Farmers cannot go back to selling food below the cost of production

​This is because actual events depend on people's individual decisions. Only in theory do markets exist in a vacuum. This applies even more to markets for food – mainly because just about ever person in the world makes daily choices about what they will eat and how they will spend their money. The challenges of accurate forecasting were evident this week when food inflation figures for the UK blew off course the government's confidence that it would soon claim it had got a grip on inflation. Instead of falling, on the back of lower fuel and other prices, it rose because food price inflation remains so high.This seems at odds with global food prices now having fallen for twelve consecutive months from their peak just after the Russian invasion of Ukraine. The price drop has been led by vegetable oils and dairy and the trend for global markets is firmly downwards. The disconnect between this and what is happening on UK and European supermarket shelves is down to factors that have come together to create a perfect storm. High on the economic theory list is that there is always a lag before what is happening on markets is reflected in consumer prices.This is particularly true when prices are falling. But beyond this theory other factors are in play, including the massive inflation beyond basic commodity food prices right along the food chain. These include higher wages in processing and retailing, along with higher packaging and energy costs. These have all fed through along with the food price, so that even if those prices are falling the other inflationary pressures are not going away any time soon.The international consultancy company, McKinsey, confirmed this week in a report on the European retail scene what an odd year 2022 was for food retailers. Trends and long trime certainties literally disappeared.Retailers and consumers saw inflation on a scale not witnessed for 40 plus years and this triggered big changes in the market. Modest sales increases were achieved, but these were down to inflation rather than customer demand; trading down from premium products to own label brands from the major retailers was a firm trend and there was an overall reduction in the volume of products sold. The expectation is that the retail sector will recover in the second half of this year and that as prices fall normal trends will be re-established. For farmers that probably means more price pressure, but for agriculture there can be no going back to the way things were. People, via a hard lesson, have learned the value of food security. Now they must learn an equally tough lesson that if they want to continue enjoying that security farmers cannot go back to selling food below the cost of production.In a difficult year for the global food trade the EU reinforced its position in 2022 as the world's biggest agrifood trade bloc. Imports and exports topped £350 billion with a positive balance of trade gap between exports and imports of £46 billion. While inflation automatically increased trade numbers the EU also maintained volumes. The European Commission says this reflects a reputation for quality and competitiveness. It also claims the EU diversified its trade partners in response to the challenges posed by Russia's invasion of Ukraine.In 2022 exports rose, but imports rose more in value terms, because of massive inflation in the cost of key products the EU needed to import, including soya, vegetable oil and maize. Cereals were the EU's number one export, followed by dairy. In terms of exports and despite all the fears around the impact of Brexit, the UK remains the number one export market for agriculture and food. It accounts for 20 per cent of EU trade, followed by the United States and China. This is a reciprocal trade for the UK, with high exports to the EU confirming the ability of businesses to get around regulations created by politicians. Brazil is the EU's biggest source of imports, followed by the UK. However the source of that big balance of trade gap is evident, with the UK accounting for nine per cent of imports but 20 per cent of EU exports.Brexit or not, this confirm that for agriculture the EU remains our nearest and most valuable market – a reality too many politicians in London seek to ignore.