ALEX BRUMMER: Shame of food price surge

A powerful lawyer friend who shops weekly at her local Sainsbury’s store in affluent West London was horrified by what she saw.

Customers, both young and old, took items off the shelves, checked the price, and then put them back. The combination of pressure on real incomes (pay after inflation) and rising food prices has changed purchasing habits.

The government has promised to halve inflation from 10.1 percent by December. The rapid improvement in annual inflation that the Bank of England forecast to 3.9 percent in February was revised upwards to 5.1 percent in its latest forecast. Under Andrew Bailey, banking forecasts are less reliable than the weather.

Reason for some optimism is the sharp fall in energy prices. Wholesale gas is now 30 percent cheaper than at the start of the war in Ukraine. Since the energy price bubble comes out of the consumer price index, the latter should fall. The delay must have been irritating to the Treasury, which had counted on faster shipping.

The real sinner in our current cost of living shock is food. In March, it was reported that the price of food was 19.2 percent higher than a year earlier – and at its highest level in 45 years. Subsequent retail monitor surveys do not indicate a rapid improvement.

There will be a lot of focus this week on what is going wrong in the UK food supply chain. Rishi Sunak will hold a farm summit in Downing Street tomorrow. Elsewhere, the Environment, Food and Rural Affairs Committee will examine how profitability and risk are shared in the food supply chain. Whether these forums are able to come up with meaningful answers is uncertain.

This requires a rapid investigation by the Competition and Markets Authority.

UK agriculture is struggling as a result of disruptions caused by the pandemic, post-Brexit labor shortages and the unfair competition between agricultural producers and supermarkets.

Agriculture is also the victim of rising energy prices and fertilizer shortages.

At first glance, the UK appears to have one of the most competitive retail chains with four major supermarket chains plus the challenge of the German discounters. Lately there have been price wars over milk, butter and bread.

Yet at many chains there is a reluctance to replace expensive branded items with “own labels” and an obsession with maintaining profit margins. There is not much sign of consumer interests being rebalanced with those of management and shareholders.

The recent sight of Tesco boss Ken Murphy marching off with a £4.4m pay package (down from £4.7m the previous year) as the public struggles to afford food is obscene. Murphy has faced none of the challenges posed by his predecessor Dave Lewis, who steered Tesco out of the financial doldrums and through the pandemic.

Much of the blame for food inflation falls on the major branded food and non-alcoholic beverage companies – such as Kraft Heinz, Nestle, Coca-Cola and Unilever – who have strived to preserve profit margins in the post-pandemic era.

No one has explained how this “greed” can be justified in an era of environmental, social and governance (ESG) investment. The great food price bubble is a moral and ethical outrage.