'Fundamental' Brexit effect on food and drink prices expected

By Finn Scott-Delany

- Last updated on GMT

The index showed a gap opening up between the consumer and foodservice cost of fish and seafood as a result of seasonal price movement
The index showed a gap opening up between the consumer and foodservice cost of fish and seafood as a result of seasonal price movement

Related tags: European union

Brexit will have a fundamental impact on food and drink prices, with foodservice inflation expected to rise by 3.4 per cent in 2017 alone, David Read, chief executive of Prestige Purchasing has warned.

Read said that even before Brexit, with Sterling’s deprecation likely to settle at around 15-­20 per cent, it could be assumed a total impact on food and drink prices of around +5 per cent.

According to BigHospitality's sister publication MCA Insight​, Sterling’s weakness is also likely to affect the cost of oil, which will in turn increase the cost of food transportation – though 52 per cent of food produced in the UK, which is less affected by exchange rate movement.

Read was speaking at the launch of the Foodservice Price Index (FPI), a new measure developed by Prestige Purchasing and CGA to more accurately reflect food costs in foodservice as opposed to the Consumer Price Index (CPI).

The measure shows that while retail prices have deflated at ­2.5 per cent YTD, foodservice prices have inflated at an average of 0.5 per cent YTD, with a gap between the two of 5 per cent in September 2016.

In particular, the index showed a gap opening up between the consumer and foodservice cost of fish and seafood as a result of seasonal price movement.

It was not all doom and gloom, with the possibility of sanctions against Russia ending and its thawing of relations with the west predicted to lower the price of wheat as the country vies to become the number one producer in the world.

In the longer term, Read warned the government’s lack of post Brexit Food and Farming Strategy, and withdrawal from the Common Agricultural Policy (CAP) could have a major impact on food costs in the future. CAP costs 58bn Euro – nearly 40 per cent of the entire EU budget – with UK farmers receiving 3.1bn Euro in direct payments, with 55 per cent of UK income from farming coming from CAP support.

Trade deals

Read also cautioned that food and drink prices were particularly vulnerable to trade deals, particularly when considering the £22.8bn trade gap on food and drink in the UK, with 29 per cent of all food consumed in the UK imported from the EU. 

Read said: “How the UK farming industry is supported once we leave the EU is critical – politically, financially, environmentally, and from a food security perspective. “No guarantees have been given by the government about what, if anything, will replace CAP – although it is generally accepted that some sort of alternative subsidy regime will be introduced.

“Farmers are concerned that public opinion will argue against matching the £3bn currently received from the EU, so primary producers may find their incomes under threat. This could result in many going out of business and could also have a direct impact on food prices as supermarkets are forced to increase prices to ensure security of supply.”

Read also cautioned that food and drink prices were particularly vulnerable to trade deals, particularly when considering the £22.8bn trade gap on food and drink in the UK, with 29 per cent of all food consumed in the UK imported from the EU. 

CGA and Prestige Purchasing will produce a monthly report into foodservice prices.

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