Recipe for Inflation: How Brexit and Covid Made Canned Tomatoes Much More Expensive | Food industry
Canned tomatoes are a store cupboard staple that the British rely on to make home-cooked meals such as spaghetti bolognese. But the price may soon get you noticed, amid warnings of higher purchase bills, amid soaring global food prices.
From packaging to transportation and the energy used in manufacturing, almost every aspect of producing this popular ingredient now costs more. Crushed tomatoes alone are 30% more expensive than a year ago, at € 0.48 per kilo. The same pressures are pushing up the prices of many foods, which means Britons will likely face higher bills for groceries or meals this fall.
Two big drivers of food inflation, in the UK at least, are rising demand for goods as bars and restaurants reopen, and the fallout from Brexit, which has caused shortages of workers on farms, warehouses and food processing centers, and hampered the flow of goods into the country.
There are already great concerns about an impending squeeze in living standards. UK inflation jumped to 2.1% in May on the rise in fuel and clothing prices, with the Bank of England warning this week that inflation could exceed 3% by the end of the month. year.
Jason Bull of West Yorkshire-based ingredients company Eurostar Commodities has found himself at the center of the food price storm. His company imports 850 tonnes of processed tomatoes a year from Italy, but says wholesale prices have already risen by 20% and suppliers warn the figure could reach 50% this summer due to a shortage of fruit and even boxes to put them.
“At the moment, there are hardly any tomatoes, so everyone is panicking and prices have exploded,” explains Bull. “We have an increased demand for processed tomatoes, but they tell us we can’t have it, and what we can have is more expensive because they just can’t afford the tinplate for the cans. “
Tomatoes purchased by Eurostar are found in ready meals in supermarkets and in restaurant dishes. It’s the same story for the other ingredients, but with different degrees of severity, Bull explains. Rice flour, used in baby foods, desserts and gluten-free foods, rose 30%, while the company’s shipping costs from East Asia fell by 1 $ 200 per container to between $ 10,000 and $ 12,000.
Mintec, the raw materials data group, created a cost model to illustrate Bull’s experience. The cost of crushed tomatoes has increased by 30%, that of tinplate by 21%, and even the paper for making labels is 8% more expensive, resulting in an average price increase of 23%.
This year-over-year comparison for May does not include other pressures such as a 281% increase in freight costs and a 119% increase in the price of Brent crude oil which all must be taken into account in the price of products on supermarket shelves. .
The magnitude of the problem was taken into account earlier this month when the United Nations Food and Agriculture Organization’s monthly index, which tracks changes in the prices of commonly traded food items, reported jumped 40% in May. This is the biggest jump in a decade, with vegetable oils, sugar and grains the biggest increases.
The commodity boom has given rise to the term “supercycle,” a term used to describe a period of unusually high demand that drives prices up, in some cases for a decade or more. In recent weeks, the prices of key raw materials, including copper, timber and iron ore, have hit all-time highs.
But raw materials are only one part of the picture. Shipping costs are skyrocketing, there are packaging issues, a shortage of seasonal workers for harvest time, and not enough truck drivers to get food to stores. For good measure, the UK now also has some Brexit-related red tape to negotiate.
Raw material prices are on the rise across the board, says Mintec analyst Tosin Jack, who said extreme weather events were among the factors affecting supply levels. “There have been droughts in Brazil and more recently in the American Midwest. It remains a weather-influenced market and this tension is associated with extreme demand, especially from China, as economies reopen. “
The price of sunflower oil, for example, has nearly doubled, but Jack says the increases on Main Street won’t be of that magnitude. “These won’t be comparable increases in the pockets of consumers because it will go down the supply chain,” he says. “You will end up seeing a runoff because buyers cannot bear the full brunt of price shocks at this level.”
The British Retail Consortium is concerned. He believes cost pressures are weighing on retailers and some of them will need to be passed on. Its own data for May showed food prices falling, but while the cost of fresh food fell 1%, the cost of packaged and canned products rose 0.7%.
One thing that could isolate UK households is the fierce competition between supermarket chains. Right now, food prices are being pulled down by the return of promotional offers that were scrapped as grocery stores focused on keeping shelves full during the height of the health crisis.
What’s more, the Big Four supermarkets, run by Tesco, don’t want to repeat the mistakes made in the last recession, when high prices caused shoppers to turn to Aldi and Lidl, a trend they have been trying since. reverse.
The price of certain products on the shelves, such as coffee for example, is more closely linked to the overall cost of the goods, but the situation is less clear-cut for highly processed products.
“Manufacturers only recommend prices to retailers, so they have ultimate control,” says Matt Botham of Kantar Worldpanel Grocery Market Analysts. “Sometimes retailers can choose to pass the increases on, but more likely, if there is a big price increase, they’ll want the manufacturer to absorb some of it.”
The reopening of hospitality and catering businesses worsens the pressure cooker situation. “We try to get these products in and sometimes pay 10 times more for shipping, so we have to increase the prices,” Bull explains.
“For our customers, this is a big blow because they have been closed for 12 to 18 months and have lost a lot of money. There is no way these companies can handle increases like this, they will have to pass it on. “
“It’s a perfect storm,” he says. “Food price inflation will explode for consumers. It must.