We’re enjoying some of the cheapest food prices in the world—but because of inflation, the cost of eating keeps going up.
The UK government is now chasing headlines with a poorly conceived idea that won’t work: price controls.
“Downing Street is drawing up plans for retailers to introduce price caps on basic food items such as bread and milk to help tackle the rising cost of living,” reported The Telegraph.
Sources inside the government of Prime Minister Rishi Sunak have insisted that these “price caps” will be “voluntary.”
Maybe that’s true, but this sounds more like government posturing. What it exposes is a fundamental lack of understanding of food production and the agri-food supply chain within the UK.
We’re all worried about inflation, of course. It’s among the most pressing economic challenges in the world right now. It’s especially bad in the UK. In May, our consumer prices rose by 8.7 percent compared to a year earlier. That’s down from a peak of 11 percent last fall, but also higher than what consumers are facing in much of the rest of Europe and the United States.
Food inflation in the UK is even worse: Prices were up more than 18 percent in May, versus a year earlier.
I’m feeling the pressure of inflation on my farm. Just about everything is becoming more expensive, especially the labour costs associated with repairs and servicing. Thankfully, fuel recently has levelled out and fertilizer and crop protection also have come back into line. Even so, I’m nervous about how food inflation will affect consumer behavior. As a beef producer I have to be aware of what reaction there is by consumers to higher shelf prices. If it turns people away from beef, it brings additional challenges for my farm.
Containing inflation is a priority for everyone.
Our strongest allies may be the retailers who would bear the brunt of price controls, whether mandated or voluntary. Although casual observers might assume that grocery stores love it when they can charge more for boxes of cereal and hamburger patties, the reverse is true. “We need those prices to come down,” said Walmart CEO Doug McMillen in May, according to the Wall Street Journal.
That’s because stores compete for everyone’s business. In a market economy, consumers always have choices and alternatives. They’ll find ways to save money. As a farmer, we may not always believe it but there is a dynamic competition in the retailing sector as the growth of the discounters has proved.
Understanding what has caused inflation is vital. It’s a result of demand but particularly in the context of food, this cycle has been driven by the supply side. That’s not necessarily what consumers and politicians want to hear. They prefer quick fixes. They want to talk environment not food production. It plays better in opinion polls. The problem with quick fixes is that they sell a simple illusion. Food supply is a complex, long, slow, weather-related in many parts, chain directly linked to the environment. There is no quick fix.
That’s why price controls are a real bluff call—a political quick fix when what we need is an economic solution and recognition of the importance of productive agriculture.
Food inflation requires long-term thinking on a global basis. An end to Russia’s war in Ukraine might help stabilize grain prices and eliminate a lot of economic uncertainty, but peace is difficult to foresee. Climate issues in regard to rising temperature and water are likely to get worse.
Ultimately, our supply chains will have to adapt with more flexible arrangements and a better balance from farmers through to retailers. This will take time. It probably will involve the frustration that accompanies any kind of wait.
Farmers have an important role to play. We have a track record of farming our way to lower prices. If prices tell us that the market wants more milk and eggs, then we’ll respond by supplying more milk and eggs. Nobody makes money from empty shelves!
These adaptations can take time, too—and environmental regulations have made us less nimble than we once were. As we think about enduring solutions to inflation, we should reconsider the rules that restrict the responses of farmers.
Let’s also count our blessings. Genuine hunger is a limited problem for an unfortunate few in the UK and the rest of the developed world and often comes with social problems, even in a time of food inflation. There should be a more effective solution to ensuring base nutrition is affordable and accessible. Today obesity is a massive growing problem in the UK, we are even seeing growing malnutrition as a social challenge.
Food inflation is real and prices are higher, that’s partly because they already had sunk to record lows, thanks to the constant development and adoption of new techniques lifting agricultural productivity and the amazing innovative supply chains that move food from farm to fork.
Working with farmers, backing research, and adopting a global perspective will lead to reduced food inflation without price controls. Not only that, we can do it in smart ways sustainably, and deliver environmental benefit.
Featured photo by Markus Winkler