Inflation has hit a 30-year high as energy, fuel and food costs continue to soar. A humble bag of pasta can tell us why the price of supermarket basics are rising.
Transcript
Today, what a bag of pasta can tell us about the cost of living crisis
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“The cost of living has edged up again, reaching a 30 year high. Inflation as measured by the Consumer Prices Index grew in the year to January to reach 5.5 per cent.”
BBC News
The rate at which prices are rising – called inflation – has hit 5.5 per cent. That’s the highest since March 1992.
Food price rises started to pick up pace over the Christmas period.
The cost of nearly 10,000 items went up in supermarkets, according to data from the Grocer magazine – that’s double the amount in the previous year.
And those price rises aren’t expected to slow just yet. This was the chairman of Tesco, John Allen, on the BBC a couple of weeks ago…
“In some ways, the worst is still to come, because although food price inflation in Tesco over the last quarter was only one percent, we are impacted by rising energy prices, our suppliers are impacted by energy prices, so the likelihood is that that inflation figure is yet to rise.”
John Allen
So rising energy prices are pushing up the cost of food… but what else is going on?
A bag of pasta can help us understand.
As a country, we get through about 340,000 tonnes of pasta every year. And we’re not exactly purists. Top of the list of the UK’s favourite pasta dishes are spaghetti and meatballs, ravioli and mac and cheese.
According to official ONS statistics, the price of pasta has gone up by 15 per cent since this time last year.
Kyle Monk is an analyst at the British Retail Consortium, which represents supermarkets and retailers.
“There’s the raw material costs. So you know, eggs, flour, all the component costs that go into it. There are the sort of packing and manufacturing costs, which also, you know, have varying elements to them.“
Kyle Monk
The story of a bag of supermarket pasta begins with the raw ingredients. Pasta is made mainly of durum wheat. Italy and Canada are both big producers.
The past few years haven’t been easy for durum wheat farmers. They have suffered a string of bad harvests caused by extreme weather.
A particularly disastrous one hit both sides of the Atlantic last autumn, and the cost of wheat shot to record highs. Pasta makers were forced to pay 90 per cent extra for raw ingredients.
“When you think about all the complexity that goes into it, it is actually mind boggling that you could and may still get may still be able to, in some places get a pack of pasta for 50p.”
Kyle Monk
To make pasta, wheat is ground into a fine flour before being processed into pasta shapes and packaged up. Costs are rising at this stage too.
Energy prices going up makes manufacturing more expensive and contributes towards higher packaging costs too.
Finally, the pasta needs to get to the supermarket shelves:
“Logistics are the next big thing. So getting your pasta from the factory gate, to the end point of sale. And, you know, over the pandemic, we as the BRC have been beating the drum of the fact that there was, you know, 50 to 80,000 fewer HGV drivers than there should have been in the UK.”
Kyle Monk
So, our packet of pasta is getting more expensive to make at almost every stage: ingredients; the manufacturing; the delivery.
And the bad news for shoppers? It doesn’t stop with pasta.
Higher energy and logistics costs have hit products across the board, and while durum wheat may be an extreme example, climate change has started affecting crops needed to make everything from cereals to bread.
But here’s the thing about these additional costs – the way they filter through to the prices you see on supermarket shelves isn’t equal.
The price of the cheapest bag of pasta you can buy is actually rising much faster than more premium brands.
And that’s down to supermarket margins.
“There’s hardly any margin in it. It’s essentially a raw material with nothing else wrapped around it. If you’ve got a more of a premium product, you’ve got more flexibility of what you can do…”
Andrew Thompson
That’s Andrew Thompson, from a company called Sentinel. They advise supermarket suppliers:
“But there’s nowhere else to go down the lower end. It is the cheapest on display product. It has been absolutely stripped out of any added value. Therefore, if that is fundamentally impacted by commodity prices, then it’s going to suffer more disproportionately.”
Andrew Thompson
He says that this is a familiar pattern. When food inflation hits, it’s cheaper products that see the steepest price rises.
“If you look back at previous shocks that have hit shoppers, the two in the last 15 years – you’ve got the 2008/9 financial crisis, it was the lower-end products that suffered more as a result of inflation. And the same for Brexit in 2016 when there was a foreign exchange swing against the cost of imported products… It was the products at the lower ends of those margins that went up proportionately higher.”
Andrew Thompson
But this time around, Andrew says the cost pressures on suppliers are even more extreme.
It’s worth mentioning here that Andrew gets an early look at future food prices, because it takes 2 to 3 months for decisions to filter through to the price of food in the shops…
“In an average year about 5% of our work will be based around helping suppliers get a cost price increase through. In the last three months, 95 per cent of our work is based around that. And anyone in the industry will tell you the same. I’ve never, never seen anything like it.”
Andrew Thompson
So, it’s likely that the cost of food will continue to increase.
But it’s the people who already have the lowest incomes – those that rely on those budget bags of pasta – that will find themselves shouldering the biggest price rises.
Today’s story was written by Kim Darrah and produced by Imy Harper.
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