Development and Expansion of Existing Food Price Modelling System
Authors: Lloyd, T., McCorriston, S., Lin, H., Witt, A.
Publication Date: 30/04/2026
Publisher: Defra
Place of Publication: London
Abstract:In this report, we detail the development and expansion of the existing food price modelling system. The previous modelling approach (detailed in Defra, 2020) was largely premised on developing a framework to address the potential impact of the UK’s departure from the EU on retail food prices in the UK. As such, an original feature of that research was to develop an econometric framework of the determinants of UK food prices with considerable attention to the detail of sources of UK raw agricultural and processed food. However, since the delivery of the original food price modelling framework, there have been a number of significant global events (most obviously, the COVID pandemic, the Russia Ukrainian war, the spike in global energy prices and growing awareness of the importance of climate change on food prices) which-given the openness of the UK’s food and agricultural sector-would potentially major impacts on UK retail food prices. In addition to updating the data underlying the previous econometric model, accommodating the factors that would reflect the changes in the global environment was one of the main factors motivating the extension of the food price modelling framework. In the course of updating the previous framework and incorporating additional variables, we also took the opportunity to extend other aspects of the research developing the econometric approach to modelling UK retail food prices. First, instead of employing a vector autoregressive approach, we applied the local projections econometric methodology that-for our purposes-offers a number of desirable features in terms of estimation, efficiency and incorporating a larger number of variables that would be challenging in the vector autoregressive approach. Second, while the previous research focussed on retail food prices, we have taken the opportunity to estimate econometric models relating to several food and agricultural sub-sectors (bread and cereals, dairy, beef, fruit and vegetables). This is warranted given that the price dynamics at retail, import and domestic agricultural for these sub-sectors differs from the aggregate level. The econometric framework and the variables determining prices at various levels are identical to the aggregate retail food price model but, reflecting differences in the UK’s openness to global events in these sectors, energy intensity and characteristics of the supply chain, the impact of the determining factors will likely differ from the aggregate retail food price model and across the various sub-sectors. Finally, given that we have estimated sub-sector models, we can also tie the potential outcomes of price shocks to health impacts. This draws on work previously commissioned by Defra on estimating demand elasticities and related to that research, nutrient elasticities associated with certain food groups. Details of the revised approach and selected results are provided in this report.
Source: Manual