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Soaring food prices not being driven by profiteering, says watchdog

The Competition and Markets Authority (CMA) has found high food price inflation is not being driven by anti-competitive pricing, but analysts warned suppliers are continuing to feel the squeeze.

The CMA launched an investigation into how retail competition is working in the UK grocery sector amid soaring prices in May, following accusations that supermarkets were “profiteering” from “greedflation” during the cost-of-living crisis.


However, the watchdog found: “Although food price inflation is at historically high levels, evidence collected to date by the CMA indicates that competition issues have not been driving this.”


Operating profits at the UK’s major supermarkets, including Asda, Morrisons, Sainsbury’s and Tesco, fell by 41.5% in 2022/23 compared to the previous year, while average operating margins fell from 3.2% to 1.8%, it said. The CMA also noted retailers’ costs have increased faster than revenues, indicating rising costs have not been passed on in full to consumers.


The British Retail Consortium CEO, Helen Dickinson, said the findings show retailers have gone “above and beyond” to protect consumers from rising supply chain costs.


She said: “Supermarket margins have remained extremely tight as they try to support their customers and absorb the worst of the rising costs in the supply chain. In the last few months, some of these pressures have begun to ease, such as with global commodity prices and the weakness of the pound, and we are now seeing competition driving down the price of key staples.


“This fierce competition between British supermarkets has also been a key reason why the UK continues to deliver among the cheapest groceries in Europe.”


But the CMA noted that now some input costs are starting to fall, there are signs that grocery retailers are planning to start rebuilding their profit margins.


The City, University of London’s emeritus professor of health and food policy, Martin Caraher, told Supply Management supermarkets were not necessarily “profiteering”, but maintaining their profit margins at the expense of struggling suppliers.


“We know that some of the major supermarkets have called in their suppliers and are asking for reductions in price,” he said. “But the problem is not for the consumer, it's for supply chain people down the line – the farmers, the producers, the processors.”


Caraher said high food price rises were due to “government inaction”, and the government has left it to supermarkets to tackle inflation alone. “[Supermarkets] are not there to provide a social service,” he said.


Caraher explained falling costs mean consumers will see prices fall, but this will be absorbed by suppliers. He called for the Groceries Code Adjudicator to step in to adjust prices paid for goods throughout the supply chain.


“The government is not really tackling this as an issue. We haven’t got a plan in place. We don't have a contingency plan. It's pretty disastrous for the supply chain. And I think it's unfair to say this is just supermarkets. The government mantra is ‘Tesco will deliver’.”


The British Growers’ Association CEO, Jack Ward, said there has been “consistent downward pressure” on fresh produce prices for the last decade. He explained that growers have “absorbed disproportionate amounts of cost increases” to give consumers better deals.


“We have run out of road on that strategy,” he explained to SM. “You cannot keep expecting growers to dip into their balance sheets to provide produce at unsustainably low prices, coupled with the impact of climate change. And if you look at what's happened just in the past 12 months, the supply of produce has become significantly less certain. And we have got to as a sector do something to address that. Otherwise, we're going to see more and more empty shelves.”


The British Meat Processors’ Association CEO, Nick Allen, told SM the meat supply chain was “not seeing any signs of a profit being made from the farmgate right through to the retailer”. He added that the price being paid for food by consumers has “barely been covering the cost of producing it”.


The Office for National Statistics found annual grocery inflation stood at 14.9% in the four weeks to July 9, falling 1.6 percentage points from the 16.5% figure recorded in June data.


The CMA called on the government to bring in new rules to allow consumers to compare prices on a more accurate basis to make meaningful price comparisons between store products.


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