The UK's big four managed to dodge the cost of food inflation last year - by passing the full £5.7bn bill on to shoppers.

The UK's biggest food and drink producers faced a 19% increase in commodity costs, which amounted to a total cost hike of £5.7bn, reveals research by strategy consultancy OC&C for The Grocer's Top 150 Suppliers.

An estimated £5.6bn of this was recouped through higher selling prices to retailers, leaving the top 150 with an overall margin hit of just 0.1%, according to the research.

But the major retailers did even better. Their margins suggest they passed the £5.6bn price hikes on to shoppers and also netted themselves an extra £100m in margin through additional price rises or by cutting admin and distribution costs.

"Food inflation certainly hasn't harmed retailers," said OC&C associate partner Will Hayllar. "On balance, they may even be slight beneficiaries, as their huge scale has let them pass on extra commodity costs. Consumers have been left bearing the brunt of inflation this year."

While suppliers had successfully passed on most of the 2008-09 food price inflation, they had still not recovered the costs incurred absorbing inflation in 2007, he added.

This represented a 1.2 percentage point hit on profits, he said.

"There is the expectation that commodity prices will fall in months to come - the global markets are already down - but the UK took a major currency hit that delayed the impact of lower prices," he said. "So suppliers might be hoping, over the next few months, to recoup the hit they took. But given the current emphasis on low price in the retailers' marketing, it could be very tough for suppliers to keep hold of the savings."

Not everyone was successful in passing on their costs, however. While branded suppliers managed to increase their operating margins 1.1 percentage points to 9.9%, own-label margins fell 1.1 points to 2.5%, suggesting the own-label sector had a harder time convincing retailers to increase prices.

"It's surprising own-label suppliers managed to pass on the degree of cost inflation that they did," said Investec analyst Nicola Mallard. "But in some ways it's easier to pass on the exceptional inflation of last year than the run-of-the-mill stuff. It's very hard to refuse a supplier a price increase if they are throwing money away by supplying to you. Even a two or three-week delay in passing on extra costs in the past year tended to have a notifiable impact on profits."

See feature p34
a little good news for shoppers
Shoppers might be feeling almost £6bn poorer, but at least they'll soon be paying less for bread - if the good weather holds out.

Last year summer deluges ruined much of the UK's breadmaking wheat and the price of the humble loaf soared, with many sliced loaves breaching the £1 price point for the first time.

But, with sunny skies forecast for this summer, the prospects are good for this year's slightly diminished harvest, which could mean cheaper bread by Christmas.