When it comes to food, what is the outlook for 2022?
As the annual pace of consumer price growth in the OECD group of developed nations hit 5.8% in November, which was the highest rate since May 1996, we have seen a significant level of food inflation in the second half of 2021. This is set to continue for 2022, with some suggesting that it could further accelerate.
“Prices are expected to stay at high levels throughout 2022,” says Stephan Hubertus Gay, senior agricultural policy analyst at the OECD.
Whilst Food Manufacture reported: Clive Black, Director and head of research at Shore Capital observed food chain price rises on core commodities of 35% – 45% over a 12-month period.
Helen Dickinson OBE, Chief Executive of the British Retail Consortium, said: “the acute labour shortages across supply chains, amongst other factors, led to the year ending with a notable increase; for example, fresh food saw the largest rate of inflation in almost a decade.”
Food commodity prices are “now supported by inflation in the general economy”, according to Rabobank, and reinforced by “astronomical” shipping container costs, rising energy and fertiliser prices, and labour shortages in ports and factories.
Forecasting is notoriously difficult, with many input factors impacting the level of inflation. However, for budgeting purposes we suggest allowing for between 7.5-10% food inflation over the course of 2022.
Work force shortages
The labour shortages in the UK have been well documented through the loosening of the 2021 lock down. Like food inflation, these challenges are set to continue. Now with Omicron an additional factor adding to the already acute situation.
On 14 December, during a governmental Environment, Food and Rural Affairs Committee Meeting on ‘Labour Shortages in the Food and Farming Sector’ the challenges with take up and processing of the Skilled Worker Visa, originally set up in December 2020, were debated. Chair of the committee, Neil Parish said: ‘Employers need workers and cannot get them in time. Pigs are being culled and wasted because there are not enough butchers in the abattoirs. Fruit is rotting on trees and crops are not being planted.’
Andrew Opie, director of food and sustainability at the British Retail Consortium, said separately that: “The government needs a coherent food policy to maintain UK production, including a clear strategy for solving labour shortages throughout the supply chain.”
However, recent reports suggest that the government funded HGV training scheme has been widely welcomed by the haulage industry, with significant increased interest and uptake. Currently this is only due to run until the end of November, and calls are being made to develop it into a longer-term initiative.
Imposition of UK Border Checks
The 1st of January saw the commencement of UK border checks on imports from the EU. Whilst border checks have been in place for exports into the EU since the end of the transition, they were delayed for imports into the UK to mitigate custom related delays. The first phase, which has now gone live, is the requirement to make customs declarations, give advance notification of imports of food and to pay tariffs. Physical checks on animal and meat products will be phased in from 01 July.
Trade Deals – in the longer term
With the trade deal with Australia now signed, a precedent has been set for future negotiations. According to NFU president Minette Batters, the “one-sided” deal, ratified on 17 December, gave Australia’s agriculture sector “all it asked for” with little in return for British farmers, who she said were already “facing extraordinary inflationary pressure and sustained labour shortages”.
“It’s also difficult to discern anything in this deal that will allow us to control imports of food produced below the standards legally required of British farmers, for instance on land deforested for cattle production or systems that rely on the transport of live animals in a way that would be illegal here,” Batters added.
With the specifics of this deal agreed, it is difficult to see how any future deals with other nations could be struck that have improved terms for the UK food and farming sectors. Other nations will surely not accept anything less.
Farming Subsidies – From CAP to ELM
Instead of paying farm subsidies based on the area farmed under CAP, the Environmental Land Management or ELM scheme will pay British farmers to use their land in what the government deems a more environmentally friendly way, including by re-wilding or planting trees as part of the government’s drive to reach ‘net zero’ by mid-century.
The House of Commons’ Public Accounts Committee has said the government’s new Environmental Land Management scheme lacks detail and is based on “blind optimism”.
Defra had given “no detail about how either the necessary productivity increases or environmental benefits [demanded by the new scheme] will be brought about”
“We have known we were replacing the CAP since 2016 and still we see no clear plans, objectives or communications with those at the sharp end – farmers – in this multi-billion pound, radical overhaul of the way land is used and, more crucially, food is produced in this country,” said committee chair and veteran Tory MP Sir Geoffrey Clifton Brown.
A longer-term outcome to the change of farm payment may actually result in a reduction of the amount of food produced in the UK leading to lower levels of food self-sufficiency, and potential security.
National Food Strategy
The National Food Strategy, led by Henry Dimbleby, was published in July 2021. It aims to address the key challenges in the UKs food system, from food poverty to its environmental impact. It calls for serious action to be taken to escape the ‘junk food cycle’, including sugar and salt taxes on manufacturers. It also highlights the need for a 33% reduction of red meat consumption per capita by 2030 for sustainability reasons.
The Government is due to officially respond this month, and although unlikely, if it were to endorse and action the National Food Strategy recommendations in full, it would have a transformative impact on the food industry.
Following on from the implementation in October 2021 of Natasha’s Law, requiring pre-packed food for direct sale to clearly label allergens, from 01 April, English hospitality businesses, such as restaurants, pubs, and takeaways, will be required to display the calorie content of the food being sold on their menus and labels. Initially the law will apply to English businesses with more that 250 employees preparing food and drink for immediate consumption.
This legislation, currently focused on the larger foodservice operations, again shows the direction of travel of providing information for the consumer at the point of purchase.
In danger of stating the obvious, unfortunately it appears that 2022 will continue where 2021 left off and bring significant challenges for the foodservice and catering industry. Now more than ever, the support of a food procurement expert, to help you manage these food supply chain challenges as well as food inflation and budgetary pressures, is likely to prove essential.