Why are Food Prices So High? Wyn Morgan Sixth form Conference 27th June 2006.
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Transcript of Why are Food Prices So High? Wyn Morgan Sixth form Conference 27th June 2006.
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Why are Food Prices So High?
Wyn Morgan
Sixth form Conference
27th June 2006
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Outline
1. Do Food Prices Matter?
2. What is UK Food Inflation?
3. Why is Food Inflation So High?
4. Conclusions
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Do Food Prices Matter?Some questions……
• How important is the food industry to the UK economy?
• What proportion of our income goes on food?
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Impo
rts
£32b
n
Exp
orts
£14
bn
Employment & Value in the UK Food & Drink Chain
Source: DEFRA
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China, People’s Rep. of 33.20 Malaysia 30.00 Hong Kong, China 26.94 Philippines 46.58 India 57.00 Singapore 23.38 Indonesia 42.30 Taipei, China 25.00Korea, Rep. of 14.00 Thailand 32.71
Food Weights in Consumer Price Index (%)
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2. What is UK Food Inflation?• UK food inflation accounts for around 10% of the CPI• Basket of goods – fresh and processed• Sub-categories (with weights) include:
– Fresh vegetables 14%– Meat 21%– Dairy 12%
• Current rate of inflation is :
3.3% but it reached….13% (August 2008)
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Fig 1: UK Food CPI Inflation 1989 – 2010 (%)
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Fig 2: UK All Goods, Food and Non-food CPI Inflation 1989 – 2010 (%)
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Table 1: Annual Food Price Inflation Across Selected EU Countries (2011)
Source: IMF
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3. Why is Food Inflation So High?
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Inflation can be caused by too much demand or by costs rising. For food it is mostly the latter in a number of ways but there are three key factors….
•World food price rises
•The price of oil
•The exchange rate
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136%
107%
217%
125%
Price rises between 2006 and 2008….
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Fig 3: World Monthly Price Indices (2004 = 100) (Source: FAO)
Source: IMF
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Fig 4: UK/World Food Price & UK Producer Price Indices 2004–10 (%)
Source: IMF
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Fig 5: US$:£ Exchange Rate 1988(1) – 2010(12)
Source: IMF
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What role do oil prices play? Inter-linkages between world commodity prices due to oil:
•It is a cost – fertiliser and transport – but not clear it drives inflation strongly (Blanchard and Gali, 2009)
•Stronger via energy costs and food/oil/bio-fuel link e.g. land use in US changes affects supply
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Fig 6: World Food Prices and Oil Prices 1988-2011
Source: IMF
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Fig 7: UK Food Retail Market Shares 2011
Source: The Guardian, 16th August 2011
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Orange Juice: Del Monte 1 Litre Tetra Single
Source: Nielsen Scantrack
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Fig 8: Orange Juice: Del Monte 1 Litre Tetra Single
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Fig 9: Tinned Tomatoes: Princes Plum Tomatoes Napolina 400g
0
10
20
30
40
50
60
70
1 11 21 31 41 51 61 71 81 91 101 111 121 131 141 151
SAINSBURY: BRAND LABEL ASDA: BRAND LABEL SAFEWAY: BRAND LABEL SOMERFIELD: BRAND LABEL KWIK SAVE: BRAND LABEL
Source: Nielsen Scantrack
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Fig 10: Use of Sales by retailer
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4. Conclusions• Food is an important part of the UK economy• Food prices add 10% to retail prices• Food inflation high at present and peaked at 13% in 2008• Cost pressures have created inflation• Impact of global food price movements is important• Oil prices have an indirect effect through bio-fuel policies• Exchange rates matter too• Remember though we don’t consume raw food and retailers
have a big say in what we pay for food