Processors urged to switch to domestic ingredients

The English Farming and Food Partnerships (EFFP) has warned processors against over-reliance on imported raw materials as retailers put more pressure on their suppliers to reduce prices.

EFFP chief executive Siôn Roberts said processors sourcing commodities from overseas would be hit by the move towards lower prices and a continued weakening of sterling. The problem they face, said Roberts, is that they won’t be able pass their increased costs on.

In addition, with agricultural markets being so volatile and vulnerable to bad harvests and continued high demand for raw materials in the sector, cereal prices could rise again, he said. That could impact badly on meat and dairy processors and baked goods manufacturers, he added.

Nor were increasing exports a solution for manufacturers looking to increase their revenues, although it could boost growth to some degree, said Roberts. “Let’s not forget that lots of export markets are in recession as well.”

The best tactic would be for processors to source more from the domestic market, where the pound could buy more, he said. This would also offer better prospects for many regional producers.

“Our trade deficit has nearly tripled in food in the past 10 years. For the next two to three years, this is a very good opportunity for the domestic market to move back to domestic supply. It would be to the benefit of farmers, to the benefit of manufacturers and to the benefit of the UK economy,” he added. “This situation could create significant opportunity to build closer, more integrated relationships between farm businesses and their food chain customers.”

He pointed to Morrisons shifting to 100% British-produced pork, lamb and beef and the Co-operative Group move to 100% British pork to show how retailers were recognising increased potential in the domestic market.

The EFFP predicted that food prices would level off by the end of 2009, following the increases that had occurred up to the end of last year.

In real terms, the price of food would not keep falling, said Roberts. “Food has been becoming increasingly affordable for the past 20 years. In the past 18 months that has turned around. Food inflation may drop to zero, so prices are not going up, but they are also not going down very much.”

He said that for the next four or five years, food would become less affordable as consumers shopping budgets came under greater pressure.

However, the EFFP’s newly launched Affordability Index, which sits alongside its Retail Food Price Forecast, suggests that in the short term food will still represent a high proportion of household spending. “People have been looking for other things from their food. They aren’t going to give up on this, but they are going to be looking for better value. For example, they may stop eating out and buy more premium products from supermarkets.