I am an admirer of our new Chancellor John Healey. He combines experience, common sense and level-headedness with the ability to actually make decisions. Those are not qualities with which UK politics in general and the Labour Party in particular are over-supplied.
So his somewhat bellicose warning to supermarket bosses in The Sunday Telegraph not to use the Middle East conflict as an opportunity to price gouge seemed out of character. The timing was also a bit off. While reading his piece I could actually smell the smoke from the Dunwich Heath fire five miles from our Suffolk living room. As a demonstration of the here and now consequences of climate change, it was difficult to beat.
Both the threat of climate change-driven drought and geopolitical tumult in the Middle East and Ukraine are going to be a major challenge for Healey this autumn. So this is an opportune moment to take a look at the consequences for food prices, availability and inflation that flow from those conflagrations.
Current thinking seems to be that the UK drought is likely to end up being the most severe since records began more than a century ago. And while it may not produce widespread empty shelves, NFU president Tom Bradshaw was characteristically wise when he warned of shortages in particular sectors of home-grown food.
Alongside that, we will almost certainly be dependent on imports to fill the gaps once again. Those supplies may themselves be constrained by extreme weather across Europe and beyond, adding to price pressures during the autumn and winter.
The significant damage to this year’s crop is quickly becoming clear. Across much of England and Wales, farmers and growers are having to harvest much earlier than normal. The impact is severe for a number of vegetable crops. Reported wholesale prices have risen by 40% for potatoes, more than 60% for tomatoes and 90% for iceberg lettuces. The combination of no rain and extreme heat has wreaked havoc on size and quality.
Harvesting for cereals has also started unusually early. Ironically, AHDB reported that winter crops entered the summer in somewhat better condition than in recent years, but spring crops and farms on lighter soils have suffered seriously from the lack of rain. Poor grass growth has forced many livestock farmers to use winter feed reserves early, almost certainly pushing up milk and meat production costs later in the year.
Yet the UK food supply chain has, so far, been spectacularly resilient. Supermarkets – and to a lesser extent mainstream hospitality – have become practised magicians, highly flexible at substituting products from different sources. How much the trick can be repeated this year is open to doubt. The majority of European suppliers have been experiencing the same extreme temperatures, meaning imports will be more expensive and likely unavailable for certain periods.
Will drought lead to inflation and food insecurity?
The major unknown for Healey and his Defra colleague Angela Eagle is how much the drought will be a kicker to food price inflation and a food security crisis. The longer Europe, including the UK, goes without rain in August, the more the possibility of a grisly fusion of both scenarios comes into view.
Meanwhile, geopolitical uncertainty casts a very long shadow. Leaving aside for a moment the dreadful human cost of war in Ukraine and the Middle East, the principal risk to UK food supply is that created by disrupted energy, fertiliser and shipping markets. Relatively little of our food goes through the Strait of Hormuz, but many of the essentials to refrigerate, process and transport food, and the fertiliser required to grow it do.
Oil and gas prices affect agricultural machinery, logistics, fishing fleets, plastics, packaging, food processing, refrigeration and distribution. As the frequently contradictory nature of US president Donald Trump’s hourly pronouncements illustrate, the situation is hugely volatile. While Trump’s unpredictability may be designed to wrong-foot his enemies, it also drives oil price spikes: good for speculators, very bad for consumers.
Fertiliser availability is another major vulnerability. Gulf states are important producers and exporters of natural gas, ammonia and nitrogen fertilisers. Even where physical supplies remain available, higher gas prices, freight charges and insurance costs increase the price paid by UK farmers. That leads to higher costs and disrupted delivery, and means increased costs of farming and growing in 2027.
All of which leaves prospects for UK inflation into the winter very much at the mercy of the drought and global events. The Andersons Centre put so-called agriflation at more than 8% coming into the summer. Respite is unlikely any time soon. So food price inflation itself could reach somewhere in the range of 6% to 8% later in the year if the hits from energy prices and the drought continue at the severe end of expectations.
It’s not a pretty prospect. We can expect all of the skills and expertise of the entire food supply chain – farmers, manufacturers, retailers and logistics – to be arrayed on behalf of hard-pressed shoppers in the months to come. We will also need Healey and his colleagues in the new government to be thoughtful and supportive. And, for once, we might prefer it if the sun doesn’t shine too often.
Ian Wright is partner at Acuti Associates
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