Editor's view...We must accept the new industry structure

By Rick Pendrous

- Last updated on GMT

Related tags Inflation Consumer price index

We must accept the new industry structure
Are riots across the developing world similar to those prompted by soaring food prices in 2007/8 set to return to our TV screens?

It's a scenario being raised by a number of informed commentators, as they see the droughts in the US and extreme weather events elsewhere causing crop prices to spiral. Compounded by other rising manufacturing input costs, they are driving up food inflation.

For us in the developed world especially the poor rising food prices can be painful. But for people in the developing world, the effects are far more serious. According to the World Food Programme, people from poor nations spend up to 80% of their income on food, compared with between 10 and 20% for us in the west.

Rising food inflation (up to 2.1%), identified in the UK consumer price index for August, caused city analysts at Shore Capital to suggest it was just the start of things to come towards the end of this year and into next year as weak northern hemisphere harvests feed into prices.

Shore Capital expressed concern that UK consumers were neither in a strong enough financial position, nor state of mind, to take another wave of price inflation without continuing to erode industry volumes. This, they argued, would inevitably drive change within the retail environment.

Investec Securities went further by suggesting that, alongside this cyclical downturn, the market had to accept that long-term returns were falling and the retail sector was undergoing structural change. In a note issued last month, the bank described the current environment as "the worst industry conditions for over 30 years".

Manufacturers would do well to observe that the tectonic plates are shifting.

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