VZCZCXRO6441
PP RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV
DE RUEHLO #1386/01 1371451
ZNR UUUUU ZZH
P 161451Z MAY 08
FM AMEMBASSY LONDON
TO RUEHC/SECSTATE WASHDC PRIORITY 8648
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE PRIORITY
RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC

UNCLAS SECTION 01 OF 03 LONDON 001386 
 
SENSITIVE 
 
SIPDIS 
 
DEPT FOR EEB/TPP/ABT/ATP JANET SPECK 
 
E.O. 12958: N/A 
TAGS: EAGR EAID ETRD ECON PGOV PREL
SUBJECT: SURVEY: IMPACT OF RISING FOOD/AGRICULTURAL 
COMMODITY PRICES -- UNITED KINGDOM 
 
REF: STATE 00039410 
 
1.(SBU) Summary: Rising food prices have pushed the UK's 
consumer price index to three per cent; one per cent 
higher than the government's target of two per cent. 
Consumers' food bills are increasing, and food imports to 
the UK have not grown. UK farmers have increased grain 
production, but are not profiting from increased prices. 
Higher inflation is not undermining the government, but 
contributes to the growing loss of public confidence on 
PM Brown's ability to manage the economy. The British 
public is not highly supportive of biofuels. The Prime 
Minister hosted a "food summit" and HMG is offering an 
aid package for countries experiencing food shortages. 
This cable follows the outline of questions contained in 
ref a. End Summary. 
 
Demand 
------ 
 
¶2. (U) Rising UK food prices are expected to add 
approximately GBP 572 ($1,144) to a family's annual 
grocery bill according to the price comparison website 
mysupermarket.co.uk. Figures released by the Office for 
National Statistics (April 14) showed wholesale food 
prices rising by 8.5 per cent over the last year. 
According to MySupermarket.co.uk, a basket of 24 staple 
foods has risen by an average of 11 per cent in the past 
12 months.  To an average family of four with a weekly 
grocery bill of GBP 100 ($200), this increase represents 
an increase of GBP 572 per year.  According to the Index 
of Producer Prices of Agricultural Products (2000=100), 
the price of cereals increased from 135.5 to 236.4 
between February 2007 and February 2008.  Over the same 
timeframe, fruit increased from 135.4 to 153.9, 
vegetables increased from 138.8 to 152.5, and industrial 
crops (potatoes, sugar beet, oilseed rape) increased from 
115.8 to 260.8.  The Index of Purchase Prices of the 
Means of Agricultural Production (2000=100) shows that 
animal feedingstuffs have increased from 118.3 in 
February 2007 to 163.5 in February 2008.  Statistics have 
not yet been published as to how these price increases 
will change consumption patterns. 
 
¶3. (U) The most recent balance of trade statistics 
(February 2008) show imports of food and drink falling, 
having increased throughout 2007.  However, since 1995 
the UK's trade gap in food, feed and drink has widened by 
66.6 per cent.  The value of imports in 2005 was GBP 23.4 
billion ($46.8bn) compared to GBP 9.9 billion ($19.8bn) 
for exports.  The UK is currently 58.1 per cent self 
sufficient.  Since 1995 self sufficiency in all food has 
decreased by 21.2 per cent (Source: The Department for 
Environment, Food and Rural Affairs).  The group for 
which the UK has the largest trade deficit is fruit and 
vegetables while the smallest trade deficit is with 
drinks.  Non-indigenous type commodities accounted for 39 
per cent of total food, feed and drink imported to the UK 
in 2005. 
 
Supply 
------ 
 
¶4. (SBU) Real returns to UK farmers are not growing at 
the same rate as wholesale retail food inflation, 
limiting their reaction to rising prices.  However, UK 
grain farmers have increased the area planted to arable 
crops, the increased prices available being one of a 
number of drivers.  In the case of wheat, anecdotal 
evidence also indicates an increase in the proportion of 
high-yielding (but lower quality) variants planted.  UK 
livestock producers are becoming increasingly vocal about 
the increased feed costs with the hog sector going so far 
as to suggest that mainstream production might cease in 
the UK.  Higher input costs have generally reduced 
producer margins as retailers are hesitant to increase 
prices.  In the arable sector there is an increased 
willingness to spend capital on more expensive inputs. 
However, UK farming in general is coming out of a period 
of very low to negative returns.  Therefore, debt 
management is superseding new investment. 
 
5.(U) The EU's compulsory set-aside requirement has been 
reduced to 0 per cent.  (Note: Previously, farmers in the 
EU needed to leave ten per cent of land fallow so that it 
recovers between crops.  End note.)  Recent government 
figures suggest that around half of the UK land that was 
 
LONDON 00001386  002 OF 003 
 
 
in set-aside has been taken back into food production - 
about half a million acres.  Additionally, while prices 
of commercial and residential properties are falling in 
the UK, the price of agricultural land is soaring.  Good 
quality arable land that was fetching GBP 3,000-3,500 
($6,000-$7,000) per acre 18 months ago is now getting 
twice that.  The National Farmers' Union directly 
attributes the price increases to global food shortages 
and therefore the real value of food production. 
 
Domestic Politics 
----------------- 
 
¶6. (SBU) The Labour government's stability is not 
undermined by food price inflation.  However, Prime 
Minister Brown's economic reputation, which has recently 
come under close scrutiny due to factors such as its 
response to the crisis at mortgage lender Northern Rock 
and its unpopular tax reforms, could be the subject of 
further criticism if inflation remains above the UK's 
target of 2 per cent for a sustained period. 
 
¶7. (SBU) Public attitudes toward biofuels are changing as 
organizations such as Oxfam, Greenpeace and Friends of 
the Earth question not only their environmental impact 
but also their impact on global food prices.  In a recent 
YouGov poll, commissioned by Friends of the Earth, among 
the 55 percent of people questioned who knew what 
biofuels were, fewer than one in seven thought they are 
the best way to reduce emissions from road transport.  At 
an macroeconomic briefing by Oxford Economics (April 30), 
a consultancy firm, analysts said they expect HMG to not 
only review, but to change, its biofuel policy over the 
duration of 2008 as people begin to realize biofuels "are 
a stupid idea". 
 
Economy 
------- 
 
¶8. (SBU) The most notable impact of rising food and 
agricultural commodity prices has been on inflation.  In 
April 2008, inflation was 3 per cent, one percentage 
point above HMG's target inflation rate.  Oxford 
Economics analysts expect inflation to reach 3 per cent 
in 2009.  Core inflation has actually been falling and 
wage inflation has remained subdued, therefore increases 
in CPI can be largely attributed to food and energy 
prices.  The Bank of England expects the impact of rising 
food prices to feed through into higher inflation in the 
short term but expects inflation to return to 2 per cent 
in the medium to long term, according to its February 
Inflation Report.    According to the World Bank, the UK 
will be a moderate loser in terms of the impact of 
projected food price increases on trade balances in 2008. 
Its trade balance is expected to worsen by less than 1 
per cent of 2005 GDP. 
 
Environment 
----------- 
 
¶9. (SBU) Rising food prices per se have not had an 
appreciable impact on the environment and ecosystems of 
the UK, including land use patterns, water use, soil 
quality, and deforestation.  Rising demand for organic or 
sustainably raised vegetables, poultry, meat and dairy 
products is driving interest in lower use of pesticides 
and fertilizers, which would contribute to better water 
and soil quality. 
 
Host Government Policies 
------------------------ 
 
¶10. (SBU) An April 22 summit hosted by PM Brown addressed 
increases in food prices.  Participants agreed that 
action needed to be taken both for immediate social 
protection and longer-term agricultural investment and 
that care should be taken not to talk up a "crisis." The 
UK press release following the meeting included a broad 
range of proposed actions that the UK plans to pursue 
both domestically and internationally.  HMG will increase 
support to the poorest.  In addition to the GBP 50 
million ($100m) per year it spends on social protection 
and safety net programs in Africa, HMG pledged an extra 
GBP 30 million ($60m) to support the World Food Program, 
and an extra GBP 25 million ($50m)to Ethiopia for their 
national safety net program.  HMG also said it would work 
in the G-8 for an international strategy and will work to 
 
LONDON 00001386  003 OF 003 
 
 
achieve a successful WTO deal, including a substantial 
'aid for trade' package to help build the trading 
capacity of the poorest countries.  Additionally, the UK 
will work within the EU to further reform the EU's Common 
Agricultural Policy (CAP).  HMG estimates that the CAP 
cost UK consumers GBP 3.5 billion (47b) in 2005 through 
higher prices.  Reductions in tariffs and CAP reform 
would reduce the cost of food to EU consumers and 
increase the capacity of developing countries to produce 
and export agricultural commodities. 
 
¶11. (SBU) Domestically, HMG said it will work with 
consumer groups, food producers, manufacturers and 
retailers to address domestic price rises.  It will also 
increase research into improving yields.  It announced 
new funds for agricultural research over the next five 
years.  HMG also committed to reviewing its approach to 
biofuels.  It will review its impact on food prices and 
the environment.  If the review concludes that a 
different approach needs to be taken, HMG will push for a 
change in EU biofuels targets. 
 
¶12. (U) Also on April 22, the Department for 
International Development (DFID) announced a GBP 455 
million ($910m) five-year aid package to address rising 
global food prices. The package is designed to address 
both short term needs and long term solutions.  The UK 
aid package includes: $60 million in support of recent 
appeals by the World Food Programme for countries most at 
risk; $800 million (GBP 400 million) over five years 
devoted to agricultural research, that will double DFID's 
current spend and help poor countries grow more food for 
themselves; and $50 million (GBP 25 million) this year to 
boost the incomes of the poorest people in Ethiopia. 
 
 
Post Programs 
------------- 
 
¶13. (U) Rising food and agricultural commodity prices 
have not affected post programs. 
 
TUTTLE