The Competition and Markets Authority (CMA) has said that the continued “historically high” levels of food price inflation is due to rising agricultural inputs costs.
The UK competition watchdog said food inflation remains at high levels despite falling to 10.1% in October 2023.
The CMA has set out its latest findings on its ongoing review of the groceries sector today (Wednesday, November 29).
It follows an initial assessment that focused on retail competition in the groceries sector published in July, that identified 10 product categories (including milk, baked beans, and baby formula) for further analysis.
High input costs
The CMA said that, across the food and groceries sector, it found that high inflation has been driven largely by rising input costs, particularly for energy and “key agricultural inputs” like fertiliser.
The competition watchdog also found that, over the last two years, around three-quarters of branded suppliers in products have increased their unit profitability which has also contributed to higher food price inflation.
“However, own label products often provide cheaper alternatives with suppliers of these products earning lower profit margins and competing to win and retain contracts from retailers,” the CMA said.
“In all but one of the relevant product categories the CMA looked at, as food prices have risen, many consumers have switched away from brands towards own label alternatives, or reduced their consumption, leading to a decline in brands’ market shares and profits.
“This switching is positive for competition and allows those able to switch, to lessen the impact of high food price inflation.”
Overall profit margins have fallen across most branded manufacturers since 2021, mainly because of a fall in sale volumes due to consumers switching to cheaper alternatives.
