Supermarket prices set to rise as business faces supply chain squeeze

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The Independent Online

"just in time" or "lean" production methods, and the modern taste for out-of-season fruit and vegetables sourced from exotic climes, have left manufacturers and retailers badly exposed to a crisis in air freight.

In the case of fresh produce and flowers, the immediate economic costs – and a financial burden for retailers – is the waste of highly perishable items.

In a few more days there may also be an impact on prices and the wallets of shoppers. The price of imported food is being inflated even now by a combination of the weak pound, rising fuel costs and poor weather in Spain.

Before the volcanic ash hit the fan, oranges were 25 per cent more expensive than they were a year ago; avocados were up 17 per cent, cauliflowers by 12 per cent and cherry tomatoes 10 per cent.

The laws of supply and demand suggest that further price rises are on the way, at least in the short term, as well as some predictable claims that the supermarkets are "profiteering" as they seek to ration very small stocks of these items by price.

Consumers also have the option of home-grown food, which in most cases should provide an adequate substitute. The British Retail Consortium points out that "the vast majority of fresh food sold in the UK is sourced in the UK, and a very small proportion is air-freighted in."

Thus, hard-pressed British farmers could do well out of this particular crisis. The pharmaceutical industry may be hit significantly as many medical supplies are moved around by air, and many need to be delivered quickly.

Manufacturers and maintenance companies could also be inconvenienced by a shortage of vital spare parts.

Since the 1980s, firms have run down the volume of stocks they carry to minimise working capital costs. But that means they may have to wait for urgent spare parts or components for plant and machinery. Ironically, that would include many aerospace components.

Some 25 to 30 per cent, by value, of our exports and imports come in by plane, but only 1 per cent by volume. Staples such as bread will not be affected by the no-fly policy; this is far from a war-style blockade.

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