Food price inflation it’s going to get uglier

Since 2007 the increase in food prices in the UK has been in excess of 30%.

Currently UK Food price inflation in running at 3 - 3.5% but looks set to rise to 5%. 

On a global basis the recent hikes in price of key grains such as corn, wheat and soybean were recently described by the World Bank president as "historic".

The bank warned countries importing grains will be particularly vulnerable. 

During June to July 2012, corn and wheat prices each rose by 25% while soybean prices increased by 17%, the World Bank said. Only rice prices decreased - by 4%. 

In the United States, the most severe, widespread drought in half a century has wreaked havoc on the corn and soybean crops while in Russia, Ukraine and Kazakhstan, wheat crops were badly damaged. Here in the UK the effects of the wettest year on record will filter through in the coming months. 

The World Bank said that the use of corn to produce ethanol bio fuel - which represents 40% of US corn production - was also a key factor in the sharp rise in the US maize price.

Livestock and milk related products will rise in accordance with the higher costs of grain based feedstuffs. 

Food manufacturers are caught in a vice; the buying pattern for many has been “just in time” reflecting the need to keep inventories as low as possible. 

However without the safeguard of a “buffer stock” they are now more than ever exposed to the harsh reality of having to “pay up” in order to secure the raw materials to keep their facilities in production.

At the same time they will continue to face the problems of operating in the current economic background with buyers seeking to delay payment, renegotiate contracts etc.