Food prices in Britain have risen a lot - and people have noticed. Pretty much all food we buy in the supermarket is markedly more expensive, while some prices have “gone through the roof”. Own-brand orange juice, for example, has literally doubled in price. 

Food inflation has been rising in the UK, but it is not a primarily British experience (see Figure 1). The EU area also has seen a spike in inflation over the last couple of years. One reason is that global commodity prices have risen and, as we trade with each other, this translates into higher prices at home. 

In terms of the UK experience, there has been a confluence of factors that we can say have combined to drive up prices, however, the order of magnitude is important. In this case, the primary driver is global commodity prices, about which more below. Second governments have made reasonable but consequential policy choices, notably increases in the National Minimum Wage (which have driven up labour costs) and the extended producer responsibility (EPR) on packaging and waste management. Finally and importantly in this case, Brits have a preference, relative to our European neighbours, for foods that have been particularly hit by recent price rises.

A common reason behind this global rise in commodity prices is drought and weather shocks. The world has had a run of bad harvests for a lot of different foods. Orange juice has been hit by droughts and bacterial disease in Brazil. Beef has been hit by droughts in the US and Australia, and people are not cutting back despite higher prices.

Coffee prices - which are notoriously volatile - have been hit by poor harvests in both Brazil and Vietnam, the world’s two leading suppliers. 

Perhaps this is just random - after all, the world has had droughts since the beginning of time. Perhaps it is climate change. Perhaps it is both. The answer matters a lot. If it is just random, then prices might not just stabilise, but actually fall. There is some evidence for that - both orange juice and beef prices have fallen a little, for example. Equally, however, we know that climate change is happening, and while it won’t affect manufacturing jobs much, it will be extremely disruptive for at least some agricultural products. Good lands can become bad lands, if the rain does not fall often enough. Higher food prices, and more volatile food prices, may well be the new normal. 

Of course the world can and will adapt - India has had a run of good mango harvests, making orange-mango juice blends cheaper, and so more attractive. Just as Brits moved away from fish and chips and towards burgers, partly caused by the rising price of cod - itself caused by over-fishing - so too we now see a move from burgers to chicken. It is economics that is behind the ever greater range of fried chicken shops opening. 

For all that food prices are largely an international story, there is more to it. The Bank of England helpfully tells us that while UK and European food price inflation was almost identical until 2023, food prices have risen more here than in Europe since then. There are several reasons for this.

First, Brexit and the ensuing rise in trade barriers took their toll on UK food prices, as trade with our biggest partner became more complex. In 2023, researchers from the London School of Economics’ (LSE) Centre for Economic Performance estimated that, between December 2019 and March 2023, food prices rose by 25 percentage points in the UK. It would have been 17 percentage points, in their analysis, without Brexit.

Second, both the last and current UK governments have pushed up the cost of doing business. The minimum wage started to rise under the last government and this has continued under Labour. The current government has also raised employers’ national insurance, especially for low wage and part-time employees. The food supply chain has a lot of minimum wage, and near minimum wage employees, and - as economists would predict - in a competitive sector without excess profits, a rise in costs means a rise in prices. 

That doesn’t mean that the government was wrong to raise the minimum wage, or to create new regulations on plastic packaging, another new measure called the extended producer responsibility (EPR). Those changes have winners and losers and there are trade-offs.

These are best seen as one-off changes. The downturn in employment, particularly among young people and those with lower skills, has been marked. The government understands that. It is very unlikely to hike employers’ national insurance again, and further rises in the minimum wage rate are likely to be much more measured.

The third reason for higher price rises relative to Europe is that, compared with other people in Europe, Brits eat more of the foods whose prices have risen most. For example, the price of chocolate has risen a lot. Just like with coffee, a combination of extreme weather and disease has hit cocoa production hard, sending the price sky high. This doesn’t really matter much to overall food prices in Italy, because they don’t eat much chocolate. We do - so a rise in cocoa prices means a higher overall cost of living here. 

The reverse is true for coffee, which is drunk a lot more in Italy than here.  Overall though, as (bad) luck would have it - and it really is nothing more - the price of the foods we love, such as chocolate, crisps and beef, have risen by more on average than the things that other European nations tend to enjoy. LSE researcher David Barmes has shown that differences in what we eat means that the average basket of food in Britain has risen by more than the average basket of food elsewhere in Europe. The figure below, taken from this note, presents the contribution of each item to the UK-EU inflation gap.

Of course regulation is about more than wages, tax and employment. A government that cares about the health of the nation will work to shape markets to reduce harmful behaviour, most obviously in the context of ‘sin taxes’ for the old reliables - cigarettes and alcohol. Policy in these areas has deliberately increased (in the case of cigarettes and vapes) the cost to consumers.

But health regulations can cover what we eat and drink much more widely. The current government has indicated a strong preference (and rightly so according to the evidence) to use the power of the state, alongside retail and industry, to make our food environment - what is promoted and marketed to us and how much it costs - a little healthier. This is good. In the long run, working with large retailers and manufacturers to make healthier choices easier is good for our health and will have positive effects on our productivity and the health of the nation. Obesity is a major drag on all three.

Specifically Nesta proposed and the UK government has adopted what is known as the healthy food standard, a requirement that food businesses including supermarkets make small changes to how they sell, promote and develop food, helping to get more healthy food on their shelves and in our diets.

But will this push up prices for consumers? We think not, for three reasons.

First, and by coincidence rather than design, the policy is likely deflationary. This is because the cost of calorie dense products, such as chocolate, cake and biscuits, has risen more than the average item in your basket. If we ate fewer of these things then overall inflation would be lower. 

Second, the cost to large retailers relative to the overall gain for population health is tiny. Nesta estimates that the cost to the UK's largest food retailers of implementing the healthy food standard would be less than 0.1% of the industry's ~£210 billion annual turnover. In terms of wider benefits to health and the economy, the policy is startlingly good value for money. It could reduce obesity by a fifth and generate societal value of around £17 billion - that’s huge.

Finally, the policy is not a top down or directive one. It is up to retailers how they hit targets. They choose the tactics to suit their business. Most of the 11 large retailers are within reasonable distance of the target. If there is a level playing field across the industry, and we agree there should be, then this policy should not be especially disruptive to business.

People who buy their food in supermarkets (and that is pretty much all of us) have had a very rough few years. Brexit, Covid, the invasion of Ukraine, drought and climate change - all of these factors have led to rising food prices. While it is too early to judge the full impact on food prices of the war in Iran, a rise in the price of energy will translate first into a rise in the price of fertiliser, and later into an increase in the cost of food, worldwide. So it is likely that consumers will, once again, be in line for some pain at the till.