Why are UK food prices up by 19% – and which foods are worst affected?

Why are UK food prices up by 19% – and which foods are worst affected?

British households are facing the fastest annual increase in food and drink prices since 1977, the latest inflation figures show, as the soaring cost of basic essentials adds to pressure from sky-high energy bills amid the cost of living crisis.

Official figures show food and drink inflation reached 19.1% in March, far above the headline rate of 10.1% for the increase in the cost of an average basket of goods and services.

Prices have jumped about 25% in the past two years alone, cramming into just 24 months the same level of price growth seen over the preceding 13 years.

Experts say soaring energy costs and supply chain disruption set off by Russia’s invasion of Ukraine are the main reasons, alongside rising labour costs, bad weather affecting harvests, and Brexit trade barriers.

There are hopes prices could ease soon, after a drop in global wholesale food prices in recent months, including a 32.8 point fall in the Food and Agriculture Organization of the United Nations index from a peak in March 2022. However, producers buy and sell using long-term contracts, making it harder for consumer prices to fall quickly.

There are also reports of “greedflation” – businesses fuelling inflation by profiteering – as manufacturers and retailers push through large increases in the price of essentials.

Karen Betts, the chief executive of the Food and Drink Federation, denied companies were profiteering from basic essentials, saying her members had experienced a 21% rise in production costs last year but had increased prices by about 10%. “We know we have responsibility to keep food and drink affordable, and companies are taking that very seriously. Their margins are genuinely being squeezed,” Betts said.

Nevertheless, the price of some lines of staple foods such as cheddar cheese, white bread and pork sausages have soared by up to 80% in some shops over the past year, as much as eight times the headline rate of inflation.

Here we break down three food categories – as measured by the Office for National Statistics – where prices rises have been among the highest in the past 12 months in the UK and look at why.

Sugar – up 42.1%

The wholesale price of sugar has surged to the highest level in more than 10 years, doubling in the past two years alone. It comes after the worst sugar beet crop in Europe for 20 years owing to bad weather and poor harvests in Brazil and India, which have also dented supply. Surging energy costs have added to prices.

Darren Peters, vice-president for sales and marketing at Tate & Lyle Sugars, which produces refined sugar cane, said those pressures had been compounded by sharply higher costs for processing, packaging and logistics. “Throughout these challenging conditions, we’ve managed to keep sugar on the shelves, but we cannot defy market gravity,” he said.

British Sugar, owned by the multinational food and retailing conglomerate Associated British Foods, is the sole processor of the UK’s sugar beet crop, producing 1.2m tonnes a year. Accounts show profit margins at ABF’s global sugar division fell last year, in part because of high energy costs for its UK factories. The group, which also owns the Primark retail chain, has said it plans to “recover inflation through cost mitigation and price increases” this year.

However, the price of one of its brands, Silver Spoon, has gone up by more than a third since July at Tesco and Morrisons for a 1kg bag.

A spokesperson for ABF blamed retailers for shelf prices, adding that it was “making less money as a proportion of sales because we are not recovering the full cost of inflation”.

Sauces, condiments, salt, spices, culinary herbs – up 33.7%

Raw material costs for some of the UK’s favourite condiments have surged, including tomatoes, salt, and spices. The cost of packaging, transportation and the energy used in manufacturing, have all risen sharply.

Heinz tomato ketchup has topped charts as the biggest riser in a list of leading branded groceries, with the cost of tomatoes increasing by more than 100% for Kraft Heinz, the US manufacturer, and energy costs jumping almost 400%.

However, Heinz beans, soup and tomato ketchup were among products that Tesco temporarily removed from shelves last year in a pricing dispute. The chain’s chair, John Allan, told the BBC earlier this year it was “entirely possible” some suppliers had been profiteering from inflation.

Kraft Heinz said its profit margins in the final three months of 2022 were “in line” with the same period in 2019, before the Covid pandemic and the increse in raw material costs. Its margins have dipped in the past two years, but never below 30%, a significantly higher margin than for many large companies.

A spokesperson for the company said it was doing all it could to absorb higher raw material and energy costs, and was increasing prices only when it “absolutely had to”. They said Tesco did not anticipate any further price rises.

In February, shortages of tomatoes made headlines as bad weather affected harvests in Morocco and southern Spain, and raised questions about the impact of Brexit on Britain’s food imports from the EU.

“If you’re choosing where you send your product from Spain, you’ll go to the easiest market that pays you the most. If the UK isn’t that market, you wont send it here,” said David Exwood, the vice-president of the National Farmers’ Union. “It’s not a direct impact of Brexit, but it’s all about market choices people make.”

Milk, cheese and eggs – up 29.7%

UK supermarkets have cut the shelf price of milk in recent weeks as a “spring flush” – when cows naturally tend to produce more milk as they are let out into fields – helped to increase production.

However, prices remain significantly higher than a year ago after an increase in the wholesale market price to the highest level since 1970. It comes as the cost of all key milk production inputs has rocketed.

Russia’s war in Ukraine, which sent oil and gas prices to record levels, also disrupted supplies from two of the world’s biggest exporters of fertiliser, wheat, barley and other cereals, with a knock-on effect on farmers worldwide.

At Arla, the European dairy cooperative, which is the UK’s largest supplier, profit margins have dipped. A spokesperson said it was working with retailers to balance the needs of farmers and consumers through the cost of living squeeze, amid record increases in the cost of production.

David Exwood, who farms more than 1,200 hectares south of Horsham, in West Sussex, says the problem for farmers is that large price increases in 2022 will stick with the industry for months, as energy, fertiliser, and other contracts agreed when input costs were high take time to be replaced.

“Prices went up overnight, then are much slower to come down,” he said, predicting that consumers were likely to experience high food and drink prices for a long time to come. “Inflation is really hard to kick out of farming.”