‘Full impact’ of food price rises as result of conflict ‘still to come’, warn experts

Shoppers are already beginning to feel effects of the Ukraine conflict, experts have said, as food price inflation rocketed to its highest level in nearly a decade – but warned that the “full impact” is yet to come.

A report from the British Retail Consortium (BRC) said that wheat prices and energy bills had risen sharply in recent weeks – and warned that the full knock-on effect would not be felt in supermarkets for some time. Ukraine is known as the “bread basket of Europe”, accounting for 12 per cent of global wheat exports, 16 per cent of corn and 18 per cent of barley.

Meanwhile, the head of a Scottish Government task force set up to monitor and respond to any potential disruption to Scotland’s food supply chain due to the crisis, warned that food price inflation is likely to hit double digits in the coming months as producers are forced to pass on price rises to shoppers.

The report said food price inflation accelerated to 3.3 per cent in March, up from 2.7 per cent in February – the highest inflation rate since March 2013. Fresh food saw even higher levels of inflation, to 3.5 per cent last month.

David Lonsdale, director of the Scottish Retail Consortium, said: “Scotland’s retailers are working hard to keep shop prices down, however cost pressures in the supply chain have built up and are being compounded by higher commodity prices. Many of these costs are beginning to be exacerbated by the situation in Ukraine, but the full impact on prices has yet to be seen.

"Unfortunately upcoming increases in governmentimposed costs will only add to the strain. These pressures are outweighing the impact of strong competition between shopkeepers, who have little margin to work with, and who arebeingforcedtopassonsome of these costs to consumers.”

He added: “Consumer demand can be a massive driver of economic growth. However, this will be tested in the months ahead as inflation and higher taxes take a bite out of shoppers’ purses and wallets.”

James Withers, chief executive of Scotland Food and Drink and co-chair of the Scottish Government’s Food Security and Supply task force, said products made from wheat – such as bread, crackers and cakes, could be hardest hit by price rises, as well as pork, which relies on imported feed made from grains.

He told The Scotsman: “I don'tthinkconsumersareseeing the full impact of the ripple effect of what is happening in Ukraine yet. In terms of a rise in the cost of raw materials, that might not come until later in the year. However, what is being felt just now is the impact of recent energy price increases and speculation in the price of wheat.”

The task force, set up earlier this month, will recommend any short, medium and longer-term actions to mitigate impacts, resolve supply issues and strengthen food security and supply in Scotland, including actions which could be taken by businesses.

Mr Withers said producers would soon be forced to pass on increased costs to shoppers.

He added: “The supply chain is currently trying to keep a lid onpriceincreasesandinflation, butthatisnotsustainable.ireally worry about the resilience and survival of some food and drink producers just now.

"We will see double digit price rises on a lot of staple goods. I don’t think we’ll see major shortages at the moment, but I can’t see that there will be any products that aren’t significantly more expensive than they are now.”

Helen Dickinson, chief executive of the British Retail

Consortium, added: “Consumers were hit once again by rising prices, with March seeing the fifth consecutive month of inflation. There have been mounting cost pressures throughout the supply chain for some time, including rising wages, input costs, global commodityprices,energy,and transport.

"Wheat prices have risen sharply, while the rise in oil prices has not only impacted domestic energy costs, but also the costs of fertiliser and transporting goods.”

The report found that nonfood inflation rose at a slower rate, to 1.5 per cent in March, up from 1.3 per cent in February. However, this is still above the 12- and 6-month average price decrease of 0.4 per cent and increase of 0.4 per cent, respectively and the highest rate of inflation since February 2011.

Mike Watkins, head of retailer and business insight at Nielseniq, which co-authored the BRC report, said: “With cost-of-living increases accelerating, the next few months will be a difficult time for consumers. Rising food prices will start to impact what’s put in the shopping basket so supermarkets will need to adapt ranges to help shoppers manage what they spend. Whilst high street retailers will be competing for discretionary spend that’s coming under increasing pressure.”

A separate report showed that the cost of groceries is now 5.2 per cent higher than it was a year ago, with inflation in the past four weeks hitting its highest level in nearly a decade.

Grocery price inflation is seeing more shoppers turning to cheaper products and supermarket own-brand labels, while customers are also making fewer trips to stores to save on petrol costs, Kantar said.

Prices are rising fastest in markets such as savoury snacks, dog food and cat food, with jumps not seen since April 2012, it added.