Food wholesalers are losing money to fulfil public sector contracts due to contractual terms that are stopping them from increasing prices in line with inflation, the Federation of Wholesale Distributors has found.
In the trade body’s response to a Defra consultation on public sector food provision, it has warned supply will be at risk if it becomes unviable for wholesalers to maintain these contracts with the likes of schools, hospitals and prisons.
A survey found 95% of its members were unlikely to bid for new public sector contracts unless the government intervened, especially ones with unfavourable terms, such as long pricing review dates.
Wholesalers have also said food standards are falling. FWD members have reported that their catering customers are being forced to reduce portion sizes and are using less UK-grown and produced food and drink, which goes against the aims of the consultation.
Several members who supply school contracts have said caterers are reducing portion size, and offering less nutritional value.
“We are heading towards a situation where the most vulnerable in society will go hungry as a result of lack of funding, and the government’s targets to improve menu choices and nutrition will not be achieved,” said FWD CEO James Bielby.
“Our members are relying on profitable contracts to subsidise loss-making ones, but the balance is tipping towards overall loss making, which is clearly unsustainable.”
The trade body is now asking government to commit to an immediate inflationary increase in funding for public sector catering and to build quarterly price reviews into contracts to allow for price increases in line with inflation.
“One example is the funding for Universal Infant Free School Meals, which was set at £2.30 a meal when it was introduced in 2013,” added Bielby.
“Almost a decade later it’s now £2.41 a meal. The food distribution sector is facing a wall of inflationary costs, and is more affected than most industries by increases in energy and fuel prices, yet their contracts have not been updated to consider these external factors. We are approaching the point where unless the government takes action, these contracts will become impossible to fulfil.”
The trade body is also asking government for further measures to support increased public sector quality requirements. This includes freezing national living wage increases, cutting fuel duty by 15p per litre and giving business rates relief to energy-intensive industries such as the wholesale sector.
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