The True Cost of Inflated Food Prices

Categories: News

Last year, the cost of a 1kg bag of own-brand rice from one of the Big Four supermarkets was 45p. Today however, that same 1kg bag of rice costs £1 for 500g, marking a price increase of 344%. These findings, among many more besides, have ignited a national conversation on food prices, the cost of living and how inflation is calculated, thanks to budget recipe book author and anti-poverty campaigner, Jack Monroe.

Monroe, a previously unemployed single mum and food blogger, became the face of the anxiety that so many British people are currently feeling. Her tweets helped illuminate the concerns felt by so many such as a 5% increase in food and drink prices during December 2021, as well as a 1.25p on the pound hike in National Insurance which is set to come into effect in April; better known as the Health and Social Care Levy. But what exactly is in inflation, and why is it having such a profound effect on food prices?

 

What is Inflation?

In simple terms, inflation is the word used to describe a broad but sustained increase in the prices of goods and services in a country’s economy. As prices rise, a country’s currency can’t buy as many of the goods and services as it did before. There are several contributing factors that can lead to inflation, some of which have exacerbated as countries attempts to right themselves after the Covid-19 pandemic and the economic downturn that followed in its wake.

A significant influence on the inflation of food prices is climate change; with a combination of floods, droughts and increasingly varying global temperatures having a tangible effect on cereal crop yields. Major exporters of wheat such as Canada, Russia and the US have seen its value inflate by 40%, directly as a result of poor harvests; with the current scarcity of wheat resulting in added costs for consumers.

Another persistent issue in the late-Covid era economy is ongoing labour shortages. While some labour shortages have been exacerbated by Brexit, there have been persistent staff shortages throughout the entirety of the food industry. There have personnel shortfalls in HGV drivers, fruit and vegetable pickers, container ship crew members as well as meat packers and processors; all of which results in less distribution, greater food scarcity and ultimately, higher prices for consumers.

©The Food Foundation/FAO

While these price rises come at a particularly bad time for British consumers, who are facing increases in both taxes and the cost of living; the rapid inflation of prices have been advantageous for a small group of opaque commodities traders and giant firms involved with the sourcing, storage and shipping of essential foodstuffs on behalf of government buyers and multinational corporations. Companies such as ADM, Bunge, Cargill and Louis Dreyfus (their monopolisation of this sector is colloquially referred to as ‘ABCDs’ among industry insiders) with their access to a network of silos, railways, ships and the data required to redraw supply routes to better reflect the return to post-Covid eating habits, are profiting off this unprecedented volatility. This is in stark contrast to more typical economic conditions, where a steady crops supply kept prices low and stable.

There are some other factors contributing to the inflation of food prices that appear so closely linked that they almost attached at the hip. The political instability caused by Russia’s invasion of Ukraine, has caused the price of both energy and raw materials to soar; resulting in factory closures across the UK.

Another issue to consider is the desire of the private sector to raise prices in order to recuperate its losses after the economic recession caused by Covid-19. Speaking in the Wall Street Journal; Todd Kahn, the CEO of luxury fashion brand Coach, even admitted that his company’s “rise in [prices] isn’t really about inflation […] it’s about reducing discounting.”. Starbucks; who were quick to blame ‘supply chain disruption’ for their own price hikes, failed to mention that in 2021, their profits had increased by 31% and Starbucks CEO Jake Johnson’s pay had increased by 40% to £20 million.

In a separate Wall Street Journal article; according to 451 Research, working under the umbrella of S&P Global Market Intelligence, in a poll of 606 US businesses, 33% anticipated that they would increase their prices whereas just 4% said they’d cut them. The retail and manufacturing sectors appeared most prevalent in hiking their prices, with 44% of retail and 41% of manufacturing increasing their prices.

The food industry, too, appears to be following suit. Conagra, manufacturers of Birds Eye frozen vegetables and Slim Jim meat snacks, ‘couldn’t raise prices enough’; and indicated a need to raise prices further. Chief Executive Sean Connolly told investors,

“We still think our products’ price points have room to move north based on the quality that we offer, […] You don’t generally get a customer to accept inflation-justified pricing until they’re confident it’s not transitory inflation.”

Another inescapable fact is the failure of take-home pay rises to keep up with inflation and the ballooning costs of living are constant concerns in the minds of UK workers. Hannah Slaughter, Senior Economist at the Resolution Foundation, said:

“Despite widespread talk of returning wage spirals, Britain is instead experiencing the return of shrinking pay packets. The latest period of falling real wages, the third in a decade, is likely to have started as a far back as last Summer, and is likely to continue beyond next Summer too. […] The big picture is that Britain will emerge from the pandemic with pay packets shrinking, and over half a million fewer people in the labour market. Both of these challenges will need to be addressed in 2022.”

 

“They Cost How Much?!”

As Jack Monroe’s tweets highlighted, a 5% rise in inflation can be an abstract concept to understand until the real-world consequences are felt. The Grocer, the UK’s trade publication for food producers and sellers, compiled Monroe’s tweets to show how the 5% increase in inflation would influence the cost of everyday foodstuffs. Below, are the item-by-item price increases identified by Jack Monroe.

Jack Monroe, The Grocer

‘Jack’s List’, a sampling of prices of everyday items at her local ASDA, showed some massive increases in prices; with some doubling or even tripling. In her tweets, Monroe pays particular attention to the price increase of a 1kg bag of rice. By far the biggest leap in price; this example is especially insidious as not only has the price more than doubled from 45p to £1, but whereas in 2021 the rice came in a 1kg bag, in 2022, the size had been reduced to 500g. This tandem increase in price and decrease in size, known as ‘shrinkflation’; is the result of food manufacturers attempting to absorb cost increases in labour and energy as well as the surging costs of commodities such as oil and flour.

Ultimately, these price rises will be felt by consumers, and the consumers who’ll be affected most acutely will be those who were already on low incomes. ‘Jack’s List’ also shows other examples of triple-digit increases, including fusilli pasta (141%), canned spaghetti (169%), curry sauce (197%) and peanut butter (142%); with an average total increase of £4.48 or 123%. Monroe also looked at the price hikes undertaken by the other major UK supermarkets including Tesco, Sainsburys, Morrisons, ASDA (excluding her local ASDA), Aldi and Lidl. While other price increases weren’t as severe, with some items on the list slightly dropping in price, a rise of only a few percent will still be felt by those already experiencing food poverty; as well as those who are on the economic verge of it.

While the price rises brought in by Tesco and Sainsbury’s only come to 5%, to individuals and families at or close to the poverty line, this will still be cause for serious concern. The vast majority of both Tesco and Sainsbury’s price hikes were to their budget range 500g bag of fusilli; with Tesco increasing their price by 32%, and Sainsbury’s by 27%. Curiously, Sainsbury’s was one of only a handful of supermarkets where some of their items saw a drop in price; with Sainsbury’s price for a ~500g bag of apples coming down by 7%.

Jack Monroe, The Grocer

Although Morrisons did drop the price of handful of items, there were some significant increases elsewhere. Morrisons, as well as ASDA, increased the price of their 500g bag of fusilli pasta by 67% and also increased their price for baked beans (50%), canned spaghetti (34%), ~500g bag of apples (61%) and peanut butter (4%); resulting in a 14% total cost increase.

From Monroe’s findings, ASDA’s prices had the second highest price increases of any supermarket surveyed (56%); with only Monroe’s local ASDA having raised their prices higher. Their price hikes included fusilli (67%), rice (162%), baked beans (10%), canned spaghetti (21%), wholemeal bread (18%), curry sauce (218%), ~500g bag of apples (22%), mushrooms (6%) and peanut butter (43%). In fact, ASDA were the only supermarket that’d raised its price on every single one of Monroe’s sample items.

Jack Monroe, The Grocer

Despite presenting themselves as budget supermarkets, neither the customers of Aldi or Lidl were immune from price rises, even with Aldi being named the UK’s cheapest supermarket in 2021. Although both supermarkets keep an equal number of products at the same price, Aldi still raised its prices on fusilli (15%), curry sauce (18%), ~500g bag of apples (6%), mushrooms (51%) and peanut butter (5%) for a total increase of 13%. Meanwhile, Lidl lowered the price of fusilli (-38%), but raised its prices on rice (44%), curry sauce (18%), ~500g bag of apples (39%) and mushrooms (51%) for a combined increase of 12%.

The increases in prices among the budget range of UK supermarkets is cause enough for concern, another issue highlighted by Jack Monroe is that a lot of budget items have either been removed from supermarkets online store, or removed altogether to encourage customers to purchase the more expensive supermarket in-store ranges. Whereas nearly all supermarkets have a budget range, their reasoning behind their partial or full removal, as Monroe explains; can be extremely worrying for impoverished or vulnerable members of society. If you’re elderly, housebound, disabled or lack personal transport, then the loss of a supermarket’s budget range can be a huge financial hit; especially if visiting the supermarket in-person simply isn’t a viable option for the aforementioned reasons. Interviewed in The Grocer, Monroe is quoted,

“They’re deliberately excluding a certain customer base,” she says. “Offering them only in store seems somehow worse than withdrawing them entirely.”

Monroe’s ire was directed in no small part at ASDA, who removed almost half of its 224 budget items from its shelves, citing a lack of shelf space.

However, following pressure from Monroe, ASDA relented and announced that it would reinstate all of the 200-plus budget items in its Smart Price and Farm Stores ranges across all 581 of its UK stores. However, while Monroe’s successful campaign persuaded ASDA to revert to operating in the best interests of disadvantaged demographics; while food prices continue to rise, there could be even bigger problems ahead.

 

Losing Customers to ‘foodbanks and hunger’

Operating as a supermarket means entering a relentlessly competitive area of the economy where the expectation is to persistently sell food at a lower price than your competitors so you can continue to attract customers. You’d expect supermarkets to lose customers to each other, but currently, they’re not.

In an interview with Good Morning Britain, Iceland CEO Richard Walker, said that Iceland was losing shoppers to ‘foodbanks and hunger’. In the interview, Mr. Walker was quick to reiterate Iceland’s commitment to retaining its £1 value range, which includes items such as frozen vegetables, pizzas, ready meals, chips and ice creams; but only until the end of 2022. However, most viewers felt that the sincerity of Mr. Walker’s interview was undercut by Iceland’s decision to increase its free shopping delivery threshold from £25 to £40, as well as his choice to give the interview from his second home in Mallorca.

While the optics of Mr. Walker’s interview were far from ideal; the idea of supermarkets such as Iceland losing customers to ‘foodbanks and hunger’, was cause for serious alarm. There’s an argument that when a situation like this arises, it’s an economic canary falling from its perch. The Trussell Trust, a leading voice in the fight against poverty and hunger in the UK, noted that low incomes constituted 39% of primary food bank referrals in 2019-20; more than benefit delays (17%), and benefit changes (15%) combined. In 2021, the Trussell Trust maintained that ‘extremely low income […] is a key driver of food bank use’. Further investigation from the Trussell Trust’s ‘State of Hunger: 2021’ report stated that,

‘The average household income of people referred to food banks in early 2020 was around 13% of the 2018/19 national average, and the median weekly equivalised household income, After Housing Costs (AHC), among households referred to a food bank was around £57.71. This translated into £8 per day for a couple without children, before paying energy bills and council tax. Such extremely low income was the key factor behind the levels of destitution among people referred to a food bank in the Trussell Trust network.’

If a couple is earning £8 a day, before paying bills and tax, there’s no way they could afford what’s on a supermarkets’ shelves; value range, or otherwise. When an individual or family is trying to feed themselves on an income that’s a meagre 13% of the national average, a 5% inflation increase will affect them in profoundly different ways from an individual or family who’s earning at, or above, the national average. Jack Leslie, Senior Economist at the Resolution Foundation, mentioned how the inflation of food prices would disproportionately affect low-income individuals and families,

“On average the lowest income families spend twice as much on food and housing bills as the richest families. So increasing food price inflation and the looming energy price cap rise in April will disproportionately affect families already struggling to get by. These families should be the priority for the Government’s cost of living crisis response.”

 

Why 5% Isn’t Really 5% for Everyone

It was the disproportionate impact that inflation was having on people earning low incomes that spurred Jack Monroe into making a point of illustrating that the Office of National Statistics (ONS) methods for calculating inflation simply didn’t account for those below, or just hovering above, the line of relative poverty. Speaking with The Grocer, Monroe said that the existing ONS methodology,

“Grossly underestimates the real cost of inflation as it happens to people with the least. Not just because the cheapest products see some of the biggest hikes, but because supermarkets are slashing the value ranges upon which poorer families rely. […] It’s extraordinarily difficult to manage when you’ve got very little because the playing field isn’t entirely level. And actually, it’s the retailers who are playing quite a large part in not levelling it.”

What Monroe is saying here is that a supermarket’s value range will usually be sold with smaller profit margins. So whereas Branston’s pickle would charge a premium because of its namesake, as costs rise, supermarkets selling value ranges don’t have the same margins to absorb that increase; so the cost of value items rises further, and faster. For example; while Sainsbury’s value peanut butter increased in price from 85p to 89p in twelve months, Meridian’s peanut butter price fell from £2.80 to £2. Although instead of raising the price on some value range products, as Monroe points out, some supermarkets have withdrawn their value products altogether.

In her interview with The Grocer; Jack Monroe highlighted how even if everyone across all income brackets are impacted by the same 5% inflation, high and low earners will feel its affects differently. High earners spending 5% more on theatre tickets and clothing is not the same as a 5% increase on essential items like food and fuel. With low-income households forced to spend more of what little they have on non-discretionary items, Monroe asked rhetorically,

“It’s not really the same 5%, is it?”

Surprisingly, the Office of National Statistics (ONS) who calculate inflation, agreed with Monroe’s assessment that their methodology for calculating inflation was flawed. Prior to Monroe’s revelations on inflation; each month, the ONS would have 300 people select 700 separate items from 141 locations to generate 180,000 price points, as well as 300,000 rental price points. However, just a week after Monroe’s tweets highlighted the issues surrounding the measurement of inflation, the ONS announced that it will be increasing its number of price points from 180,000 to ‘hundreds of millions, using prices sent to us directly from supermarket checkouts’. The ONS hopes to implement these changes, along with a raft of others, by Quarter 1 (January to March) 2023.

 

The Vimes Boots Index

Following the decision by the ONS to recalibrate how it measures inflation, in an interview with the Big Issue, Jack Monroe said she was ‘delighted’ with the ONS’ decision, but she seemed far from ready to cease her anti-poverty crusade; stating that,

“And as for the large corporations paying poverty level wages to their employees, meaning that people who stack the supermarket shelves often can’t afford to purchase the products from them, don’t think you’re getting off lightly. The spotlight is swivelling onto you soon and all.”

Monroe doesn’t appear to be finished with the ONS, or their inflation calculations, either. In an article penned by Monroe in the Observer, she outlined her plan to create her own price index, the Vimes Boot Index (VBI). The index, named after Sam Vimes, is a character in the Discworld novel ‘Men at Arms’ by Terry Pratchett. In ‘Men at Arms’, Sam Vimes explains the “Sam Vimes ‘Boots’ theory of socio-economic unfairness”:

Monroe’s decision to establish her own price index stems from her criticism of the catalogue of 700 items the ONS utilises to calculate fluctuations in the price of consumer products. Working with a plethora of economists, charities and financial analysts to realise her vision of the Vimes Boots Index, Monroe writes in the Observer where she believes the Consumer Price Index (CPI) falls short,

‘A collection of 700 pre-specified goods that includes a leg of lamb, bedroom furniture, a television and champagne seems a blunt and darkly comical tool for recording the impact of inflated grocery prices in a country where two and a half million citizens were forced by an array of desperate circumstances to use food banks in the past year.’

Terry Pratchett’s daughter, Rhianna Pratchett, praised Monroe’s adoption of the Vimes Boot Index, and tweeted her support of Monroe’s efforts. Pratchett’s Estate, also lent its support; quoting ‘Men at Arms’, the Pratchett Estate tweeted,

‘Sometimes it’s better to light a flamethrower than curse the darkness.’

Leave a Reply

Your email address will not be published. Required fields are marked *