Food prices are expected to increase by around 10% this year, even if a resolution to the ongoing conflict in the Middle East is reached soon, according to industry leaders. The Food and Drink Federation has raised its forecast for food and drink price hikes from 3.2% to between 9% and 10% for the year.
This projection is based on the assumption that the critical Strait of Hormuz will reopen within three weeks and energy production in the Middle East will return to normal within a year. The FDF, representing 12,000 food and drink manufacturers, has revised its forecasts significantly due to the closure of the Strait and the disruption to energy infrastructure in the region following the conflict between the US, Israel, and Iran that began in February.
The ongoing conflict has led to a surge in Brent crude oil and natural gas prices to levels not seen since 2022. This disruption in oil and gas markets is directly impacting production costs for UK food and drink manufacturers, as the industry is highly energy-intensive.
While larger businesses can hedge costs with fixed energy contracts, they are bracing for substantial price increases once these contracts expire. Smaller producers, on the other hand, typically purchase energy at current rates and are already facing higher prices.
Dr. Liliana Danila, FDF’s chief economist, emphasized the challenges the food and drink sector is facing, including rising energy bills, increased transport and packaging costs, and supply chain disruptions. She noted that despite efforts to avoid passing on price increases, food inflation is expected to rise in the coming months.
Chris Jaccarini, a food and farming analyst at the Energy and Climate Intelligence Unit, expressed concern over the potential double-digit food inflation and highlighted the impact of the conflict on energy, transport, and other input costs. He warned that families may bear the brunt of these cost increases through higher shopping and energy bills.
With ongoing geopolitical tensions and climate risks looming, the future of food production remains uncertain. The combination of conflict and climate-related challenges is expected to drive up costs for consumers, making food less affordable for many families in the foreseeable future.