![]() More than 4 million people are employed in the food and drink industry in the UK - around 13% of the UK workforce. A system where one party gets to cover over 90% of their costs while another can only cover 30% is not fair. Other members of the supply chain such as farmers and growers or bakers, class about 70% of their costs as overheads, leaving marginal costs of around 30%. So they set prices which enable them to cover that amount. ![]() For a supermarket, marginal cost includes all the expenses of running a store, which is typically over 90% of their costs. The trouble is, the factors that go into marginal costs - costs once overheads are covered - aren't equal across the chain. This means seeds, feed, fertilizers and manual labour in the case of farmers or ingredients, processing costs and packaging for manufacturers. Expectations of discounts from other parts of the chain, such as retailers, takes money away from those at the beginning: the farmers, growers and processors.Īlong with negotiations for volume discounts, my research shows that these suppliers are often paid a price based on just the costs of producing the item, also called the marginal costs. When buying and selling food, organizations along the supply chain need some level of surplus for contingencies and reinvestment. But consumers want lower prices and to achieve this, buyers from retailers, catering and public procurement negotiate discounts.Īs a director of a fresh produce distributor I interviewed for an earlier project said:Įveryone wants the prices that come from trading but the quality that comes from long-term relationships. However many schemes the government has, the day-to-day survival of UK food businesses depends on a fair return on the work done to get food from farm to fork. Farmers and growers are left with the crumbs - sometimes as little as 1p of profit for each item of produce. I found that out of the entire price you might pay for one grocery item, around 98%-99% goes to production and overheads for intermediary companies such as processors and distributors and then retailers. I carried out research on food costs and pricing for Sustain, an organization that represents the farming and fishing industries. The Food Research Collaboration, Author provided The profits returned to producers are minimal as a result. The overheads - the everyday expenses of these businesses, such as paying for staff and electricity - are huge. Our food system is dominated by supermarket-style retailing and mass catering, which deal in bulk orders, food storage and big premises, making it very expensive to run with surprisingly few economies of scale. These are crucial issues to address, but to have any real impact, the discussion must extend even further to cover the systemic unfairness throughout the UK food supply system. ![]() In a cost of living crisis, the media spotlight is going to fall on those in food poverty and on rising food prices. The UK needs healthy, nutritious and affordable food provided in a way that is fair to everyone involved. My research into unseen food supply costs shows transparency and fairness is vital to tackling current food-related challenges in the UK. There is much more work to do to tackle rising food prices.Ī report issued by the government after the event showcased long-term government investment in infrastructure and the environment, which was welcomed by the National Union of Farmers.īut it only had one short section on fair supply chains - and that didn't address the underlying problems. ![]() Reports from attendees after the event have been mixed, with many seeing it only as a first step forward. It was billed as an opportunity to brainstorm solutions to rising food prices, falling production and uncertainty over trade agreements with overseas partners. More than 60 food industry representatives came together at a recent Downing Street summit to discuss the UK food crisis. This article was originally published on The Conversation.
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