The government’s “bombardment” of regulation on the food industry will see the average cost of food shoot up by £160 a year per household, according to analysis by the FDF published today.
The trade body said the wave of interventions, including sweeping plans to make the industry responsible for recycling and waste costs as well as moves to ban HFSS promotions, would end up hitting hard-up families the most.
The report, entitled ‘Eating into household budgets: The government’s recipe for food price inflation’, said prices would inevitably rise, especially with suppliers already facing big increases in labour costs and commodity prices, and margins being squeezed in the ongoing price war between supermarkets and the discounters.
It claims suppliers face a combined total of £8.3bn in costs due to government proposals in the pipeline, including the introduction of Extended Producer Responsibility (EPR) for the disposal of post-consumer goods (£1.7bn), the deposit return scheme (DRS) on food and drink packaging (£850m), and the introduction of promotional restrictions on HFSS foods (£833m). The predictions are based on Treasury estimates which the industry claims are conservative.
“Additional costs to our industry as a result of the policy changes will total £8.3bn over the period 2022-2024,” says the report. “Due to the constraints of existing supply contracts, manufacturers are very likely to have to absorb these costs during the first year of implementation of the policies (2022-2023).
“Due to the already reduced margins, these costs are likely to be largely passed on to consumers the following year.”
The FDF estimates increased costs in 2022-23 alone to exceed £4.4bn.
”To absorb these costs, businesses will reduce their economic activity in other areas or incur temporary losses, which many small businesses will not be able to afford.
“Pressing ahead with all of these proposed changes at once is likely to increase indebtedness, reduce competitiveness, and reduce investments. It could also trigger a further loss of confidence among insurers.”
The FDF said it hoped the report would persuade ministers the measures proposed were “ill thought out and rushed through” especially given the perilous state of the economy amid the pandemic.
It stressed the estimates came even before the possible impact of last week’s National Food Strategy by Henry Dimbleby, which proposed a new £3.4bn wave of health taxes on salt and sugar.
“Many of our members that supply the hospitality sector struggled to redirect their products into retail channels,” it continues.
“Moreover, profit margins are typically higher for products sold via hospitality channels, allowing businesses to offset slimmer retail margins. As the economy shakes off Covid-19 restrictions, it is far from certain that businesses, and hospitality in particular, will return to normal for some time.”
“Food and drink manufacturers are close to breaking point,” said FDF CEO Ian Wright.
“Through the last 16 months our workers have made truly heroic efforts to keep the country fed. Yet now they face a combination of challenges which threaten to deliver food price inflation to already hard-pressed households.
“We absolutely accept the need to address the pressing concerns around sustainability and obesity. Our members are doing so on an epic scale through active commitments to net zero and reformulation. The government needs to understand the costs of the changes it is demanding and the impact it would have on the cost of household food and drink shopping.
“The suggestion that we should introduce further food taxes at this time is madness. It is an insult to the hard-working families of this country to be told what to do by those who can’t begin to imagine how tough the last year has been.”
Wright added: “The UK enjoys a fantastic range of food and drink at a range of price points. Our industry has done an incredible job of keeping that cost low for the last three decades. But that period is now at an end. Double-digit percentage increases in food expenditure for the poorest households are highly likely in the coming years unless the government pauses to consider the consequences of its plans.”