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Why are Food Prices So High? Wyn Morgan

Sixth form Conference 27th June 2006. Why are Food Prices So High? Wyn Morgan. Outline. Do Food Prices Matter? What is UK Food Inflation? Why is Food Inflation So High? Conclusions. Do Food Prices Matter?. Some questions…… How important is the food industry to the UK economy?

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Why are Food Prices So High? Wyn Morgan

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  1. Sixth form Conference 27th June 2006 Why are Food Prices So High?Wyn Morgan

  2. Outline • Do Food Prices Matter? • What is UK Food Inflation? • Why is Food Inflation So High? • Conclusions

  3. Do Food Prices Matter? • Some questions…… • How important is the food industry to the UK economy? • What proportion of our income goes on food?

  4. Employment & Value in the UK Food & Drink Chain Exports £14bn Imports £32bn Source: DEFRA

  5. Food Weights in Consumer Price Index (%) China, People’s Rep. of 33.20 Malaysia 30.00 Hong Kong, China 26.94 Philippines 46.58 India 57.00 Singapore 23.38 Indonesia 42.30 Taipei, China 25.00 Korea, Rep. of 14.00 Thailand 32.71

  6. 2. What is UK Food Inflation? • UK food inflation accounts for around 10% of the CPI • Basket of goods – fresh and processed • Sub-categories (with weights) include: • Fresh vegetables 14% • Meat 21% • Dairy 12% • Current rate of inflation is : • 3.3%but it reached…. • 13% (August 2008)

  7. Fig 1: UK Food CPI Inflation 1989 – 2010 (%)

  8. Fig 2: UK All Goods, Food and Non-food CPI Inflation 1989 – 2010 (%)

  9. Table 1: Annual Food Price Inflation Across Selected EU Countries (2011) Source: IMF

  10. 3. Why is Food Inflation So High?

  11. Inflation can be caused by too much demand or by costs rising. For food it is mostly the latter in a number of ways but there are three key factors…. • World food price rises • The price of oil • The exchange rate

  12. Price rises between 2006 and 2008…. 217% 136% 107% 125%

  13. Fig 3: World Monthly Price Indices (2004 = 100) (Source: FAO) Source: IMF

  14. Fig 4: UK/World Food Price & UK Producer Price Indices 2004–10 (%) Source: IMF

  15. Fig 5: US$:£ Exchange Rate 1988(1) – 2010(12) Source: IMF

  16. What role do oil prices play? Inter-linkages between world commodity prices due to oil: • It is a cost – fertiliser and transport – but not clear it drives inflation strongly (Blanchard and Gali, 2009) • Stronger via energy costs and food/oil/bio-fuel link e.g. land use in US changes affects supply

  17. Fig 6: World Food Prices and Oil Prices 1988-2011 Source: IMF

  18. Fig 7: UK Food Retail Market Shares 2011 Source: The Guardian, 16th August 2011

  19. Orange Juice: Del Monte 1 Litre Tetra Single Source: Nielsen Scantrack

  20. Fig 8: Orange Juice: Del Monte 1 Litre Tetra Single

  21. Fig 9: Tinned Tomatoes: Princes Plum Tomatoes Napolina 400g Source: Nielsen Scantrack

  22. Fig 10: Use of Sales by retailer

  23. 4. Conclusions • Food is an important part of the UK economy • Food prices add 10% to retail prices • Food inflation high at present and peaked at 13% in 2008 • Cost pressures have created inflation • Impact of global food price movements is important • Oil prices have an indirect effect through bio-fuel policies • Exchange rates matter too • Remember though we don’t consume raw food and retailers have a big say in what we pay for food

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