Food wholesalers absorb losses to maintain vital public contracts

Standards of food and drink in vital public services such as schools, hospitals and prisons are declining and being delivered at a loss, due to increasing costs and a lack of support from government

Wholesale distributors are losing money on each delivery and proposed government targets on local and environmental sourcing will be impossible to meet.

Members of the Federation of Wholesale Distributors (FWD) service nearly 2,000 contracts in the education, health and justice sectors. Nearly all report that they are fulfilling some of these contracts at a loss due to existing long-term contractual stipulations which prevent them increasing prices. Where increases have been possible, they have been below soaring inflation rates.

In its response to a Defra consultation on public sector food provision, FWD warns supply will be at risk if it becomes unviable for wholesalers to continue to fulfil these contracts. A survey of members revealed that 95% are unlikely to bid for new public sector contracts, especially ones with unfavourable terms, such as long pricing review dates.

FWD members also report that their catering customers are struggling to meet food standards, being forced to reduce portion sizes, and use less UK grown and produced product – all of which are contrary to the aims of the consultation. Several members who supply school contracts say that caterers are reducing portion sizes, and offering less nutritional value.

FWD Chief Executive James Bielby said: “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.

“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. We are asking the 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 times of high 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. 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.”

FWD’s recommendations to the government include:

  • Committing to a real inflationary increase in funding for public sector catering in the short term
  • Ring-fencing funding for catering costs, in order to meet inflation rates
  • Guidance to ask for service delivery requirements to be relaxed
  • Further measures to support increased public sector quality requirements such as freezing NLW increases and cutting fuel duty by 15p per litre and giving business rates relief to energy intensive industries such as the wholesale sector
Defra FWD FWD members Government James Bielby public services