Food price inflation in Britain could fall dramatically from the December 2008 position of 10.4 per cent to 0 per cent or below (where an actual reduction in food prices would be seen) by the end of 2009 according to English Farming and Food Partnerships (EFFP).

The results, generated from the latest run of their Retail Food Price Forecast, reflects consumers increased ‘pursuit of value’, driven by the economic slowdown, combined with falling cereal and oil prices feeding their way through the supply chain.

Siôn Roberts, EFFP’s chief executive, said: “Our Forecast also points to an ongoing period of market volatility where agricultural commodity prices could easily peak again.

“This situation could create significant opportunity to build closer, more integrated relationships, between farm businesses and their food chain customers. This will not only advantage food businesses looking to secure the raw materials they require, but also farming businesses to take back the market share lost to food imports over the last decade through greater import substitution.”

Developed in conjunction with Cranfield University, EFFP’s Retail Food Price Forecast takes into account commodity prices, oil price, currency factors and the retail price inflation index.

“Agricultural commodity markets have reacted to economic recession in much the same way as other commodities and we have seen a sharp reduction in their prices. But when you study the markets more closely, there is little real change in the supply and demand conditions, particularly for grains, compared with the last few months.

“This points to two important conclusions, the first is that prices will still be vulnerable to supply disruptions or demand surges, and secondly the underlying value of agricultural commodities will plateau at a level higher than historic averages,” said Roberts.

EFFP has developed an Affordability Index which suggests that in the short-term food will still account for a high proportion of household spending given the falling incomes linked to the recession which could offer opportunities for those businesses that can deliver value.

“The combination of downward pressure on food prices with upward pressure on raw agricultural commodity prices could result in a vicious cost/price squeeze, especially for businesses struggling to absorb the higher prices they are paying for imported food.”

“This has significant strategic implications for the way in which raw agricultural materials are sourced and the food supply chain is managed. The situation reinforces the need for greater and more effective collaboration between food companies and their raw material suppliers.”

Roberts also suggested that this will test supply chain relationships, because while there are short-term gains to be made from a weak sterling by maximising returns from exports e urged: “British farmers [should] consider the opportunities there are to secure more lucrative long-term partnerships within the domestic market even if this involves forgoing some of the short-term gains. The current market dynamics and the local sourcing policies increasingly being adopted by the multiples and food manufacturing businesses are clear signals that such opportunities exist.”

“Since last year Morrisons has been dedicated to sourcing 100% British-produced Pork, Lamb and Beef and in the last fortnight the Co-op has announced a switch from Danish to 100% British Pork. On the grain side, Sainsbury’s is still dedicated to sourcing wheat for in-store bakeries via the established Openfield tie-in. These switches in buying strategies show commitment from the retailers and give our producers a strong negotiating position for stronger contracts and partnerships. I’m not saying don’t take advantage of the export opportunities, but think about your position strategically because a quick fix may not be the best long-term solution,” he said.

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