Grocery Supply Chains & the Affordability Paradox: a Changing Market

By Natalie Olofsson

For the past half century UK groceries have been an anomaly when compared to the rest of the Western world: they are cheaper, fresher, and more readily available than one would expect. How can a country whose land barely grows potatoes and peas sell raspberries in winter? How can a place with high wages and labour costs sell dairy at prices unexpectedly cheaper?

And yet, this paradox is changing. As Brexit and Covid-19 cause shortages – of food, C02 production, and truck drivers to name a few- the reliable nature of a weekly shop has changed to become extremely volatile. Not only are there food shortages and less variety to aisles, but prices have increased. The slight upcharges may not appear dire, but they add up, and to many these subtle differences have large effects on disposable incomes. 

In the UK an average household spends just 8 percent of their income on food. This is one of the lowest globally, beaten only by the United States and Singapore. Contrastingly, groceries in the U.K. are also 18% cheaper than the United States: the difference in percentage of income spent is based solely on higher wages in the States. There is a lack of perspective in the UK to just how affordable food prices truly are. When not taking account of upcharge items such as sugar products and prepared foods, basic produce and pantry staples are incredibly cheap.

Internally much of UK food production is efficiently automated: take, for example, the production of dairy. In contrast to the United States, where dairy travels thousands of miles throughout the country, UK dairy is primarily local. Transport is typically limited to just a few hours, leading to a cheaper, fresher product. This focus on local production for necessary products – usually root produce and dairy – allows for more energy efficient production. Not only is this more sustainable, but it leads to a decrease in costs. 

But the main cause, ironically, of a steady decrease in food prices is trade with the European Union. The UK imports 50% of food, much of this from Portugal and Spain. Increases in technology – efficient shipping, transportation, and storage – have also reduced costs of transporting products. Economically, immigration from other EU countries, whose wages are lower than in Great Britain, lowers labour costs of food. So-called low-paid migrants are a fundamental part of food distribution, making up 35% of UK food manufacturing and 80% of harvesting labour. This is fundamental to how the UK can counteract their normally high wages – but it leaves questions on the moral implications of such a scenario.

Due to the hefty impact of trade on grocery prices, the implementation of Brexit naturally worsens trading. The immigrant-heavy trucking industry that was so fundamental to lower prices has now crumbled, leaving shortages in transportation and undoubtedly causing a further increase in prices. In September 2021 a staggering 5% increase in food prices was predicted. Higher costs of trade for EU providers also makes them less likely to trade unless offered an increased profit. There are far more legal matters and costs to trade than there have ever been before. 

A response to rising grocery prices could be to grow more of our produce in the UK.  However, most produce can be grown with less resources in the Mediterranean; by bringing its production to the UK it would be remarkably more resource intensive, resulting in a higher price tag. This would have great potential to create a knock-on effect on customers making poorer health choices, with less purchasing of prime-grown, nutrient dense produce that comes primarily from Mediterranean countries. Does such a price increase truly matter? While the difference between a 2-pound package of produce and 2.10 may appear negligible, cumulatively it places strain on the budgets of citizens. As long as wages do not rise, the rising costs of groceries will negatively affect the average shopper. 

The views expressed in this article are the author’s own, and may not reflect the opinions of The St Andrews Economist.

Image source: Unsplash

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