why are food prices so high? wyn morgan
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Sixth form Conference 27th June 2006. Why are Food Prices So High? Wyn Morgan. Outline. Do Food Prices Matter? What is UK Food Inflation? Why is Food Inflation So High? Conclusions. Do Food Prices Matter?. Some questions…… How important is the food industry to the UK economy? - PowerPoint PPT PresentationTRANSCRIPT
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Why are Food Prices So High?
Wyn Morgan
Sixth form Conference
27th June 2006
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Outline
1. Do Food Prices Matter?
2. What is UK Food Inflation?
3. Why is Food Inflation So High?
4. Conclusions
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Do Food Prices Matter?Some questions……
• How important is the food industry to the UK economy?
• What proportion of our income goes on food?
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Impo
rts £
32bn
Exp
orts
£14
bn
Employment & Value in the UK Food & Drink Chain
Source: DEFRA
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China, People’s Rep. of 33.20 Malaysia 30.00 Hong Kong, China 26.94 Philippines 46.58 India 57.00 Singapore 23.38 Indonesia 42.30 Taipei, China 25.00Korea, Rep. of 14.00 Thailand 32.71
Food Weights in Consumer Price Index (%)
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2. What is UK Food Inflation?• UK food inflation accounts for around 10% of the CPI• Basket of goods – fresh and processed• Sub-categories (with weights) include:
– Fresh vegetables 14%– Meat 21%– Dairy 12%
• Current rate of inflation is :
3.3% but it reached….13% (August 2008)
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Fig 1: UK Food CPI Inflation 1989 – 2010 (%)
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Fig 2: UK All Goods, Food and Non-food CPI Inflation 1989 – 2010 (%)
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Table 1: Annual Food Price Inflation Across Selected EU Countries (2011)
Source: IMF
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3. Why is Food Inflation So High?
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Inflation can be caused by too much demand or by costs rising. For food it is mostly the latter in a number of ways but there are three key factors….
•World food price rises
•The price of oil
•The exchange rate
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136%
107%
217%
125%
Price rises between 2006 and 2008….
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Fig 3: World Monthly Price Indices (2004 = 100) (Source: FAO)
Source: IMF
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Fig 4: UK/World Food Price & UK Producer Price Indices 2004–10 (%)
Source: IMF
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Fig 5: US$:£ Exchange Rate 1988(1) – 2010(12)
Source: IMF
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What role do oil prices play? Inter-linkages between world commodity prices due to oil:
•It is a cost – fertiliser and transport – but not clear it drives inflation strongly (Blanchard and Gali, 2009)
•Stronger via energy costs and food/oil/bio-fuel link e.g. land use in US changes affects supply
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Fig 6: World Food Prices and Oil Prices 1988-2011
Source: IMF
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Fig 7: UK Food Retail Market Shares 2011
Source: The Guardian, 16th August 2011
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Orange Juice: Del Monte 1 Litre Tetra Single
Source: Nielsen Scantrack
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Fig 8: Orange Juice: Del Monte 1 Litre Tetra Single
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Fig 9: Tinned Tomatoes: Princes Plum Tomatoes Napolina 400g
0
10
20
30
40
50
60
70
1 11 21 31 41 51 61 71 81 91 101 111 121 131 141 151
SAINSBURY: BRAND LABEL ASDA: BRAND LABEL SAFEWAY: BRAND LABEL SOMERFIELD: BRAND LABEL KWIK SAVE: BRAND LABEL
Source: Nielsen Scantrack
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Fig 10: Use of Sales by retailer
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4. Conclusions• Food is an important part of the UK economy• Food prices add 10% to retail prices• Food inflation high at present and peaked at 13% in 2008• Cost pressures have created inflation• Impact of global food price movements is important• Oil prices have an indirect effect through bio-fuel policies• Exchange rates matter too• Remember though we don’t consume raw food and retailers
have a big say in what we pay for food