Face Facts – Cheap Food Era Has Ended

Couple of weeks ago Alistair Darling, the Chancellor of the Exchequer, told the BBC that by ending the Common Agricultural Policy (CAP), food prices could be brought under control. A week later he met supermarket chief executives, the National Farmers’ Union’s president and the British Retail Consortium to discuss, yes, food prices.

The Downing Street summit was held under Chatham House rules, so there were no formal announcements afterwards. Let us hope this was a meeting when a few facts were laid bare, to enlighten Mr Darling about the true state of the world economy and its impact on our food prices.

Fact number one: It is the economy, stupid, as Bill Clinton famously once said. Although Britain has had its own problems in the last year – notably the Northern Rock debacle, costing taxpayers at least pounds55 billion, and the 10p tax rate disaster, adding another pounds2.7 billion to Government borrowings – there is a global economic crisis too, particularly in western countries hit by problems in property markets.

Fact number two: Food prices are rising because of a simple rule of economics – supply versus demand. The world’s population is growing, emerging economies like India and China have created new, prosperous markets for western foodstuffs including meat and dairy produce. At the same time, drought and severe weather conditions, and the number of farmers switching to growing crops for biofuels, mean that world grain stocks are at historic lows.

Fact number three: The rising price of oil will push prices up even higher. Crude oil reached US135 a barrel last week, and forecasts suggest it could reach US150 later this year. In one year the price has doubled – it was US67 a barrel in May 2007. This affects the price of producing, growing, harvesting, processing, packaging and transporting foodstuffs. At the same time many costs in addition to food have escalated, from energy for heating and light (gas bills have risen 120 per cent in the last year) to mortgage and credit costs.

Putting these facts together, you wonder exactly which planet the Chancellor is on if he believes food prices can be brought down, or even maintained at present levels. Continually rising oil and fuel costs will inevitably filter through the food chain to the consumer.

For example, the average price of bread has gone from 91p in 2007 to pounds1.12 now, with more increases likely. Only a small percentage is due to rising wheat prices, (the cost of grain makes up about 5 per cent of the total cost of a standard loaf); there are also higher costs of processing, baking and distributing the 12 million loaves we eat each day.

In the last couple of decades the supermarkets have used their buying power to keep their suppliers on a short leash when negotiating prices. Years of market dominance have allowed them to keep food prices unnaturally low.

But last year they were forced to give way when Kingsmill, one of the largest manufacturers in the bakery sector, threatened to stop supplying major retailers if they would not agree to higher prices.

An increase was agreed, as it was for milk, but these are exceptions. One thing is certain, they will continue to vie with each other to have the lowest prices possible – a position reiterated by Asda chief executive Andy Bond when he recently said he intended to be "very assertive" with his suppliers. This suggests the supermarkets share Mr Darling’s myopia.

This paper has argued before that as the world’s population grows and food supplies tighten, "buy local" will gain in importance at all price levels, while the "buy it cheaper from abroad" philosophy will become unviable – first because of fluctuations between supply and demand; second because many imported products fail to meet the same high standards that UK consumers have come to expect; third, because of unfavourable exchange rates.

After the Second World War, Britain was relatively secure in its ability to feed itself: since then food security, one of the original issues behind the CAP, has disappeared from most politicians’ radar. The frightening truth is that Britain is now only about 60 per cent self-sufficient in food, and that some aspects of the CAP, notably compulsory set-aside, have not helped.

Claiming that unravelling the CAP will make food cheaper is nonsense, as many other EU member states, particularly France and Germany, will not agree to it and many small European farmers would go out of business, putting more pressure on world food stocks.

Most consumers do not understand that until recently, in real terms, food prices have effectively been falling, rising slower than the cost of living. The share of our disposable income spent on food each week has fallen to less than 10 per cent, compared with more than 30 per cent 50 years ago. This has given many families plenty of spare cash to spend on clothes, furnishings, holidays and the latest trends and gadgets.

There are no easy solutions for a market that is changing rapidly and irrevocably. What we need is a government that understands the issues rather than behaving like a modern King Canute, believing that talking to the supermarkets is enough to solve a problem that is in fact largely out of any one nation’s control.

As NFU president Peter Kendall recently said, this situation has been exacerbated by the Government’s decade-long agenda of consistently trying to dismantle domestic food production, vilify farmers and undermine rural economies.

"Global food prices have increased because the world’s agricultural economies have not produced enough food," he said. "It is a direct consequence of the cheap food era, and the lack of investment in agricultural development, both in Britain and around the world."

The bottom line is that we are facing a world food crisis, a world oil and energy crisis, and a credit crunch for many western economies. When it comes to oil and energy there are no quick fix solutions. Modern industrialised societies have taken oil for granted, forgetting that it is used for everything from packaging to tourism.

Do not be fooled by politicians and supermarket bosses who promise low food prices – they are powerless in the face of current events. The era of so-called cheap food has ended, and to ensure stability in the future we need investment, support and an acknowledgment that Britain’s farmers, growers, food producers and processors matter.

(c) 2008 Western Morning News, The Plymouth (UK). Provided by ProQuest Information and Learning. All rights Reserved.