The fluctuations in currency exchange rates have been well documented since the vote for the UK to leave the EU. Good for exports and bad for imports is the general view we hear. In terms of UK food supply, we import about 40% of all the food we consume. Maths isn’t my speciality, but I have calculated that a 10% reduction in the value of sterling would mean food prices should have to rise by about 4%. But this hasn’t happened. So food right now is much cheaper than it should be.
Now, the challenge is to try and find an explanation for this. Perhaps the manufacturing sector has found ways of reducing costs through efficiency savings, but this doesn’t really add up as it’s been under extreme pricing pressure going back to the start of the supermarket price wars. There was the case of Tesco vs Unilever, and the ‘people’s champion’ won the day by not accepting the price rises. Well, it seems we have a lot of ‘people’s champions’: very few large retailers and foodservice operators are allowing manufacturers to increase their prices due to the exchange rate issue created by Brexit.
So what’s the impact of this on the manufacturers? Some feel they must retain contracts at all measures and are putting off investments as a result. Hardly the thing to help maintain a sustainable manufacturing sector. Other manufacturers have decided not try to compete with businesses that seem to be able to absorb increased cost of goods.
Several important questions come to mind. Are manufacturers being forced into cutting corners and purchasing raw materials from cheaper alternative sources more vulnerable to fraud? Which areas of our food supply chains are at most risk? Are the citizens of the UK really being looked after by a refusal of retailers and foodservice providers to accept price rises?
In the bad old days of Horsegate, when there were substantial cost pressures on manufacturers, the end result was fairly large-scale fraud in the red meat sector. Many said they had no idea about what was going on. For all those individuals and others in the same position, please note that this time culpability will be firmly allocated to those who turned a blind eye.
Chris Elliott is director of the Institute for Global Food Security at Queen’s University, Belfast