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Surging costs for UK food producers point to higher prices ahead

Costs for UK manufacturers have “shot up in an manner”, according to official statistics that point to the rising price of food further later this year.

Supply chain challenges, increasing costs and labor shortages have all pushed up prices for UK food and beverage manufacturers, an analysis of various official surveys published on Monday by the Office for National Statistics found.

In March 2022, 60 per cent of UK businesses in the food and beverage sector reported being affected by rising energy prices, the highest of any industry and well above the 38 per cent average across all sectors, the data showed.

UK food and beverage consumer prices rose at an annual rate of 5.1 per cent in February, the fastest pace in more than a decade.

“Prices have shot up in an early manner,” said a food manufacturer that took part in a survey by the ONS. “Then electricity prices and wages on top of our raw materials — it’s very difficult. We are struggling to keep pace with the increases.”

“We have experienced significant price increases across the supply chain. These have been anything up to and including 100 per cent increases,” echoed another food manufacturer.

Cost rises take time to pass through the supply chain and the latest figures suggest pressures are mounting for consumers. In March, nearly 60 per cent of food and drink producers reported that they had to pass on price increases to customers, well above the 37 per cent across all businesses.

About one-third of UK food producers also reported paying higher staff costs, while a similar proportion lamented difficulties in finding workers.

“We continue to face significant challenges as a business and remain in a constant crisis management mode,” said one food manufacturer.

The data were published as the price cap set by the energy regulator rose by an average of 54 per cent in April, reflecting spiraling international gas prices following Russia’s invasion of Ukraine.

Food manufacturers are particularly exposed to the rise in energy costs as about one in five have variable electricity prices, a higher proportion than in the other industries.

Faced with the rising cost of living, about one-third of respondents, said they had spent less on food shopping and essentials in March, a strong rise from a few months ago, adding weakening demand to manufacturers’ challenges.

Line chart of % of UK adults who have been buying more or less when food shopping showing Britons are buying less when food shopping

The ONS data showed that food and beverage businesses were more likely to have incurred extra costs due to the end of the Brexit transition period on January 31 last year. More than half of food producers have switched to UK suppliers as a result.

In March, nearly half of businesses in the sector reported additional transportation costs — twice as many as across all sectors. One-third said costs were up due to increased red tape, while one-fifth reported higher import prices.

“Goods imported are taking longer to reach us. They cost more, and we are having to consider other suppliers’ goods whose prices are greater than what we bought before,” said an animal feed manufacturer.

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