Britons have benefited from nearly two years of cheaper groceries as struggling supermarkets fight for shoppers but the historic vote to leave the EU could spark higher prices in store. The drop in the value of the pound is already reverberating through the food industry as farmers, producers and retailers face up to rising input and sourcing costs. And longer term they will also face new, potentially more costly, conditions governing the flow of goods – and people – in and out of the country.

Britain produces roughly 60{06aeb1921e0b802d2bd9c766bc98fb11cc6a46c2b0593ed9c88a0e29cf417a34} of the food it consumes and as of last week the remainder got a lot more expensive to import. The post-referendum financial market gyrations have dented retailers’ buying power, with the pound falling 11{06aeb1921e0b802d2bd9c766bc98fb11cc6a46c2b0593ed9c88a0e29cf417a34} against the dollar and 8.7{06aeb1921e0b802d2bd9c766bc98fb11cc6a46c2b0593ed9c88a0e29cf417a34} against the euro since the poll. According to the National Farmers Union (NFU), only 15{06aeb1921e0b802d2bd9c766bc98fb11cc6a46c2b0593ed9c88a0e29cf417a34} of the fresh fruit sold in the UK and 55{06aeb1921e0b802d2bd9c766bc98fb11cc6a46c2b0593ed9c88a0e29cf417a34} of the vegetables are grown here. Most of the rest, including citrus and soft fruits, comes from the EU. Pork is another foodstuff likely to be heavily affected, as nearly 40{06aeb1921e0b802d2bd9c766bc98fb11cc6a46c2b0593ed9c88a0e29cf417a34} sold in the UK comes from overseas.

The NFU president, Meurig Raymond, states the fragility of sterling will make food more costly to produce as the price of inputs such as fertiliser, protein feed and energy rise. “We have seen exchange rates drop in the last week and there is no doubt that is going to add to the cost of inputs, as they mostly trade in dollars,” he said. Farmers are also uneasy about the withdrawal of EU subsidies. British farmers received €3.1bn from Brussels through the common agricultural policy last year, with the average income just over £20,000 in 2014, 55{06aeb1921e0b802d2bd9c766bc98fb11cc6a46c2b0593ed9c88a0e29cf417a34} of which came from the EU, this is according to the NFU.

The fragility of sterling pushes up business overheads because gas and electricity is hugely influenced by crude oil, which is traded in dollars. Transport costs will also come under stress as the cost of running vehicles, from tractors ploughing fields to retailers’ wagons thundering down motorways to restock stores, starts to bite. Brian Madderson, chairman of the Petrol Retailers Association, said the price of diesel had risen 2.6p a litre since the referendum. With some investment banks predicting the pound could fall from its current level of $1.33 to $1.15, Madderson said a drop to that level would probably add 5p to pump prices. “100{06aeb1921e0b802d2bd9c766bc98fb11cc6a46c2b0593ed9c88a0e29cf417a34} of food across the UK is moved by road, we are a road transport economy and what happens to fuel prices will have a significant impact on prices in the shops,” he stated.

The food and retail industry is heavily dependent on workers from other EU countries, with 292,000 migrants working in UK manufacturing and another 230,000 in retail and wholesaling in 2015, this is according to ONS figures. Earlier this week Ian Wright, director general of the Food and Drink Federation, warned that the food industry could be faced with a skills shortage as more than a quarter of its 450,000 workforce comes from eastern Europe. “We would expect that any curtailment of freedom of movement of EU nationals coming to the UK will have some impact, given that so many are currently employed by retailers,” said the Verdict Retail analyst Maureen Hinton. “This constraint to labour supply may push wages up, though this impact may be mitigated by retailers cutting down on staff, in a bid to rein in the increased costs of goods in their supply chain.”

Grocery prices toppled 1.4{06aeb1921e0b802d2bd9c766bc98fb11cc6a46c2b0593ed9c88a0e29cf417a34} over the last three months and have now been in decline for almost two years. British shoppers can thank the growing might of Aldi and Lidl for putting pressure on rival supermarkets to reduce prices but will they be able to absorb new Brexit-related price pressures or instead pass them on to consumers if sterling remains under pressure? Kantar Worldpanel’s Fraser McKevitt says the answer is a complicated one due to the number of moving parts: “If sterling stays 10{06aeb1921e0b802d2bd9c766bc98fb11cc6a46c2b0593ed9c88a0e29cf417a34} lower will we see price rises of 10{06aeb1921e0b802d2bd9c766bc98fb11cc6a46c2b0593ed9c88a0e29cf417a34}? No. The market couldn’t take it. You also have to look at how much of a product’s cost is down to importing it as opposed to moving, warehousing and chilling it [in the UK]. It is not a one-to-one relationship but we are likely to see price rises in very basic foodstuffs like fruit and veg in the coming months.”

Source: The Guardian