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Food price inflation - who will bear the brunt?

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Since the Brexit vote, much has been made of the benefits for British exporters of a weaker pound, however, relatively little has been heard of the prospect of higher food prices - until the news of the recent impasse between Tesco and Unilever.

Unilever and Tesco has been reported as a battle of the giants. However, there will be many intense negotiations going on at every level of the food supply chain - from producers, ingredient and raw material suppliers, packaging suppliers, manufacturers through to retailers, each pressing for or resisting increases.

The food industry supply chain has a huge range of contractual formality and is often typified by having a lack of formal supply contracts (ie operating on handshakes). There is often confusion as to whose terms apply (with the usual battle of the forms) all the way to long term formal binding supply agreements at fixed prices.

It is clear that all parties in the supply chain will be looking closely at what their contractual obligations are (if any) and how they can impose, or resist, price increases at each level of the supply chain. Suppliers with open book costings will be well placed.

Food price inflation looks inevitable as:

  • Brexit caused a shock devaluation which resulted in an immediate rise in import, input and some ingredient costs.
  • The increase in living wages and levies is also another inflationary factor that will impact on producers, manufacturers and also retailers year on year.

British consumers have enjoyed a sustained period of low food prices as a result of highly competitive and efficient food production, food manufacturing and food retailing industries together with often lowering input prices.

It will be interesting to see how price increases are dealt with over the next few weeks and months, given the fierce competition between the supermarkets. It is difficult to see how the British consumer will not be able to escape seeing higher retail food prices.