Following the sharp surge in inflation in 2023, supermarket food prices appeared to stabilise temporarily. However, all preliminary indicators now point to a new upward trend. Agricultural input costs, as well as energy and labour costs, are rising. This is putting significant pressure on margins across the entire food sector, reports ABN AMRO.

Agricultural raw materials account for around forty per cent of food costs in the European Union. The remaining sixty per cent is made up of energy, transport, packaging and labour costs. Problems are mounting in all these areas.

The food industry remains 70 per cent dependent on natural gas and is therefore vulnerable to geopolitical disruptions. This has a direct impact on production, but also an indirect one via packaging materials and transport. Furthermore, logistics costs have risen due to low water levels in European rivers such as the Rhine and the Danube. Wage pressure is also considerable.

All these factors mean that food manufacturers are having to pass on the higher costs. As supermarkets and consumers are reluctant to accept price rises following previous waves of inflation, purchasing negotiations between manufacturers and retailers are becoming increasingly tense. As it is not possible to pass on all costs in full, the food industry is heading towards a period of sustained pressure on margins, during which food inflation will inevitably rise again towards the end of 2026 and in 2027.