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Competition watchdog to study link between input costs and high food prices

The UK competition watchdog plans to gather evidence from suppliers and retailers as part of its work to assess how “competition” is working in the grocery retail market in the UK.

In an open letter to stakeholders published yesterday (Tuesday, May 30) the Competition and Markets Authority (CMA) said it is seeking to determine the “drivers” of grocery price inflation.


The CMA warned that it was “stepping up” its work in the grocery sector and that it plans to identify which “product categories, if any, might merit closer examination across the supply chain”.


Earlier this month the Prime Minister, Rishi Sunak, hosted a farm to fork summit on the how government and industry can work together “to support a thriving UK food industry”.


The summit highlighted that farmers should be paid a “fair price for their produce”.


The UK’s competition regulator today said it has been working to understand how well markets in essential goods and services are working as “cost of living pressures have grown”.


The CMA has said that it will explore data from the Office for National Statistics (ONS) relating to retail prices and trends in input costs for farmers.


It said it was “particularly interested” in hearing about the relationship between changes in input prices and changes in consumer prices.


The CMA said that food prices are dictated by competition at the three main levels of market:


  • Competition between retailers, where consumers shop for their products;

  • Competition between suppliers who make the products and sell them to the retailers;

  • Competition between raw material providers who provide the inputs to food suppliers.


We will publish a report on our Unit Pricing work, including recommendations to government, at the same time,” the CMA said.


“To inform our work, we have started our plan to speak to a wide range of stakeholders from across the UK between now and the end of June.


“We want to speak to suppliers and retailers, consumer associations, industry bodies, national and devolved government, industry experts and other stakeholder groups from across the UK.”


Competition


The CMA said it was interested in understanding different perspectives and engaging with market participants to build “an informed picture of the market”.


As well as this, the CMA also wants to gain more information on:


  • The drivers of groceries price inflation, and expectations of future price

  • developments;

  • Price setting and profitability at different points in the supply chain;

  • The effectiveness of competition in any part of the groceries supply chain, including any constraints or bottlenecks that might dampen competition between suppliers.


Inflation


The CMA open letter follows statistics from the British Retail Consortium (BRC) that showed shop price annual inflation is running at 9% in May, up 0.2% from last month.


The trade association for retail businesses said that this brings shop price growth to a “fresh high”.


Chief executive of the BRC Helen Dickinson said that, while shop price inflation rose, Britain is still benefitting from some of the lower food prices available in Europe.


She added: “Fierce competition between supermarkets has helped keep British food among the cheapest of the large European economies.


“While there is reason to believe that food inflation might be peaking, it is vital that government does not hamper this early progress by piling more costs onto retailers and forcing up the cost of goods even further.


“The biggest risk comes from policies such as the incoming border checks and reforms to packaging recycling fees.”


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