Middle Eastern unrest will hit whole supply chain

By Freddie Dawson

- Last updated on GMT

Related tags Peak oil

Middle East unrest: could prices for staples soar as a result?
Middle East unrest: could prices for staples soar as a result?
Popular uprisings in North Africa and the Middle East have led to further uncertainty about oil supplies that risk putting more pressure on food manufacturers, industry players have warned.

The price of crude oil has already hit a two-and-a-half year high and analysts predict that it will continue rising. The Road Haulage Association (RHA) believes duty is likely to add at least an additional five pence per litre to the cost of fuel.

But spiralling oil prices will impact on the whole food and drink supply chain not just hauliers through fuel prices, Dan Myers, director of Norbert Dentressangle Logistic's food business unit told Food Manufacture. Petroleum-based packaging, ingredients and other manufacturing costs, would also be affected, since these are all closely linked to the price of petroleum.

Oil price hikes will hit agrochemicals

Director of sustainability and competitiveness at the Food and Drink Federation (FDF) Andrew Kuyk agreed with Myers, and said that oil price rises would also cause the price of agrochemicals used in crop production to rise, putting further strain on manufacturers' input costs.

"Manufacturers are attempting to mitigate the worst effects [of rising oil prices] through greater efficiency but that can only go so far. Unless there is a return to more normal market conditions, consumer price increases seem inevitable,"​ Kuyk said.

The impact could be wide-ranging, with all foods potentially affected by transportation and packaging price rises. However, a long-term rise could lead to more interest in biofuels, said Kaarin Goodburn, secretary general of the Chilled Food Association. As agrochemical prices rise, crop yields may be hit as farmers cut back on their use, which might lead to crop shortages, she added.

"All these costs will have to be passed on and the buck stops with the man on the street,"​ an RHA spokeswoman warned.

Push for price stabiliser

Myers suggested that implementing some form of price stabiliser whereby taxes were reduced as oil prices rose would provide a longer-term solution to price instability. While recognising there would be difficulties in drafting acceptable legislation to bring this about, he said the end result would justify the complexity involved.

The latest uncertainties in the oil market are likely to exacerbate pressure on Chancellor George Osborne to scrap the April rise, said a spokesman for the Freight Transport Association (FTA).

Under pressure from industry, Osborne has already hinted - in a speech at the Tory spring conference last week - that he might delay April's increase in fuel duty, and did so even before the unrest in Africa and the Middle East began.

The FTA spokesman argued that scrapping the fuel duty entirely would be the best way to combat rising prices. The government must find extra money from somewhere to balance the fiscal deficit, but raising it through fuel duty increases would cause long-term economic damage and increase inflation, he warned.

"Putting the increase at a penny above inflation is madness," ​he said. "Do that, and inflation will increase to the new level."

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