UBS Sounds Alarm: 'The End of Cheap Food' Looms as Global Prices Soar

UBS has published a report declaring 'The End of Cheap Food?' due to rising global food inflation. The investment bank argues that the long-term average of 2.5% may be outdated as food prices continue to rise. The UK supermarkets, including Tesco PLC (LSE:TSCO) and J Sainsbury PLC (LSE:SBRY), are better positioned than their international peers to pass on higher costs to consumers.

The report identifies five forces driving up food prices, including climate-related supply shocks, poor farm profitability, and rising animal welfare standards. These factors could add between 0.9 and 3.2 percentage points to inflation in the coming years. Global heatwaves and an El Niño event next year will further exacerbate the situation.

The UK's relatively 'rational competitive landscape' enables supermarkets to pass on costs more easily, unlike the US or Continental Europe where intense competition limits their pricing power. As a result, consumers may turn to eating at home more frequently, benefiting food retailers but hurting other industries such as restaurants and clothing.