Supermarkets profiteering from rising food prices

1st Mar 2011 14:19

Expanding food margins have outpaced the rising cost of food, leading to claims of profiteering at the UK's biggest supermarkets.Food prices in the UK have risen more sharply than any other member economy of the Organisation for Economic Co-operation and Development (OECD) and have "significantly outstripped food retailers' cost inflation," according to a UBS report.UK food prices are increasing at an annual rate of 4.9%, compared with 3.6% in Germany and 1.4% in France, while prices in the eurozone are inflating by 1.8%, the report shows.The Swiss bank claims that recent commodity price inflation should lead to a 3-3.5% rise in processed food prices, not the 6-6.5% increase seen in the supermarkets, as the commodity input accounts for just 20-25% of the final price."Prices are rising in excess of justifiable cost increases", says UBS economist Paul Donovan. "This could allow UK politicians to suggest that food price inflation is 'unfair' or 'excessive'.""If this were a one-off event, it might be overlooked politically. However, after two years during which processed food prices have been rising more than 50% faster than the associated costs, and at a time when food prices have heightened political importance, it seems unlikely that this position will continue to be ignored."UBS warns that the industry could face a competition inquiry and some intense political and media pressure to lower prices more relative to the inflating cost of commodities.