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A bleak harvest of rising farm prices and scarcity is bringing on the prospect of a feeding frenzy
by John Marshall
The gravity of the global food crisis can be gauged by the fact that it commanded as much attention as the credit crunch at spring meetings of the World Bank and IMF. World Bank President Robert Zoellick, said the doubling of food prices is pushing 100 million people into long-term poverty, while the IMF’s MD Dominique Strauss-Kahn warned of a ‘terrible crisis’, which has already sparked food riots in
several countries.
Although Zoellick and Strauss-Kahn agreed to look at the ‘possible link between biofuel crops and rising food prices’, the real impetus is the growth in the world population and increased living standards in countries such as India and China.
With these dire warnings policy makers will clearly seek to increase agricultural production as well as producing short-term palliatives such as increased food aid. That should lead to a re-examination of the case for GM foods, which certainly increase productivity, and should benefit international companies such as Monsanto, which enable farmers to increase their output.
Food price riots are unlikely in the UK but the impact of higher grain prices will feed through to products such as dairy, meat, flour, bread and cake. A shortage of hard wheat has even left Waitrose with no own-label pasta.
Food processors are used to trying to recoup higher ingredient prices but so far they have enjoyed mixed success. Premier Foods’ bread business has suffered a massive decline in profitability, but it is not alone, with shares in many of the own-label manufacturers weakened as management battles to recoup higher costs. This has been made more difficult by the decision of several retailers, such as Marks & Spencer, to rejig their supply base while they also become more price-conscious.
Promotional activity has increased as competitors react to Morrison’s success in gaining sales - a success that has been based in part on emphasising value. The Grocer, which regularly monitors food prices, believes ‘consumers are finally seeing prices hold’. Tesco recently claimed that food prices at its stores had risen by just 3%, and that customers expect it to ‘hold prices down’.
Although supermarkets may be willing to share some of the pain with their suppliers, the increased emphasis on price will almost certainly erode the margin, placing more pressure on own-label manufacturers, Premier, Uniq and Northern Foods.