As the unrest in Libya escalated this week, the price of Brent crude rose 8% to $119.79 a barrel, and BNP Paribas predicted an average price of $117 for the second quarter, but Japanese bank Nomura predicted the price could reach $220 should unrest spread to Algeria.
While rising fuel prices have been the trend for months now, the sudden escalation will hit many in the industry hard. "It's not speculation anymore," said Charles Wilson, Booker CEO and The Grocer's Guest Editor this week.
Retailers and suppliers had done deals at the beginning of the year, he said, but they were based on outdated assumptions. "Suppliers will recut the numbers and come back saying we don't think we can sell at the prices we said in January."
Getting a revised deal from retailers would be hard, however. "Whenever any price goes up, suppliers are very quickly on to us, but when they go down they don't pick up the phone," said Sainsbury's CEO Justin King. "I feel very strongly it is not our role as retailers to accept these cost increases and pass them on to our customers. Our job is to bear down on these costs."
The impact of oil is being felt across all aspects of the industry from feed costs to packaging and distribution. Dairy UK calculated that for every $10 increase in the price of a barrel of oil, the dairy industry would incur additional annual costs of £48m.
The UK dairy industry uses 115,000 to 120,000 tonnes of oil-based polymer for milk bottles each year. "Even a slight oil price increase puts huge pressure on milk processor input costs," said an Arla Foods spokeswoman.
This week Britvic said polyethylene terephthalate, used in its plastic bottles and derived from oil, had risen in cost by 20% in the past month alone.
Experts also predicted frozen and chilled suppliers would be hardest hit, although British Frozen Food Federation director general Brian Young argued that chilled producers needed to use much more fuel. "Chilled requires more energy to maintain the tight temperature band than the constant 18C for frozen."
A Greencore spokesman added it had hedged its fuel prices so "was not unduly concerned in the short term", but was monitoring the situation closely.