ALEX BRUMMER: Lifting the lid on greedflation, pandemic profiteering and rip-off Britain

As the cost of living has soared in recent years, Bank of England officials have often been asked whether there was any evidence of profiteering or greed in the food market.

After all, the cost of food in shopping baskets has risen faster than the consumer price index.

Threadneedle Street’s response was largely neutral. The Bank had looked at food prices and their contribution to headline inflation and had seen nothing wrong.

Food prices in Britain have been particularly high due to higher energy taxes, post-Covid supply chain issues and a rise in the cost of ingredients.

Grain played a major role after the Russian war against Ukraine and a partial blockade of the Black Sea ports. Britain is particularly vulnerable to global events because it imports more than 40 percent of its food.

Taking Advantage: Many brand name manufacturers saw inflation as an opportunity to maintain at least significant profit margins. Some went further and engaged in greed

Consumer watchdog the Competition & Markets Authority (CMA) agrees that input costs have been the main factor driving up food prices.

Nevertheless, many branded goods manufacturers saw inflation as an opportunity to at least maintain significant profit margins – the difference between the cost of production and the selling price.

Consumers who were having a hard time were left with peace of mind.

Some went further and engaged in greed. Leaving aside the ethical questions about squeezing household budgets in times of trouble – some food banks are as busy as supermarkets – such a policy runs counter to fundamental economics.

In tough times, you might have expected manufacturers to cut margins to make popular and essential items more accessible to consumers. The operating result would be strengthened by higher turnover.

Very little of this happened. The CMA found that consumers have actually been defrauded by three-quarters of branded food manufacturers, especially baby food makers, boosting revenues and driving up inflation.

There were remarkably high profit margins on fresh food products, including butter, eggs and milk. Yet these are precisely the areas where the British Isles have historically been self-sufficient.

Nestle and Danone take most of the blame for baby food misconduct as they dominate the market.

But anonymous big-brand companies like Kraft Heinz, created as a result of debt-laden private equity buyouts, also deserve shame.

On some shelves, the price for a can of Heinz beans rose by 70 percent.

Consumers have been driven from brands they know and trust to imitators on the shelves of low-end grocers like Lidl and Aldi.

Britain publicly listed supermarkets Tesco and Sainsbury and fought back with own-brand products and price cuts.

Private equity companies Morrisons and Asda found it more difficult to compete with higher interest costs.

Ownership among food manufacturers and grocers is important to customers.

Banking crisis

European investment banks are having a hard time. Barclays is considering drastic cuts to its client list to free up capital that can be deployed elsewhere.

It is therefore not surprising that the Swiss UBS is faced with difficult decisions as it wants to merge its London activities with those of Credit Suisse.

UBS, which absorbed the city office SG Warburg in the 1990s, withdrew from regular investment banking after the great financial crisis to concentrate on asset management.

It is not at all surprising that, after the colossal mistakes made in working with Greensill and the failed hedge fund Archegos, Credit Suisse’s investment bankers in the city are in the line of fire.

Those involved won’t find it easy to cut jobs, but there are always open-minded players in global banking looking to recruit smart teams.

Good time Charlie

My only direct experience with the late Charlie Munger was as a reporter for the Woodstock for Capitalists in Omaha, Nebraska, USA.

What struck me during the formal discussions of Berkshire Hathaway’s annual meeting was how often the star of the show, Warren Buffett, turned to his wisecracking nonagenarian vice chairman when answering questions from well-heeled investors.

It was a double act that seemed like it would last forever.

As we learned when our beloved Queen died fifteen months ago, there is no escaping the Grim Reaper.