Well, are food prices going to rise? After all, governments have successfully held prices down for decades. Milk is cheaper in the shops in cash terms than it was back in the 1990s. Is the tide changing?
One advantage of living on the side of Morecambe Bay is that you get used to the tides. I once spent some time in Scarborough and yes the tide goes out, but frankly it’s not what I’d call spectacular. Here in Morecambe Bay when it goes out, it literally goes miles. Over seven miles at times. So when the tide changes, things obviously change. And I’m wondering whether we’re about to see another turn of the tide. The combination of carbon zero, Brexit, and Covid has been a perfect storm.
Now since Peter Mandelson and New Labour announced they were “intensely relaxed about people getting filthy rich so long as they pay their taxes,” the economy has shifted. I don’t get upset about the ‘gig economy’ because for most self-employed people that’s what self-employment is. But we’ve had industries growing up as parasites on others. So Airbnb can become what is effectively the world’s biggest hotel chain but dumps all the capital, maintenance and staffing costs onto its ‘partners.’ Similarly Uber managed to become one the biggest taxi companies without owning a single car or employing drivers, but instead pushed all those costs down the supply chain onto the shoulders of its ‘partners.’ It has taken court cases and old fashioned trade unions to get Uber to start to change its ways.
Then we’ve had over a decade of Quantitative easing. To quote from the Guardian (and in turn from the Bank of England) “QE enriches those who have already accumulated enough assets such that they generate sufficient income without the need to liquidate their accumulated capital base. As the Bank itself determined in a 2012 paper analysing, among other things, the distributional effects of QE, “the top 5% of households own 40% of the assets,” and hence they have been the primary beneficiaries of the rampant asset price inflation following the financial crisis of 2008 and large devaluation in sterling.”
But all these attempts to ‘drive cost out of the system’ are starting to run into the sand. So now haulage has started to be a serious cost, at two levels. Shipping costs have gone through the roof. I was talking to an old chap who used to go round farms and sell tools from a van. His business model, twenty years or so ago, was to fill a forty foot container from suppliers in China and over the next couple of years, he’d sell the contents and that’s how he made a living. He retired about four years ago, and after three years he discovered he was going out of his mind with boredom. So he started up again and aged seventy he’s back on the road. But when he tried to get his container, the Chinese suppliers were still there, but the cost of a container for somebody just hiring one occasionally, had gone up from £2,000 to over £20,000. As he said, suddenly there was no money in it.
Then we have the shortage of wagon drivers. Plus a shortage of people to do field work, and the shortage of labour has crept into other industries as well. The problem is, a lot of these people are working for the ‘living wage,’ if they are lucky. I saw one care firm boasting it paid £9 an hour, but then you discover that this doesn’t include travelling time between the homes of your clients, and for that time you’re not paid but will get your petrol or bus fare. So the laws of supply and demand should lead to wages going up.
Now a lot of well-paid people are demanding that we import cheap labour from abroad. Keep prices down. Heaven forfend that they have to pay more for a skinny latte.
Admittedly with the end of furlough, we could see people coming back onto the job market. Apparently a lot of those on furlough work in aviation, foreign travel and suchlike. Frankly are there jobs for them to come back to or are they facing redundancy? It might be as good a time to become redundant as any, especially if you’re willing to splash out on your HGV.
But the other parts of the perfect storm are hitting at the same time. Even if you do keep people on minimum wage, that’s going to have to rise to cover the increasing prices. I’ve already mentioned haulage, the increase in the cost of a container alone could add about 20p to a kilo of oranges. But then, just as UK government advisers are telling the government we can import food, just like Singapore does, the Singapore government are stressing they’re increasing the proportion of food produced at home. For small city state this is tricky, but their current plan is to go from 10% self-sufficiency to 30% self-sufficiency by 2030.
Even wealthy Singapore states ““Although import source diversification has served us well, COVID-19 underscores the importance of having a buffer in case of global supply disruptions.”
So if Singapore worries that food might not be out there to import, why on earth should we assume it will be out there to import cheaply?
And then we’ve got carbon neutrality. This is pretty well going to jack the price up of a lot of things. If you’ve got gas central heating, when your boiler gives out, you probably won’t have gas central heating any more, you’ll have to buy a heat pump. Similarly have you considered how you’ll charge up your next ‘electric’ car? A neighbour of ours has had Three Phase electricity brought to his premises because it makes charging a car faster and cheaper. How many people can do that? I know people who cannot even park their car within sight of their flat, never mind dangle a cable out of their fifth floor window to charge it. As a country we will need a lot more infrastructure to cope with the shift to charging cars, and a lot more generating capacity. None of it is cheap and somebody will have to pay for it. Don’t expect cheap electric at any time soon.
But if you get wages rising because of a shortage of workers, followed by costs rising because of increased haulage, energy costs, and rising wages, you then have the circle complete itself because workers will want more money because they’re struggling due to the increased cost of living. Will we see inflation back?
Personally, if I had a lot of money borrowed, I’d be keen to lock it in for as long as possible at as low a rate as possible. After all, I’ve farmed with an overdraught rate of 23%. It makes your eyes water.
There again, what do I know? Speak to the experts
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