Business

Soaring food prices are inevitable when sanctions take hold

The author is executive director of the Food and Drink Federation

The world is uniting against Russia’s brutal invasion of Ukraine. The UK Government’s determined action on sanctions has the support of the entire food and drink industry as an escalating human tragedy unfolds before our eyes. We agree that costs must be paid to President Vladimir Putin and his government for their actions. Russia cannot invade its neighbors and remain part of the world economy and trading system.

But our members are aware of the impact that sanctions, trade restrictions and the resulting supply chain disruption will have on UK businesses and buyers. This will lead to rising food prices and possible temporary shortages.

The situation is even more acute because the pandemic, during which global supply chains have struggled to meet unpredictable demand, has pushed up prices. Since Ukraine and Russia – for different reasons – no longer export goods to most countries, there is a risk of global shortages that will exacerbate existing inflation.

The UK is not dependent on food supplies from Ukraine and Russia, but we are suffering from price increases caused by tightening 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, driving up the cost of alternatives. Other products, such as white fish and pulp used for packaging and labels, are running out as supplies from Russia and Ukraine dry up.

Food and beverage manufacturers are in a bind. They see no abating this year from the inexorable increase in input costs – ingredients, raw materials, energy and so on. One company told me it expects energy costs to increase by as much as 500 percent this year. Companies are urgently reducing further costs from their processes. But there are limits. With margins being suddenly and severely squeezed, higher prices are inevitable.

The UK already has a growing cost of living crisis. Now food price increases will be accompanied by rapid increases in household bills, fuel and credit costs. Incomes are under significant pressure, with low-income families particularly vulnerable.

There is not much the government can do 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, this pressure is unprecedented, and so must the response. Supply chains will be highly unpredictable in the coming months. The UK and devolved governments must allow industry to use safe, alternative products when ingredients are no longer available, often without notice – starting with sunflower oil. If we want to maintain the free flow of goods, manufacturers need a quick agreement on substitutes.

Second, the UK’s valued food security and resilience needs to be closely guarded. Our manufacturers and producers are located in all parts of the country – and we want it to stay that way. We need a robust, intergovernmental mechanism, a National Food Security Council, that will work with industry and allow us to collectively and quickly respond to the impact of supply chain disruptions. Some effects are already clear, but others will take longer to understand. We must respond to the immediate problems of raw material and energy costs and the longer-term effects of shortages of fertilisers, petrochemicals and CO2.

Third, ministers urgently need to remove complexity and costs from forthcoming regulation. Businesses need to be able to focus on staying afloat and feeding buyers. From new packaging rules to the placement of food advertising in stores, we urge ministers to stop, think and consider whether regulation is fit for purpose – and whether now is the time to pass on additional costs to consumers.

The government has more influence over how the crisis in Ukraine affects the UK than they realise. It should use this power wisely.

https://www.ft.com/content/d266b6d1-746b-4116-ab92-95b19cec98bc Soaring food prices are inevitable when sanctions take hold

Adam Bradshaw

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