The poorest will suffer the most from food price inflation this Christmas

Research shows high food inflation mean poorest families hardest hit this Christmas

High food prices are driving overall inflation in the UK and hitting the pockets of the poorest in the country hardest over the Christmas period, research from the University of Exeter Business School and Nottingham University has shown.

The cost of an average supermarket shopping trip is 5 per cent higher now than at the same time a year ago; the average cost of a Christmas dinner for six people this year will be approximately £74, £3.70 higher than last year*.

When increased food costs are combined with price increases of other household items and petrol, families, especially those on a tight budget, are going to be squeezed this Christmas, says Steve McCorriston, Professor of Agricultural Economics at the University of Exeter Business School.

“Despite a welcome drop in food price inflation last month, it remains at almost a 20 year high. Food price inflation in the UK is well above the OECD European average, meaning that poor families in Britain, who are most dramatically impacted by increasing food costs because it accounts for a higher percentage of overall household spending, are some of the hardest hit in Europe.”

The paper, Explaining UK Food Price Inflation, by a consortium of academics from the University of Exeter Business School and University of Nottingham is one of the first to examine the drivers of food inflation as distinct from overall inflation. They identify the two main factors driving food price inflation as high, and volatile, world agricultural food prices as well as the low sterling exchange rate. These two factors have a bigger impact on food price increases than manufacturing costs, labour costs and consumer demand.

“The UK imports 60 per cent of the food we consume which means we are heavily affected by changes to global food prices. UK shoppers are still feeling the fallout from the global spike in food prices in 2008 and 2009. We’ve also been adversely affected by a low pound, which has made it more expensive to purchase food from abroad.”

The paper finds that increasing oil prices are also a factor in higher food prices, not only because of increased costs associated with the manufacture and transport of food, but because agricultural land is increasingly being used to farm bio-fuels. In 2000, approximately 5 per cent of US cropland previously allocated to maize was dedicated to renewable energy crops. By 2010, this share had increased to 40 per cent.

Professor Steve McCorriston says the following factors are causing a sustained period of high global agricultural food prices:

  • Economic growth in China and India is causing a change in diet and increasing demand for meat
  • Increasing amounts of agricultural land is being dedicated to bio-fuels
  • Countries have run down stockpiles of staple foods making commodity prices more volatile
  • Governments altering food export policy to ensure their domestic market is serviced ahead of foreign markets

For more information on food price inflation, please visit the TRANSFOP website

Date: 1 December 2011

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