Analysis: The end of cheap food

Costs are rising across the board… including carbon dioxide, gas, feed, packaging and labour

On 22 September, Kwasi Kwarteng, the business secretary, announced the Government had done a deal to pay millions of pounds of public money to CF Industries, the American-owned fertiliser company, which produces as a by-product 60% of the carbon dioxide used in the poultry industry for stunning, packaging, and refrigeration.

The company had said it would stop production at its two factories in England due to rocketing gas prices. Now there has been a reprieve, albeit a temporary one.

The bail out lasts three weeks, after which prices for C02 are expected to rise substantially. The bill will be footed by poultry processors. Environment secretary George Eustice told the BBC he expected C02 prices to increase five-fold, to £1,000 per tonne.

“The reality is carbon dioxide prices are going to rise, probably quite sharply. The food industry understands that they will need to pay more for that carbon dioxide.”

The increase in cost is yet another blow for the industry already reeling from multiple challenges, including the rising price of gas, which could impact poultry producers who heat their sheds with gas rather than biomass boilers. Wholesale gas prices have risen 250% since the start of the year and 70% since August.

Poultry feed prices have been volatile over the past two years; during 2020, prices were between 50% and 80% above the industry average, resulting in a basic feed ration reaching a five-year high. 

All these rising costs come on top of the now well-publicised labour shortages. At last month’s Poultry Meat Conference, held online, Patrick Hook, director of PD Hook Hatcheries, told delegates the industry had in recent months been forced to scale back poultry production by between 10-15% due to lack of workers in factories.

“After Easter the cracks started to appear,” he said. The amount of available labour “ultimately will dictate what our industry can produce. Who says we won’t have to cut back more?”

Shortages are already being seen on shelf, and prices in supermarkets are inevitable, said Hook.

“Food inflation is a reality, empty shelves are a reality. There is a huge shortage of HGV drivers. And food waste is a reality. All those things have already happened.”

Automation is coming, Hook added, and million of pounds have been spent. “But at the same time, we still need people. Furlough is ending, and that will be a test of whether British people want to work in our industry.”

Ranjit Singh Boparan, founder of 2 Sisters Food Group and owner of Bernard Matthews said the threat of C02 shortages had been a “massive body blow” on top of all the other challenges the poultry industry was facing.

But lack of labour especially was the biggest problem. “There are less than 100 days left until Christmas and Bernard Matthews and my other poultry businesses are working harder than ever before to try and recruit people to maintain food supplies.

“Nothing has fundamentally changed since I spoke about this issue in July. In fact, I take no pleasure in pointing out that the gaps on the shelves I warned about then are getting bigger by the day. The supply of Bernard Matthews turkeys this Christmas was already compromised as I need to find 1,000 extra workers to process supplies.

Boparan said Brexit had acutely reduced available workers across the food sector. 2 Sisters has seen, on average, 10% labour shortages for its 16,000 workforce this year, the majority who work in chicken and ready meal production facilities.

Inflation had also caused problems. Feed inflation is at an eight-year high, said Boparan. “Wheat, soya and other components have risen by more than 50%; packaging up 20%; Energy costs up 30%. Some food sector items such as stainless steel equipment have doubled in cost.”

Wages were also up, he said, across the board, from hatcheries, to farms, to logistics and delivery.

Boparan added: “I do not normally like to intervene in these issues and would rather sort out them out quietly and internally. But I have never quite seen anything like this since I started out in 1992 and someone needs to speak out about this as it is damaging our sector beyond repair. It’s tough enough having one hand tied behind our backs by simply not enough people to supply food.”

Trade bodies have in recent weeks ramped up their lobbying efforts. Roundtable discussions convened by the NFU have been held with ministers, asking for emergency access to labour from the EU.

The request has been couched as a response to the pandemic. A “12 month COVID recovery visa” is the phrase being used, even though nobody in the industry believes the cause is anything other than the change in immigration policy introduced at the start of the year.

The BPC and BEIC also wants an urgent review by the Migration Advisory Committee (MAC) on the impact of ending free movement on the food & farming sector, in the same way it is doing for adult social care.

Defra eventually gave way in late September, with the announcement it would permit 5,500 poultry workers on temporary visas to come over from the EU for the Christmas season. What prompted the change of heart? It’s possible that with Tesco warning of food shortages at Christmas, the idea of being at the helm of a Government when Christmas is cancelled two years in a row was becoming increasingly unpalatable.

Of course, these numbers are not enough. Whether the Government bows to the industry and extends the scheme further is far from certain. But what is clear is the events of the past two years mean the reality of food price inflation is now baked into the industry.

 

 

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