Shoppers face tough choices as rising food prices bite

The think tank argues that the UK economy is more vulnerable to rising world food prices than other countries, as it runs a 1% trade deficit on food.

With input costs rising by 23% over the past year and output prices up by just 7.5%, companies’ profits are also being squeezed.

The report adds: “Low-income consumers have to make difficult decisions about what they spend their money on.

“Higher-wealth consumers now need to build economics into their ethical decisions.

“With confidence at a 15-year low, consumers have to make hard choices between their personal finances and their moral beliefs.

“Do they continue to buy organic chickens, change to factory-farmed chickens, or go with their moral beliefs and stop buying chickens?”

It adds: “Will the price point soon be reached for organic and fair-trade products that puts such purchases beyond the reach of all but the comfortably well-off?”

But non-food spending will be squeezed harder, says the Item Club: “When food prices increase in real terms, UK households tend to raise their spending to consume the same volume – so other areas of discretionary spending are squeezed.”

The think tank also predicts a shift in the balance between producers and retailers.

It says: “UK mass-market food retailers are still using common ‘known value’ food items as targets for discount, so are resistant to passing on farm gate price rises.

“But while they can hold food prices down partly by reducing value-added (eg packaging, preparation) and launching more economy/value lines, these work mainly at the higher end – basics
like bread, milk, cornflakes rise in line with the main input price.

“Profitability of food producers was already under pressure from supermarkets’ concentration of buying power and now it is being hit further hit by input price rises that are difficult to pass on.”