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YES, supermarkets are to blame for Food Inflation?

Supermarket executives have been questioned by MPs over why food prices are still rising while wholesale costs are falling BBC article here. If I was invited I would tell them they are both to blame and here is why.

First of all food inflation can be influenced by various factors, including:

Supply and demand dynamics:
If the supply of food decreases or if there is an increase in demand, prices tend to rise. Factors such as extreme weather conditions, crop failures, or disruptions in the global food supply chain, like the war in Ukraine, can affect the availability of food and lead to higher prices.

Currency fluctuations:
The value of a country’s currency relative to other currencies can impact the cost of imported food. If the local currency weakens against major currencies, the cost of imported food tends to rise, contributing to higher inflation.

Local or foreign?

Energy and transportation costs:
Rising energy prices, including the cost of fuel and transportation, can affect the overall cost of food production and distribution. When these costs increase, food prices may also rise as fertiliser and chemicals are made from fuel. Russia and Ukraine, again!

Government policies:
Government regulations, taxes, subsidies, and trade policies can influence food prices. Changes in policies related to agricultural subsidies, import/export tariffs, or regulations affecting food production and distribution can impact food prices. (The government paid for a new Food Policy then ignored it.)

Global economic conditions:
Global economic factors, such as changes in global food demand, trade agreements, or geopolitical events, can affect food prices. International market conditions and trade relationships can influence the cost of importing and exporting food.

The above factors have been warped by Supermarkets in the following ways

On average farmers get 9p in every £1 spent on food in supermarkets

Supermarket contracts
Supermarkets have contracts with all their producers and farmers to insure the supply of produce. Most of these contracts put suppliers under pressure to reduce the prices of their produce. Many have to show the supermarket buyers their accounts and have clauses in their contracts to reduce their prices if they make a large profit. If however they forecast they are going to loose money prices rarely rise.

This means that if the weather, or other costs, like fuel or chemicals change for the better the farmer will only benefit to a small degree. If they change for the worse the farmer may be driven in to bankruptsy.

Many vegetable producing farmers over the last 2 years have experiences high fuel, fertiliser and chemical prices and been refused a rise in the price they get for the produce. Likewise meat and egg producers have seen a big rise in the cost of grain due to the war in Ukraine and have reduced, or stopped, production because their supermarket contracts are no longer viable.

Supermarket targets

let’s buy local food!

Most UK supermarkets have targets of 97% availability and 3% slippage. This means that 97% of all products should be available to customers at all times and only 3% is wasted or stolen.

These targets mean that when certain products are in short supply they will cost much more and in turn effect inflation. Perhaps if supermarkets dropped products from their target product list when they are too expensive we would reduce inflation.

The reason therefore that food inflation has not dropped inline with food wholesale prices is that supermarkets refused to pay a fair price to farmers last year and are now having to source high priced products from abroad this year.

All in a time where supermarket profits continue to rise as farm incomes drop.

We must switch to local food systems where middle men and supermarket profits are cut from our food costs. We may miss out on 97% of products being available at all times but benefit from fresher, seasonal food at a fair price that encourages local farmers to grow food instead of commodities. Lots more to read, including some videos, here

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