Upward pressure on UK food prices on horizon

By Rod Addy

- Last updated on GMT

Rising corn prices are set to put pressure on the food industry
Rising corn prices are set to put pressure on the food industry
Upward pressure on UK food prices is around the corner, driven by global forces such as rocketing corn prices and the knock-on effect on animal feed, according to Clive Black, analyst at Shore Capital.

In a note comparing food and non-food prices, Black acknowledged that food price inflation, as measured by the British Retail Consortium-Nielsen index for July, was at a two year low. However, he said: “...there are warning lines about potential upward pressures to come.

“In particular, the now well-versed rise in US corn prices, reflecting hot weather-related supply disruptions in the mid-west states amongst other things, which has already fed into animal feed prices​.

Higher protein prices

“As such, the input costs that livestock farmers are facing to make a living are rising, which can be expected to lead to higher protein prices down the line.”

Aside from meat prices, there were further signs that other food categories could be hit by rising costs, pressuring manufacturers and retailers to pass these on to the consumer, said Black.

“A little further out there are likely to be upward pressures in bread pricing if milling wheat supplies are short, ahead of the completion of the northern hemisphere harvests, noting as we do increases already in the price of flour in the UK...”

Potatoes

In addition to bakers, there were indications that processors dealing with potatoes were likely to be hit by current weather patterns that were causing poor yields, he said.

He concluded: “So, food price inflation in the UK may be on an upward path ‘down the line’ ... We are keeping a close eye on food prices because against a still weak consumer, there could be further margin pressure to come.”

Black said consumer confidence remained weak in the UK, but positively consumer discretionary spending on food had not been cut in June, the first time this had occurred for some time. He added that the gap between inflation and salaries also seemed to be narrowing.

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