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

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Presentation on theme: "Why are Food Prices So High? Wyn Morgan Sixth form Conference 27th June 2006."— Presentation transcript:

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

2 Outline 1.Do Food Prices Matter? 2.What is UK Food Inflation? 3.Why is Food Inflation So High? 4.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 Retailing & Wholesaling 1,347,000£32.9bn Processing 401,000£24.5bn Agriculture 441,000£6.8bn Imports £32bnExports £14bn Employment & Value in the UK Food & Drink Chain Source: DEFRA

5 China, Peoples Rep. of Malaysia Hong Kong, China Philippines India Singapore Indonesia Taipei, China Korea, Rep. of Thailand Food Weights in Consumer Price Index (%)

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

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

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 Source: IMF

18 Fig 7: UK Food Retail Market Shares 2011 Source: The Guardian, 16 th 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 dont consume raw food and retailers have a big say in what we pay for food


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