taxes and regulation are weighing on farmers, he warned, while the country’s backed-up planning system hindered business from investing in new production to redress the supply crunch.
“Give us planning permission, and we’ll support the farms to build more infrastructure to supply the food on the plate,” he said. “They can’t get planning permission, demand is growing, so prices are going up.”
The UK government is drawing up plans to overhaul planning rules.
Food prices have risen across the globe in the past few years, driven in large part by climate change as extreme weather hits yields of crops such as cocoa, coffee and olive oil.
But the rebound in prices is having a greater upward influence in the UK because the country imports a higher share of its food, at around 30 per cent, said Paul Dales, economist at the consultancy Capital Economics.
Farming groups have argued for the country to boost its food security, but the UK’s post-Brexit subsidy scheme incentivises farmers to produce less, not more, food.
“The only goals Defra has officially are environmental targets . . . there are no clear targets for food production,” said Tom Bradshaw, president of the National Farmers’ Union. “At a time of geopolitical tension, it is folly to become more reliant on imports.”
UK food prices are, on average, 38 per cent higher than in January 2021.
The highest rate of food inflation has been for beef, with prices rising 25 per cent year on year in August, the highest rate since records began in 2015. The price of butter was up 19 per cent, with chocolate rising 16 per cent, coffee 15 per cent, whole milk 13 per cent and poultry 4.2 per cent.
Concern has also grown over the tight labour market since the end of EU freedom of movement and, more recently, living wage increases and the removal of many food industry roles such as chefs, bakers and butchers from the UK’s skilled worker visa route.
UK regular annual wage growth averaged 4.8 per cent in the three months to July, ahead of the Eurozone, where earnings rose 3.7 per cent in the second quarter.
The rise in the national living wage for several consecutive years spelled “supply-side cost pressure specific to the UK”, said Sam Miley, economist at the economic consultancy CEBR, adding that a lot of low-paid jobs are concentrated in retail, including supermarkets. In April the national living wage was increased 6.7 per cent from a year earlier to £12.21.
Across the food supply chain, supermarkets, which are among the UK’s largest employers, were taking the biggest hit from national insurance contributions changes and living wage rises, which they were forced to pass on to shoppers, said Clive Black, analyst at Shore Capital.
The UK’s largest dairy producer, Arla, warned in August that of the 1,900 dairy farmers in its co-operative, 84 per cent trying to fill vacancies reported “very few” or no qualified applicants.
“Domestic farming has become more challenging partly due to reduced subsidies, higher trade barriers and greater costs after Brexit,” said Victoria Scholar, economist at the investment platform Interactive Investor.
When the UK left the EU, the government replaced the bloc’s subsidies with a new scheme that rewards farmers for environmentally friendly production. Many farms have seen their income fall significantly as a result.
Nick Allen, chief executive of the British Meat Processors Association, said his members were feeling the “ongoing cost of Brexit” because of new trading rules with the EU. In total the industry was paying £150mn a year in added costs, for health certificates and delays at ports, not counting “the army of office staff to get the paperwork in place”, he said.
Alongside labour costs and poor weather hitting crop yields, the Bank of England blamed the forthcoming introduction of the framework for the extended producer responsibility for packaging as among the reasons for higher food inflation in the UK than in the Eurozone.
Karen Betts, chief executive of the Food and Drink Federation, said the disparity between UK food inflation and that of peer nations revealed the cost of government regulation and policy decisions.
“As this autumn’s Budget looms, it’s critical that government does not add further to the already high costs of regulation in our sector,” she said.
A government spokesperson said: “Food security is national security. Following the UK-EU Summit we are discussing the details of our SPS [sanitary and phytosanitary] agreement which will make trade with our biggest market cheaper and easier.
“This is alongside allocating a record £11.8bn to sustainable food production over this parliament, helping put food on the nation’s plates.”
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