Food, grocery price hikes to follow as costs jump nearly 700 per cent

The nation’s major food and grocery manufacturers say they are facing increases in costs of up to 700 per cent since the pandemic began and have warned some of that will flow through to the price shoppers pay at the checkout.

The cost of implementing Covid safety requirements at factories, sourcing ingredients, the global shortage of wooden pallets used to ship finished goods and skyrocketing freight costs are all playing into food inflation across the supermarket aisle.

It comes at a time when inflation is surging across Australia, and in many countries overseas, as the cost of everyday items that typically fill a shopping basket rises and squeezes household budgets.

Australian Food and Grocery Council chief executive Tanya Barden said food and grocery manufacturers were facing rising cost pressures and many had absorbed these their own businesses.

However, these costs would eventually have to be passed on.

“Over the past decade manufacturers have already been dealing with a situation where wholesale prices – the prices they receive for their goods – have risen by less than the cost of their inputs. There has been a lot of absorbing of costs by manufacturers before the impact of the pandemic,” Ms Barden said.

Ms Barden told The Australian on Monday that many key inputs for her members had already increased by 50 per cent before the pandemic took hold but that wholesale selling prices had only lifted by 25 per cent.

“It has now gotten to a point where the level of costs coming through now are just astronomical and businesses really are not able to contain that themselves anymore and are in negotiations with retailers to pass some of that through.”

Ms Barden, who represents the $133bn food and grocery industry, said some of these input costs had lifted as much as 700 per cent in recent years, led by surges in shipping and freight prices, the cost of warehouse space, a sustained shortage of transport pallets and keeping workplaces Covid-safe.

“Over the past couple of years, the price of inputs for making and distributing goods has risen. The cost of shipping ingredients and finished goods to Australia has risen by 500 to 700 per cent.

“There have also been significant costs to business as a result of Covid-safety measures, domestic freight cost increases caused by weather disruptions, shortages of pallets and rises in the cost of packaging.

“Adding to this unprecedented Covid disruption, manufacturers are facing increases in global commodity prices as a result of the situation in Ukraine and they are now seeing increases in labour costs.”

The warning from the AFGC comes as the pick up in food inflation accelerated through the March quarter, according to investment bank UBS.

Latest research from UBS reports that food inflation has been most stark at Woolworths where March quarter prices rose 4.3 per cent, a large leap from 1.4 per cent in the previous quarter.

At Coles, the impact was more muted, but inflation is up for the period, hitting 3.2 per cent against 1 per cent in the second quarter.

In his latest Australian supermarkets survey, UBS analyst Shaun Cousins said inflation has accelerated in the third quarter to place further pressure not only on consumers as they stretch household budgets, but also potentially the supermarket chains as they seek to protect profit margins and sales from higher supplier prices.

Earlier this year, Woolworths chief executive Brad Banducci warned that inflation in food and groceries was “alive and real”.


Extracted from The Australian

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