Food Industry Is Resisting Price Control Proposals, Insisting Margins Are "Tight"
4 min read
Leading figures in the food industry are wary of discussions around government measures to tackle high prices and have questioned claims that supermarkets are profiteering while inflation remains high.
Chancellor Jeremy Hunt will meet with regulators today, including Competition and Markets Authority and the Financial Conduct Authority, to discuss stubbornly high food prices that are exacerbating the cost of living crisis. Ahead of the meeting industry figures urged the government to "review incoming policies" following speculation that supermarket price caps could be recommended for popular items, a plan Downing Street appears to have already ruled out following pushback.
Andrew Opie, director of food and sustainability at the British Retail Constorium (BRC), told PoliticsHome profit margins for supermarkets are “tight” at the moment, and that UK supermarkets are already offering “some of the cheapest groceries in Europe”.
“Supermarket margins remain extremely tight as retailers try to absorb the worst of the rising costs and protect their customers,” Opie said.
“Where these pressures are easing, such as with global commodity prices and the weakness of the pound, it can take time for these to filter through to consumers.
“The more complex the supply chain, the longer the lag, which is why we have seen fresh food inflation falling faster than for process foods”.
Supermarkets have recently faced criticism that food prices remain high for consumers, despite the cost of core ingredients, in particular grain, having fallen steeply in recent months.
According to the Office for National Statistics (ONS), food and non-alcoholic beverage prices rose by 18.4 per cent in the 12 months to May 2023, down from 19.1 per cent the 12 months to April 2023 - significantly higher the consumer price index inflation (CPI), which is 8.7 per cent.
“If government wants to ensure inflation rates continue their downward trend, they should review those incoming policies that will push up costs for businesses, including a deposit return scheme in England and an increase to business rates,” Opie continued.
“Most importantly, government should extend the timelines for the £2bn-a-year reformed packaging levy (Extender Producer Responsibility), to ensure a fit-for-purpose scheme that improves recycling rates without adding to the current inflationary pressure.”
The BRC’s latest food inflation figures may offer consumers some hope that rising costs have now peaked. Their data shows that food inflation decelerated to 14.6 per cent in June, down from 15.4 per cent in May; the Consortium say if the trend continues, food inflation could drop to the single digits by the end of the year.
On Tuesday, representatives from Tesco, Asda, Morrisons, and Sainsbury’s faced questions in parliament about stubbornly high prices, but Tesco commercial director, Gordon Gafa, told MPs that supermarkets were “the most competitive” they had “ever been”.
Last year Tesco reported its profit margins were down from 4.37 per cent to 3.8 per cent, with Sainsbury's reporting a £690m pre-tax profit in the year to March, down from £730 the year before.
Food and Drink Federation’s (FDF) director of communications Rebecca Miller also told PoliticsHome said the FDF had not seen “the evidence to suggest that there is that [supermarket suppliers] were over inflating prices”, and said they were providing a competitive market.
“I know from our members they are absorbing a vast amount of their cost increases because it's been a completely unparalleled time for us,” Miller said.
“You've had Brexit and the changes to trade and some of the things that are happening with that which is putting costs in. We've had the war in Ukraine.
“Members of the public are experiencing things like high energy prices, and so are our food manufacturers – so are their logistics and transport costs. It's been an unprecedented time.”
Miller felt that rather than focus in supermarkets, the government should work with supply chains to help lower food inflation.
"We need to be forward thinking about growth and we need they need to be not putting in unnecessary regulation at this point that adds cost to the supply chain," she added.
"We're a constant conversations with them with some of the regulation they're looking at across the board that at this time, and the way they're doing it, is perhaps not the most efficient – it's going to put costs into the supply chain which at some point will add to costs you see on the shelf.”
The Treasury has been approached for comment.
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