Why You Can’t Spend Less on Food – 5 Things You Need to Know

  • By Darshini David
  • BBC News World Trade Correspondent

image source, Getty Images

Food prices are up 19% from a year ago. Grocery stores that used to be £50 are now close to £60.

Last year’s war in Ukraine sent food and energy prices skyrocketing, but these days they’re falling sharply, so why aren’t the bills going up?

Here are five things that help explain what’s going on.

1. Costs are impressive, but some are easing

Prices of grain, sunflower oil and fertilizer soared after Russia’s invasion of Ukraine. Concerns about supply disruptions have caused similar price increases in other food items.

The United Nations Food Agency found that global wholesale prices for meat, dairy, cereals, oil and sugar surged by an average of about 20% after the invasion, but have since fallen.

Food production and retail are particularly energy-intensive industries. Some businesses did not receive the same level of government support as households, resulting in bills that more than tripled.

Labor costs are also a big factor for food producers and distributors.

With minimum wage increases, labor shortages across supply chains exacerbated by Brexit, and rising costs of living, employers have allowed employees to raise salaries by up to 9% from last year.

2. Profitability in the food chain can be low

All parts of the food chain faced big shocks when it came to billings, but did they bear their fair share?

Much of our food chain operates on thin margins, leaving limited room for free play.

Eat 2.50 pounds of cheddar cheese.

Academics from the University of Portsmouth and the University of London, in a study by the food alliance Sustain, argued that farmers’ costs accounted for nearly £1.50, with retailers’ and processors’ overheads making up most of the rest. there is

They believe that 3.5 pence of profits should be shared, with supermarkets typically receiving 2.5 pence (1% of the price) and farmers getting less than a penny. .

Ara, the dairy cooperative, said costs had risen by up to 80% last year, making it difficult to absorb those increases.

Some items, especially processed foods and beverages, have higher margins. Unilever, which makes Magnum ice cream, and Premier Foods, which makes Kipling’s cakes, could earn 15p per pound of sales to retailers. As analysts say, the greater the sin, the greater the victory.

The Unite union accused the big supermarkets of hogging profits, saying that the total profits of the big three chains had doubled compared to before the pandemic, but that was in 2021. Since then, every segment of the food chain has been hit by unexpected cost increases. .

Supermarkets typically make a total profit, or profit margin, of about five pence per pound of goods sold. Last year, Tesco’s profit was only about fourpence a pound, while Sainsbury’s was closer to threepence.

3. Price changes take time to propagate from farm to market

Supermarkets are keen to advertise reduced prices on certain items such as pasta, dairy products and oils. These reflect lower costs, but why aren’t our bills lower across the board?

It is often said that retailers set prices quickly but are slow to pass on savings when prices are about to fall.

However, contracts for goods and services are often agreed months in advance, with some producers and retailers setting fixed prices at very high rates like those seen last year, and still nothing. Months may also be tied to the price.

image source, Getty Images

The good news is that wholesale inflation facing food retailers, although still high, is now slowing. This should increase store prices slightly, but usually takes about 6 months.

Many retailers and food suppliers only break out their annual numbers, so we’re not sure if some companies are looking to rebuild their profit margins on this occasion. They are under pressure from shareholders to do so. But those numbers, if revealed, will come under intense scrutiny.

4. Prices are sometimes cheaper than in other parts of Europe

With Brexit adding to the bureaucracy of importing food, are we paying more for food than EU shoppers?

A study by economist Michael Saunders of the research firm Oxford Economics said otherwise.

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Looking at a range of food and beverages, he said prices in the UK are typically 7% below the EU average, with bread, meat and fish being particularly cheap. He said the UK’s competitive supermarket sector has played a role in keeping prices down.

By contrast, before 2015, food prices in the UK were on average more expensive than in the EU, he said. This is partly a reflection of the relatively small influence of low-cost retailers such as Aldi and Lidl at the time.

5. Small denomination bills may not be around the corner

The Resolution Foundation think tank expects household food costs to increase by £1,000 since 2020 by the summer.

While some of the items we buy may be cheaper, we are unlikely to return to the micro-billing we saw before the pandemic.

Prices for many things, from raw materials to energy, remain much higher than they were before 2020, despite recent declines in some commodities. And other factors may be imminent – any checks or other formalities regarding food imported from Europe, for example, the continent have not yet been introduced.

Furthermore, if things continue as they are, costs will rise, farmers have already gone out of business, and more and more food manufacturers are going bankrupt.

How can I save money at the grocery store?

  • Look in your cupboard and figure out what’s already there
  • Visit the minified section first to see if it has what you need
  • Buy things that are close to the sell-by date that will be cheaper and use the freezer

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