The National Farmers Union (NFU) warned that wheat yields were down by nearly 15% on the five-year average. Is this another sign that food price inflation is set to rise and how will this affect consumers and retailers?

What is food price inflation?

Food price inflation is the increase in the general level of the price of food for consumers.

Why are we talking about it now?

Several factors have indicated food prices will rise. The NFU warned that the combination of the drought in spring in some parts of country and the UK’s second wettest summer since records began, according to Met Office figures, meant a poor wheat harvest for many farmers.

The British Retail Consortium (BRC) also said last month that the weather overseas may be having an impact. It said the worst drought in 50 years in the US and a heat wave in Russia was already putting pressure on food prices. The BRC added that a “major risk” to food prices is the rise in the cost of commodities, which appreciated by 14% in the three months to the end of the September, according to the Thomson Reuters-Jefferies/CRB Commodity Index.

What does this mean for the consumers?

Capital Economics chief UK economist Vicky Redwood believes that food prices will go up, though the rise will be “relatively benign” and won’t be anything near the increases that have been seen in the last two or three years. Assuming retailers pass on some of the rising cost onto consumers, Redwood says: “Consumers face a bit of pick up in food price inflation in the next few months, but I don’t think it will be as severe as we saw last year or in 2008 because the recent rises in commodities prices haven’t been as severe as it was back then.”

How will retailers respond?

Redwood adds that retailers have already warned that prices might go up ahead of Christmas and that some of the rising commodities prices might be passed on then. However, how much of the rising costs retailers can pass on is limited. She says: “The competitive pressures in the sector will probably mean margins are going to take a bit of a hit. If they want to avoid that, they’ll need to squeeze costs in other areas.”

Retailers should be innovative to offset the rising costs. Sainsbury’s, for example, has launched ‘ugly’ fruit and vegetables. The grocer said the unpredictable weather has left farmers with bumper crops of ‘ugly’ looking fruit and vegetables along with shortages so it is urging customers to reduce food waste by buying the unusual looking products.

Also, overseas some crops have had bumper seasons so some products could be coming in cheaper, offsetting other costs.

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