It emerged last week that the Government had urged some of the UK’s leading supermarkets to voluntarily freeze prices for a range of key groceries.
First reported in the Financial Times, this so-called price cap would apply to items deemed essential and would include the likes of eggs, bread and milk.
However, while the Government has since ruled out any intention of introducing a grocery price cap, it has been confirmed by multiple sources that it was in discussions with major grocery retailers on voluntary price limits, in exchange for delaying levies and relaxing regulations.
Predictably, the sector has reacted with frustration at the proposals, with M&S chief executive Stuart Machin calling the idea “completely preposterous”, revealing to reporters that the business was already selling staples such as milk, bread and bananas at a loss.
He instead suggested that easing tax and regulatory pressures would be more effective in easing the inflationary burden.
For its part, Downing Street was quick to dismiss any talk of a price cap as a simple rumour, with a statement issued by a spokesperson for PM Keir Starmer saying: “The specific idea of government imposed or mandated price caps isn’t something that we are considering, but as you would expect, we are continuing to have constructive conversations with supermarkets on how we can work together to reduce cost pressures on households.”
Since the story broke, a range of industry leaders have spoken to Food Manufacture about the idea and have broadly cautioned against any government intervention on prices.
Food and Drink Federation (FDF)
Urging ministers to tackle food inflation at the source, a Food and Drink Federation (FDF) spokesperson said: “Government needs to focus on the root causes of rising food inflation, not the symptom. We don’t believe the answer is a price cap and it’s not clear to us how those proposals would work in practice.
“For food and drink manufacturers, we need government to prioritise regulation so it doesn’t all come at once, and ensure it’s going to have the intended outcome.
“Too much regulation is too complex and too costly to implement, which is taking up businesses’ time, resources and focus while they’re also grappling with a global energy shock. We need this to protect the long-term resilience of the food sector, to ensure we can attract investment, and to help us keep a lid on food inflation.”
British Frozen Food Federation
Highlighting the multitude of cost pressures already faced by UK food businesses, British Frozen Food Federation (BFFF) CEO Rupert Ashby said: “Our members fully recognise the pressure many consumers are under. However, we’re hearing significant concerns about suggestions of price caps when food businesses are already facing substantial increases in operating costs, many of which have been driven by recent Treasury decisions and policies.
“The food industry is working hard to keep its products affordable, but further intervention of this kind risks placing additional strain on businesses at a time when confidence and investment are already under pressure.
“This kind of knee-jerk reaction is unlikely to bring down overall costs to consumers and will only exacerbate issues for the food industry. Government should be coming forward with sensible, growth-inspiring decisions that help businesses thrive by tackling the underlying challenges.”
Royal Association of British Dairy Farmers
Warning that any such measure could impact the entire supply chain, Royal Association of British Dairy Farmers CEO Hayley Campbell-Gibbons told us: “The retail price of milk, or any product for that matter, is no place for government interference or intervention. At best, this is political kite-flying designed to appease voters, not about bringing down the cost of food.
“Dairy farmers have experienced a boom and bust on milk prices in the last year, whilst at the same time costs keep rising. The mere suggestion of a food price cap at any time, but especially now, is completely naïve.
“Almost all the major retailers have transparent, dedicated pricing arrangements with their liquid milk suppliers which ensures that farmers receive a price for their milk that reflects the cost of production and allows a margin for profit and reinvestment. In that scenario, there’s no avoiding passing cost increases up the supply chain.
“That said, there’s no link between farmgate prices and retail prices. Whatever retailers choose to charge their customers is their business. History tells us though that whenever value is taken out of the supply chain it’s those lower down who suffer first.”
Argon & Co.
Argon & Co partner, food and drink, James Watson also underlines that the proposals could cause issues elsewhere in the supply chain and warns that any price cap could impact competition in the sector: “The proposed price cap is a case of treating the symptom – not the root cause – and will result in unintended consequences. Fierce competition between supermarkets is a key price driver in the UK, and one of the reasons that prices are kept low.
“The Government meddling could upset the balance, forcing supermarkets to recover profits elsewhere or squeeze suppliers who already operate with low margins.
“In terms of the trade-off between capping prices and easing regulations, the majority of supermarkets have already devoted a large amount of time and resource into ensuring they meet new packaging and health legislation, so pausing now will bring little to no benefit to them. If anything, it will increase confusion and disruption, mean more time spent replanning and reprioritising, and end up adding more cost. Moreover, it undermines the importance of the legislation, positioning it as a nice-to-have or disposable, instead of essential.
“To help keep prices low, there are other levers that could be pulled and have proved effective in the past. For example, during Covid the Government implemented a series of business relief measures to reduce operating costs, or they could implement support to help supermarkets manage rising energy costs. Whilst the Government’s intention is fair, there are other more effective means to help reach the desired outcome.”
