Food manufacturers are facing a perfect storm of dwindling retail prices and rising costs, according to a new report.
Food price inflation has dropped to a record low as overall shop prices continue to fall.
Analysis from the British Retail Consortium (BRC) – published today – reveals that retail prices have fallen for an 11th consecutive month, cutting 10% off the price of clothes.
And food inflation – at 0.8% – has almost ground to a halt. It is now rising at the slowest level since the BRC started collecting data in 2006.
The figure is coupled with a warning that many commodity prices have shot up over the past three months.
Coffee prices have jumped by 75% alone since January due to a poor harvest in Brazil.
The price of pigs and cattle have also gone up by 38% and 50% respectively.
“Since the beginning of the year there has been some upward pressure in commodity markets,” the report says.
“Recent commentary has cited poor harvests in Brazil, the world’s top producer of coffee, sugar and orange juice. West Africa, the source of about 70% of the world’s cocoa, had a good start to the season but harvest has begun to wind down, the slowdown being attributed to below average rainfall which has sent prices soaring.
“Lean hog prices hit record highs as an American pig virus restricted supply. The price of corn, wheat and cotton were up in double digits over the last three months. However, such sharp rises remain isolated and, although recent price movements need to be monitored carefully, the global outlook for rising commodity prices remains modest.”
BRC director general Helen Dickinson said current trends benefited consumers but made life tough for manufacturers. She said: “Retailers have rightly been getting recognition for their contribution to the economic recovery, including good news recently on apprentices and training.
“But keeping costs down for ordinary people is just as important. And that’s why the continuing deflation we are seeing in shop prices is such good news for consumers.
“It’s strong industry-wide competition as retailers vie for a share of limited spending capacity that is driving this record breaking run. Retailers have been responding to their customers with keen prices and promotions to maintain market share, and March saw the deepest deflation for eight years and the lowest inflation ever recorded for food.
“With food and drink representing 15% of disposable income for the least affluent third of households, retail’s significant contribution to maintaining standards of living is clear.
“The outlook on commodity prices shows some upwards pressures. So, while we know retailers will be working hard to sustain these low prices, continued support from government on other costs such as business rates reform and the recent reliefs for national insurance contributions will be key to maintaining this positive trend.”