Bulletin: Food system resilience tested as margins remain thin

Thin margins highlight a food system under strain

IGD’s Food Pound analysis shows the UK food system is operating with structurally thin margins across much of the supply chain. From an illustrative £20.24 basket of nine everyday food and grocery products, the entire chain generated just 29p of profit, around 1.5%. This reflects conditions before additional cost pressures and geopolitical disruption, underlining that recent food inflation has been overwhelmingly cost‑driven rather than profit‑led.

See our latest article, Thin margins are a warning sign for a food system under strain.

IGD opinion

Thin margins are a warning sign, not a footnote. With little financial headroom, the system has limited capacity to absorb shocks or invest in productivity, resilience and sustainability. Focusing on margins alone misses the deeper issue: long‑term resilience depends on taking cost out of the system and improving productivity, not pushing prices higher for consumers.

Workforce paradox: vacancies persist as labour market softens

The UK labour market has been softening, with unemployment edging up and vacancies easing. Yet across the food and drink supply chain, employers continue to face persistent recruitment challenges. This reflects a workforce paradox: the issue is not a lack of potential workers, but structural barriers that prevent people from connecting with available roles, including skills mismatches, location, working conditions, pay and limited awareness of career pathways.

See our article, Workforce paradox: vacancies persist as labour market softens.

IGD opinion

This paradox exposes a structural weakness in the food system, constraining capacity today and limiting future adaptability. Tackling it requires coordinated action beyond cyclical labour market shifts.

Through Feeding Britain’s Future, IGD is bringing industry, educators and communities together to improve awareness, skills and access, helping build a workforce that is resilient, future‑ready and fit for long‑term challenges.

Middle east briefing

Resilience taking centre stage

The Middle East conflict is unfolding against a backdrop of overlapping risks, including climate pressures, fragile supply chains and heightened geopolitical tension. Energy shocks rarely occur in isolation and can coincide with other adverse events, such as extreme weather, compounding pressure on food production and distribution.

See our latest article, Middle East Briefing: resilience now critical.

IGD opinion

Resilience now needs to be treated as a strategic input, not a contingency. Scenario planning, supply chain visibility and decision‑making readiness are becoming sources of competitive advantage. Businesses that invest early in resilience will be better placed to respond faster, manage disruption and protect commercial outcomes.

Fertiliser costs raise farm-gate price risk

Higher fertiliser costs could lift UK farm-gate prices later this year, adding upside risk to food inflation.

Gas prices have risen since the Middle East conflict escalated; the System Average Price is ~50% higher than February (spot). As gas is the main input, fertiliser prices typically follow quickly. Early AHDB weekly price data shows UK ammonium nitrate rising from ~£400/tonne in February to >£500 by week 3 of March.

IGD opinion

Most farmers are likely covered for spring applications, but later purchases could be at higher prices. That raises the likelihood of tougher choices (lower use/yields or higher costs), which would feed into crop prices with a lag. The UK government is currently consulting on possible changes to regulations on the marketing of fertilisers, adding uncertainty to timing and pass-through.

Diesel spike adds to cost pressure

Higher diesel prices could quickly feed into food inflation via transport and farm costs.

Fighting in the Middle East has pushed motor fuel prices higher. Diesel matters most for business users (haulage, farming and other commercial fleets), including both red and white diesel. Wholesale white diesel was ~147p/l on 30 March (vs ~101p end-Feb), still below mid-2022 peaks.

IGD opinion

Fuel and AdBlue are a material share of HGV running costs, and margins are thin. We expect cost pressure to be passed through rapidly to clients and, ultimately, consumers, adding risk to near-term food inflation forecasts if prices stay elevated.

What the next few weeks could mean for food

President Trump has said US military action against Iran may end within “two or three weeks”, but his primetime address also signalled further ‘extremely hard’ strikes over that period and framed the end-point as conditional on US objectives being met and/or a deal being reached . Even if fighting eases, the coming weeks are likely to be marked by heightened volatility. Energy markets, fertiliser supply and freight routes remain exposed, and the latest rhetoric keeps downside risk elevated around disruption to energy supply and shipping lanes, with cost pressures typically emerging before markets stabilise.

IGD opinion

Even a short-lived energy shock could lift 2026 food inflation, delay volume recovery and weigh on consumer confidence. Consumers remain highly price sensitive, leaving little tolerance for renewed volatility. Businesses should stress-test plans for short, sharp cost shocks and plan for confidence‑led demand shifts, not just cost pass‑through.

Conflict risk spreads to Red Sea shipping routes

Houthi militants in Yemen have fired missiles at Israel and threatened further action. Previously, attacks in the Bab‑el‑Mandeb Strait forced shipping to reroute via the Cape of Good Hope, adding time and cost. While military action reduced attacks, the capability to disrupt shipping remains.

IGD opinion

If disruption resumes, both the Persian Gulf and Red Sea could be constrained, creating a global logistics shock. This would raise fuel and freight costs and extend lead times. Businesses should identify exposure to key trade routes and treat supply chain resilience as a strategic capability, not a contingency.