Cost of Government regulation will mean higher food prices for consumers

The Food and Drink Federation (FDF) has today warned that consumers will inevitably face higher food and drink prices if manufacturers are forced to absorb the cost of proposed Government policies during the next few years.
 
In the report, entitled ‘Eating into household budgets: the Government’s recipe for food price inflation’, the FDF has estimated that if the cost of forthcoming Government policies were passed on directly to consumers, it would increase the price of food and drink shopping per household by more than £160 per year.
 
What’s more, it suggests poorer socio-economic households would see their shopping bills increase by 11%, the same proportion of their entire food shop which is currently spent on fresh vegetables¹.
 
According to ONS estimates, a household of one adult and one child in the poorest 10% by income spends £45 per week on food and drink, meaning the Government’s proposals could lead to an increase in food and drink spending of nearly 7%.
 
Over the last twenty years, food and drink manufacturers have worked tirelessly to absorb increases in the cost of raw materials, while ensuring the impact of these price pressures are not passed directly onto consumers. Now, with no margin² left to offset the raft of costly Government policies coming down the line, manufacturers will have to pass that cost directly on to consumers.
 
The FDF calculates that the cost to the food and drink industry of proposed UK Government policies around public health and sustainability is at least £8 billion. This is before factoring in the suggested taxes on salt and sugar as outlined in Henry Dimbleby’s recent National Food Strategy report. These additional costs from Government policies also come at a time of rising global inflationary pressures.
 
The policies include the reforming of Extended Producer responsibility for the disposal of post-consumer goods (£1.7bn), a Deposit Return Scheme on food and drink packaging (£850m), and the introduction of promotional restrictions on HFSS foods (£833m).
 
The FDF is calling on the Government to reconsider these policies and their unintended consequences, as well as fundamental reforms to the UK’s regulatory architecture, in order to ensure future policy is effective and well-targeted.
 
It also argues that in the long-term any additional costs will likely increase indebtedness, reduce competitiveness and see investment decline, particularly at a time when businesses are seeking to recover from a difficult period of economic uncertainty. Food and drink is the largest manufacturing sector in the UK, and if the Government is serious about levelling up it needs to incentivise the sector and not pile on extra costs. 97% of all food and drink businesses are SMEs, and it is they who are more greatly exposed to these risks.
 
Ian Wright CBE, Chief Executive, Food and Drink Federation, said:
 
"Food and drink manufacturers are close to breaking point. 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 hardworking 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.
 
"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 the consider the consequences of its plans."
 
Notes to editors:

1. An annual increase in the food shopping bill on £160 represents an increase of 2% of poorest households gross annual incomes, and is equal to their annual expenditure on fresh vegetables.
2. Margins are being squeezed by ramping global food commodity prices, which, as the outgoing Chief Economist of the Bank of England, Andy Haldane, has pointed out, have increased by 17% since the beginning of the year. In, May 2021, global food commodity prices were up 40% year-on-year. Rising inflation in commodity prices can quickly erode producers’ margins if they aim at keeping consumer prices down.

For information, please contact press.office@fdf.org.uk 020 7836 2460.