British households are facing the fastest annual rise in food and drink prices since 1977, the latest inflation figures show, as rising costs of necessities add to the pressure of sky-high energy bills amid a cost of living crisis.
Official figures show that food and beverage inflation reached 19.1% in March, well above the headline rate of 10.1% for the average basket of goods and services spending increases.
Prices have risen nearly 25% in the past two years alone, cramming in just 24 months to the same level of price increases as in the previous 13 years.
Experts say rising energy costs and Russia’s aggression in Ukraine are among the main factors disrupting supply chains, along with rising labor costs, bad weather affecting crops, and Brexit trade barriers.
After global wholesale food prices fell in recent months, prices are expected to ease soon, with the United Nations Food and Agriculture Organization index falling 32.8 points from its peak in March 2022. However, producers use long-term contracts to buy and sell, making it difficult for consumers to quickly fall in price.
There are also reports of “greed inflation” – businesses fueling inflation by profiteering – as manufacturers and retailers push through big price hikes for everyday goods.
Karen Bates, chief executive of the Food and Drink Federation, denied companies were profiting from the essentials, saying her members had seen production costs rise by 21% last year but raised prices by around 10%. “We know we have a responsibility to make food and drink affordable, and companies are taking this very seriously. Their margins are being squeezed,” said Bates.
Even so, the prices of some staple food lines, such as cheddar cheese, white bread, and pork sausage, have risen by up to 80% in some stores over the past year, as much as eight times the headline rate of inflation.
Here we break down the three food categories – as measured by the Office for National Statistics – where prices rose the most in the UK over the past 12 months and see why.
Sugar – increased by 42.1%
Wholesale sugar prices have risen to the highest level in more than 10 years, doubling in the past two years alone. It comes after Europe’s worst sugar beet harvest in 20 years due to bad weather and poor harvests in Brazil and India, which have also cut off supplies. Rising fuel consumption has further stoked prices.
Darren Peters, vice president of sales and marketing at Tate & Lyle Sugars, which produces refined sugarcane, said those pressures have been compounded by sharply higher costs for processing, packaging, and logistics. “Amidst all these challenging conditions, we have been able to keep sugar on the shelves, but we cannot deny the market’s gravity,” he said.
British Sugar, owned by multinational food and retail company Associated British Foods, is the UK’s sole processor of the sugar beet crop, producing 1.2 million tonnes a year. The accounts show that profit margins at ABF’s global sugar division fell last year, due to higher energy costs for its UK factories. The group, which owns the Primark retail chain, said it planned to “recover inflation through cost containment and price increases” this year.
However, the price of one of its brands, Silver Spoon, has risen by more than a third for 1kg bags since July at Tesco and Morrisons.
ABF blamed retailers for the shelf prices, adding that it was “making less money as a proportion of sales because we are not recovering the full cost of inflation”.
Sauces, spices, salt, spices, culinary herbs – 33.7% increase
Raw materials for some of the UK’s favorite condiments, including tomatoes, salt, and spices, have risen in price. The cost of energy used in packaging, transportation, and production has increased rapidly.
Heinz tomato ketchup topped the charts as the biggest riser in the grocery list of leading brands, with tomato prices rising by more than 100% for US manufacturer Kraft Heinz and energy costs rising by almost 400%.
However, Heinz beans, soup, and tomato ketchup were among the products that Tesco temporarily removed from shelves last year in a pricing dispute. John Allan, the chain’s chair, told the BBC earlier this year that it was “entirely possible” some suppliers were profiting from inflation.
Kraft Heinz said its profit margin in the last three months of 2022 was “in line” with the same period in 2019 before the Covid pandemic and raw material cost increases. Its margins have declined over the last two years, but never below 30%, significantly higher than many larger companies.
Kraft Heinz said it was doing its best to absorb higher raw material and energy costs and was only increasing prices when it “absolutely” had to. The company said it doesn’t expect any further price hikes.
In February, tomato shortages hit the headlines as bad weather affected crops in Morocco and southern Spain and raised questions about the impact of Brexit on Britain’s food imports from the EU.
“If you choose where to send your product from Spain, you go to the easiest market that pays you the most. If the UK is not that market, you don’t send it here,” said David Axwood, vice president of the National Farmers Union. “It’s not a direct impact of Brexit, but it’s all about market choices that people make.”
Milk, cheese, and eggs – 29.7% growth
UK supermarkets have slashed milk shelf prices in recent weeks as the “spring flush” – when cows tend to naturally produce more milk as they are let out on the farm – helps boost production.
However, prices remain significantly higher than a year ago after wholesale market prices rose to the highest levels since 1970. This comes as the prices of all key milk production inputs have risen.
Russia’s war in Ukraine, which has sent oil and gas prices to record highs, has also disrupted supplies to the world’s two biggest exporters of fertilizers, wheat, barley, and other grains, with impacts hitting farmers worldwide.
At Arla, the European dairy cooperative, which is the UK’s largest supplier, profit margins fell. A spokeswoman said it was working with retailers to balance the demands of farmers and consumers with the cost of living, amid record rises in production costs.
David Axwood, who farms more than 1,200 hectares south of Horsham in West Sussex, said the problem for farmers was that big price rises in 2022 would be months away from the industry, as fuel, fertilizer, and other contracts agreed while input costs were high took time to replace.
“Prices went up overnight, then very slow to come down,” he said, predicting that consumers could experience higher food and beverage prices for a longer period. “Getting inflation off the farm is hard.”
