Farmers need to play a careful game on food prices

However the news that inflation has entered double-digit territory, with more to come, is a return to an era of stagflation we have not been in for forty years. This is no return to any good old days, but to a nightmare situation that destroys consumer confidence and spending.

Inevitably food prices are in the media's firing line, but in reality there is evidence that globally food prices, along with oil prices, are beginning to move away from the record highs of the past few months.

Prices are now the number one topic for conversation and inevitably people wonder when food prices will go back to the days, just a few months ago, when competition between supermarkets kept prices down.

This was paid for by suppliers in general, and farmers in particular, often operating below the cost of production. People get annoyed when you suggest food prices are now in fact realistic and that somewhere close to present levels is where they need to be. We have enjoyed living through an era of artificially low food prices, but where we are now needs to be closer to the norm if farming is to have a viable future.

Current increases have been driven by higher costs right along the food chain and that is not going to change. Depending on what age you are, your parents or grandparents, back in the 1950s, were spending close to 40% of their disposable income on food, shopping daily in small corner shops.

Then along came the supermarket revolution and that figure fell steadily to somewhere around 12% before the current price spike. It is probably still not much more than 15%, with careful, sensible shopping, and certainly well below 20% and what past generations spent to feed their families.

As things settle it may be an unpopular thing to say, but farmers and the food industry need to make sure they offer quality and value, without a return to an era of unrealistically cheap food. From paying more for food people hopefully value it and the work that goes into producing it. That is how things need to be.

The rise in food prices has come from what economists call cost push. They reflect farmers and others passing on rising costs and not from any change in demand. The scale of the increase in costs cannot be absorbed, but current high prices are not leaving farmers better off than they would have been had they not been first in the firing line for global inflation of energy linked costs.

There is however evidence that while global food prices remain higher than a year ago, they are falling. According to the United Nations Food and Agriculture Organisation (FAO) index figures, prices have fallen for four consecutive months.

Prices fell 8.6% from June to July, led by a 20% reduction in vegetable oil prices as the world readjusted to the loss of Ukrainian sunflower oil. However the sting in the tail is that prices for all food, while coming off peaks, are still 13% ahead of July 2021.

Cereal prices fell from June to July, down by 12%, but are still 17% ahead of 2021. Wheat prices are a quarter higher that in 2021, as are dairy prices – with any reductions being tempered by concerns around the impact of drought on yields.

This year-on-year increase is what is driving the inflation figure, but it is not of farmers' making. The FAO offers some hopes of prices falling – but it warns that with a gas crisis looming this winter, fertiliser prices will be driven up again, triggering another cost push inflation cycle in agriculture.

As we move into what is going to be a tough winter for consumers, farmers need to play a careful game on food prices. They need to make clear that they too are victims of energy price inflation. It is important to get across the message that higher food prices reflect higher costs and do not translate into higher profits.

Above all farmers need to win the battle to finally get food prices to more realistic levels on a long term basis, so that we do not collapse back into selling quality food in a cheap food environment.