Flooding, fuels and interest rates affect food prices

By Jess Halliday

- Last updated on GMT

Related tags: Inflation, Uk

A combination of factors are conspiring to drive up food prices,
particularly in the UK, as harvests have been impacted by severe
weather over the summer and interest rates have been subject to
quick-fire increase.

Since last September world commodity prices have risen to extraordinary heights thanks to increasing demand for grain used in biofuel production. This effect has been cited by food ingredients firms in their financial reporting as driving up raw material costs, thus affecting their margins. But while prices of some commodities, such as corn are experiencing a measure of recovery, wheat and soybeans remain high. Other factors such as the series of interest rate rises in the UK are causing consternation at a retail level. Although the Bank of England said last week that official bank interest rate is to be frozen this month at 5.75 per cent, retailers say that more increases in the future could prove problematic. The British Retail Consortium (BRC) said it is in favour of a prolonged freeze following a series of quick-fire rate rises in recent months. BRC Director General Kevin Hawkins said: "This is the correct decision and will give retailers some much needed breathing space. Indicators clearly show that inflationary pressure is already easing. "With food inflation starting to ease and non-food prices continuing to decline it is obvious that there are no inflationary pressures coming from the high street. What retailers need now is a prolonged period of interest rate stability."​ Heavy rainfall in the north of England in June raised fears of a price hike for the peas and other vegetables due to significantly lower harvest. Processors said that the harvest was being affected due to waterlogging in the plants' root systems, and the ground being too wet to support heavy harvesting equipment. Since then, flooding in the south of England in July led the fears to be extended to other crops. For instance, the UK wheat harvest has been impacted by the flooding and is likely to be 10 per cent lower than last year. European wheat harvests have also suffered, as a result of wet weather in the north and drought in Eastern Europe. The Food and Drink Federation's Frozen Vegetable Committee predicted in early July that the only 70 per cent of the expected crop may make it to market. This figure continues to shrink every day that the poor weather continues. Although leading frozen vegetable companies have not yet given firm indication of how prices of their products may be affected, according to the Financial Times​ industry experts are expecting leader Bird's Eye to put prices up by ten per cent. The price increases on vegetables are expected to come into effect from around Christmas time.

Related topics: Market Trends

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