Prices of key raw materials such as wheat, butter and vegetable oil are likely to remain 10-30% above 1997-2006 averages over the next decade, according to City analysts.
Increases in production meant there was "no immediate risk" of a repeat of the unprecedented hikes in commodity prices witnessed in 2007-8, according to a new report from Investec Securities.
However, with population increases and dairy and meat consumption still on the rise in China and India, "equally it does not appear that prices will return to the lows seen pre-2007", predicted the report.
The immediate outlook for the main food-based raw material prices in the UK "looks relatively benign", it added. "An acceptable grain harvest looks to be on the cards, which, in turn, should feed through to steady feed wheat prices and hopefully protein prices. Crop prices on average over the next 10 years are projected to remain above 1997-2006 averages by around 10-20% and 30% for vegetable oils. Meat prices are not expected to surpass the 1997-2006 average."
As for dairy commodity prices, which have fallen off a cliff after peaking in mid-2007, the reopening of intervention mechanisms (where the EU buys commodities if prices fall below a certain level) and the re-introduction of export subsidies had stabilised prices, said the report.
However, the more product that went into intervention, the longer it could take for the market to recover, it warned: "At the moment, EU skimmed milk powder intervention stocks are already equivalent to four months' supply and this is likely to increase further the longer intervention remains open. As prices start to recover, the EU will then have to drip feed this volume back into the market, which is likely to stifle any strong price recovery."
As for cheese, it said prices would "remain at least steady for the time being, but possibly show some modest increase later in the year as stocks tighten"
The report's comments were echoed by Staple Dairy Products, which said cream and butter prices had started to firm.