Yahoo Finance UK consumers could pay 40% more for fruit and vegetables as supply costs bite
Fixed costs in the supply chain play a bigger role in fruit and vegetables prices compared to those of other foods, meaning that UK consumers are paying 40% more than marginal costs, a new study has found.
Fruit and vegetables have particularly high fixed costs as they are perishable products which requires them to be restocked more frequently, driving the prices of these items higher.
According to researchers at the University of Warwick, higher prices lead to consumers buying on average 15% less fruit and vegetables than they would if they were sold at marginal cost.
The reports said that the 15% "under-consumption" of fruit and vegetables accounts for a third of the gap between the average amounts consumed and the recommended intake.
Researchers suggest subsidising fresh fruit and vegetables by as much as 25% could counteract the price distortion, reduce the cost of fruit, and increase consumer intake by as much as 15%.
In Britain, it's estimated that supermarkets sold around £10.4bn ($13.7bn) of fresh produce in 2017, with researchers estimating that funding a subsidy would cost the government £2.5bn per year.
Read more: UK supermarket prices rise at fastest pace since 2012 as inflation hits
Professor Thijs van Rens, one of the authors and leader of the Warwick Obesity Network, said: "The food retail market is very competitive, so if there weren’t any fixed costs you would expect food to be sold close to marginal cost. And the fact that they are not affects diets.
"A higher price of any product means that people buy less of it.
"There is something wrong with the market, which is that there’s a high fixed cost in the provision of fruits and vegetables. The effect of that is that the prices are too high, and consumption too low."
He warned that demand was low in areas where the poorest people live. "So this market failure not only makes us all unhealthier, but it increases health inequality as well," van Rens added.
Read more: Cost of living crisis: UK shop prices rise at highest rate since 2011
It comes as prices in Britain's shops rose at the fastest pace in March since September 2011, adding to the cost of living crisis consumers face.
A study from the British Retail Consortium (BRC) suggests that the war in Ukraine and volatility in commodity markets is fuelling inflation pressures.
This will "dampen" consumer confidence, the BRC said, warning that the full impact of mounting costs is yet to be seen.
Food inflation jumped to 3.3%, its highest rate since March 2013, while non-food inflation reached 1.5% in March, up from 1.3% in February and its top rate since February 2011.
A separate analysis showed that Britain's supermarket prices surged at their fastest rate in nearly a decade this month as household budgets come under more pressure and the cost of living crisis deepens.
Grocery price inflation hit 5.2% over the four weeks to 20 March, the highest since April 2012, according to data analytics firm Kantar.
Watch: How does inflation affect interest rates?
