Rising food prices are inevitable as sanctions hit

The writer is chief executive of the Food and Drink Federation

The world is uniting against Russia’s brutal invasion of Ukraine. The UK government’s decisive sanctions action has the support of the entire food and drink industry as we watch the escalating human tragedy unfold before our eyes. We agree that a cost must be imposed on President Vladimir Putin and his government for their actions. Russia cannot invade its neighbor and remain part of the global economy and trading system.

But our members are well aware of the implications that sanctions, trade restrictions and the resulting supply chain disruption will cost UK businesses and buyers. This will result in higher food prices and possibly temporary shortages.

The situation is more serious as the pandemic, during which global supply chains have struggled to meet unpredictable demand, has driven prices up. With Ukraine and Russia – for different reasons – no longer exporting goods to most countries, global shortages are looming which exacerbate existing inflation.

The UK is not dependent on food supplies from Ukraine and Russia, but we are feeling the impact of price increases caused by shortages in global markets. This month, world wheat prices have climbed more than 80% more than a year ago. Sunflower oil – 80% of which is produced by Ukraine and Russia – is rapidly becoming unavailable, driving up the cost of alternatives. Other products, such as white fish and wood pulp used in packaging and labels, are becoming scarce as supplies from Russia and Ukraine dry up.

Food and beverage manufacturers are at an impasse. They cannot see a break this year in the inexorable rise in input costs — ingredients, raw materials, energy, etc. One company told me that they expect energy costs to increase by up to 500% this year. Companies are urgently eliminating additional costs from their processes. But there are limits. With suddenly and severely squeezed margins, higher prices are inevitable.

The UK is already experiencing a growing cost of living crisis. Now, rising food prices will be accompanied by rapidly rising household bills, fuel and borrowing costs. Incomes are under significant pressure, with low-income families being particularly vulnerable.

The government cannot do much about prices in world markets. But it can dampen food price inflation in the UK and eliminate gaps on the shelves.

We have three suggestions. First, these pressures are unprecedented and the response must be too. Supply chains will be very unpredictable in the months ahead. The UK and devolved administrations must allow industry to use safe alternative products when ingredients become unavailable, often without notice, starting with sunflower oil. If we want to maintain the free movement of products, manufacturers need a quick agreement on substitutes.

Second, the UK’s prized food security and resilience must be fiercely safeguarded. Our manufacturers and producers are in every region of the country — and we want that to continue. We need a robust intergovernmental mechanism, a National Food Safety Council, to work alongside industry and enable us to respond collectively and quickly to the impact of supply chain disruptions. Some effects are already clear but others will take longer to understand. We need to respond to the immediate issues of ingredient and energy costs and the longer-term impacts of fertilizer, petrochemical and CO2 shortages.

Third, ministers must urgently eliminate the complexity and costs of future regulation. Businesses need to be able to focus on keeping buyers afloat and feeding them. From new packaging rules to where food promotions can be placed in stores, we urge ministers to pause, reflect and consider whether the regulations are fit for purpose – and whether the time is right to pass on the additional costs to consumers.

The government has more power over how the crisis in Ukraine affects the UK than it realizes. He must use this power wisely.

About Nancy Owens

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