The writer is chief executive of the Food and Drink Federation
The world unites against Russia’s brutal invasion of Ukraine. The UK government’s decisive action on sanctions has the support of the entire food and drink industry as we watch an escalating human tragedy unfold before our very eyes. We agree that President Vladimir Putin and his administration must pay a price for their actions. Russia cannot invade its neighbor 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 resulting supply chain disruption will cost UK businesses and shoppers. This translates into food price increases and possible temporary shortages.
The situation is more dire as the pandemic, with global supply chains struggling to meet unpredictable demand, pushed prices up. With Ukraine and Russia — for various reasons — no longer exporting goods to most countries, global deficits are emerging that exacerbate existing inflation.
The UK is not dependent on food supplies from Ukraine and Russia, but we are feeling the effects of the price increases caused by shortages in world markets. This month, global wheat prices rose more than 80 percent higher than a year ago. Sunflower oil, 80 percent of which is produced by Ukraine and Russia, is rapidly becoming unavailable, raising the cost of alternatives. Other products, such as whitefish and the wood pulp used in packaging and labels, are becoming scarce as the supply from Russia and Ukraine dries up.
Food and beverage manufacturers are in a difficult position. They cannot see a setback this year in the inexorable rise in input costs – ingredients, raw materials, energy and so on. One company told me it expects energy costs to rise to 500 percent this year. Companies are urgently removing additional costs from their processes. But there are limits. With margins suddenly and severely under pressure, higher prices are inevitable.
The UK already has a mounting crisis in the cost of living. Now, food price increases will be accompanied by rapid increases in household bills, fuel and borrowing costs. Incomes are under severe pressure, with low-income families being particularly vulnerable.
There is not much government can do about prices in world markets. But it could reduce food price inflation in the UK and eliminate gaps in the shelves.
We have three suggestions. First, this pressure is unprecedented and the response must be too. Supply chains will be highly unpredictable in the coming months. The UK and local authorities should allow industry to use safe, alternative products where ingredients are no longer available, often with little notice – starting with sunflower oil. If we want the products to flow freely, manufacturers must quickly agree on substitutes.
Second, the UK’s prized food security and resilience should be fiercely guarded. Our manufacturers and producers are located in every part of the country – and we want to keep it that way. We need a robust, overarching mechanism, a National Food Security Council, to work with industry and enable us to collectively and quickly respond to the impact of supply chain disruptions. Some effects are already apparent, but others will take more time to understand. We need to respond to immediate issues of ingredient and energy costs and the long-term effects of fertilizer, petrochemical and CO2 shortages.
Thirdly, ministers urgently need to remove complexity and costs from the forthcoming regulations. Businesses need to be able to focus on staying afloat and feeding shoppers. From new packaging regulations to where to place food promotions in stores, we urge ministers to pause, reflect and consider whether regulation is fit for purpose – and whether it is now time to pass on additional costs to the consumer.
The government has more power over the impact of the Ukraine crisis on the UK than it thinks. It must use this power wisely.
This post Food price rises are inevitable as sanctions bite was original published at “https://www.ft.com/content/d266b6d1-746b-4116-ab92-95b19cec98bc”