RIGHT across the country, there will be rejoicing that you can now buy four litres of milk for £1.
In these strange days of a widening disparity between comparative affluence and increasing poverty, anything which reduces the price of staple foods must be a cause for celebration – right?
After all, more than 300,000 children were given food aid in 2013 and the tentacles of food poverty can be seen in every town and city in the land. The next village to where I live is Chipping Campden at the northern edge of the comparatively affluent Cotswolds where a modest two-up and two-down house, albeit in glowing, honey-coloured, local stone, will cost you more than double the national average price for a similar house but, even here, the local church is mounting a food rescue programme for those who cannot afford to feed their families, let alone find anywhere decent to live.
It’s hard to believe that, as we emerge blinking from the depths of an economic recession, many families remain mired in food recession and that this is likely to get worse.
Most of us take for granted that affordable, nutritious food should be a right for everyone and not some form of privilege for the few and I struggle to equate our weekly, three-figure food bill at Tesco or Waitrose – depending on whether I turn left or right when I leave home – with the average of £40 per week for those 13 million people living in poverty in the UK.
The Joseph Rowntree Trust revealed that food shortages are on a scale not seen since wartime rationing and the situation is likely to get worse as food prices are set to rise by more than 4% each year until 2022, an increase around double that of inflation.
DEFRA’s Food Statistics Pocketbook 2013 tells us that food prices have risen by 12% in real terms since 2007, taking us back to the 1990s in terms of food relative to other goods. Additionally, median income, after housing costs, fell by 12% between 2002-03 and 2011-12 for the lowest income households and by a range of 1%-7% in all other income groups.
While the worst of the recession might be in the past, we fool ourselves if we believe that it’s all OK now for everyone.
We see ourselves as having made a better economic recovery than most of Europe and, while that may be true, food prices rose 22% in the UK between 2007-13 while only rising 12% in Germany and 13% in France. Overall, our obsession with food on TV and in the press has made us more conscious of which foods are healthy but we now eat 14% less volume of fruit and vegetables than we did in 2007.
Additionally, while we all like to believe that buying British is best, the UK agri-food sector – worth around £97.1 billion or 7.2% of the UK food chain – has grown at a lower rate than the total Gross Value Added (GVA) curve for the UK between 2011-12 and our national spend on food shopping has increased 30% since 2007 if we take into account the wide range of foods, beverages and alcoholic drinks available.
The fastest growing sector was non-residential catering which means that while the numbers struggling to buy food are rising, so are the numbers of us eating out with any regularity.
The UK agri-food sector employs 3.6 million people, if agriculture and fishing are taken into account, and accounts for 13% of UK employment. Productivity has risen year on year since 2002 and there are those who argue that further productivity improvements can largely come only from further expensive investment.
It hardly takes economic genius to work out that the raging battle between the major UK supermarkets will put additional pressure on suppliers as the retailers seek to recoup profit margin lost to competition. Intriguingly, DEFRA’s data, as shown in the 2013 Statistics Pocket Book, don’t cite milk as a category although dairy products in general are shown.
A spokesman for one of the retailers was at pains to point out on morning TV recently that milk is really important to them but recent history has shown that they’ve largely been brought to the negotiating table kicking and screaming in recent years.
Way back in September 2013, the Milk Price Panel approved a further increase in the price of Guernsey milk with the commitment that the government wished to balance the wish to contain price rises for consumers and ensure that the industry had sufficient funding to remain viable.
Nine months later, the market had fallen for Channel Islands milk but the switch away from full cream milk had liberated more cream to produce butter products. Along the way, problems within the Guernsey milk market have led to a full government review of milk production and distribution to be completed by July 2015.
Nothing happens in isolation and that review will take place against the backdrop of heavy losses in market share among the UK giant grocery retailers and an unprecedented second profit warning from Tesco.
This heralded a scandal where the retail giant revealed a massive accounting error which made that profit warning even more undigestible by the authorities and by investors.
The news that Tesco had overestimated profits by £250 million for the first half of 2014 caused a plummet in share value which was already languishing at the lowest point for more than a decade.
This fall in share price not only wiped £2 billion from the company’s stock market value but also caused analysts to recommend alternative investments, avoiding Tesco as a “classic value trap”.
On the international front, Tesco has been described as being over centralised and recent concerns over quality of earnings and its accounting probity will pose an additional risk of further profit damage to come.
Whichever way you look at it, the loss of a million shoppers a week and the risk of lasting damage to its fiscal reputation points to Tesco having outlived its previous methods of generating success which are perceived by both the markets and the consumers as being no longer relevant to them.
This pressure on our biggest supermarket chains is intensifying as the impact of price cutting to shore up market share is deflating revenues and driving more shoppers to alternative European retailers where “buying British”, degree of choice, production guarantees, shared risk and long-term contracts may not necessarily hold the same emphasis as they had with the “Big 4”.
The reality is that none of us knows what this means for the retail sector, looking forward a year or two, and that’s especially true for food producers. Consumers are set to benefit from lower prices but that could yet prove to be a two-edged sword.
