Soaring costs are putting the school food industry under “considerable strain”, prompting fears that some catering firms will be forced to pull out of contracts before the start of the next academic year.

With food prices up by 20%, and staff and energy costs also rising, the sector has warned that schoolchildren will be served “poorer quality meals” in September as catering firms look for cheaper options to fill stomachs.

The 7p uplift in funding for universal infant free school meals (UIFSM) from £2.34 to £2.41, announced by the government this week, was described as “just not enough” by campaigners, who said it applies only to children in reception and the first two years of primary, and in any case falls well short of inflation.

Smaller firms providing catering services to schools are said to be “at breaking point” as they don’t benefit from the economies of scale that larger firms may enjoy, and are more exposed to rising costs.

LACA, which represents more than 3,000 school food providers who deliver 3m lunches in 22,000 schools every day, warned that some firms will struggle to meet school food standards in September with current levels of government funding.

“Many of our members are at breaking point, the industry needs meaningful investment,” a LACA statement said. “LACA have long called for an increase to a minimum of £2.47 [for UIFSM], in line with [other] free school meal funding and for this to rise annually with inflation.

“Our members have made it clear that without this increase they will find it hard to meet the school food standards in September. For many children this is their only hot meal of the day, which is why it is more urgent than ever that caterers receive sufficient funding.”

“The school food industry is under considerable strain,” said Jacquie Blake, chair of LACA. “Across the board, on average, we are seeing food prices increase by 10-20%. However, the funding for free school meals is fixed at £2.47, meaning that caterers across the country are struggling.

“This is especially true for smaller caterers who don’t have the same economies of scale. We know that this will only get worse in the next 6-12 months and is likely to lead to poorer quality meals.”

Many schools already subsidise government funding for free school meals, taking money from other parts of their budget to make up the shortfall. Others are reluctantly planning price rises for paid-for school meals in September to pass on costs.

Matthew Knight, catering manager at Hillstone primary school in Shard End, Birmingham, described the 7p uplift for UIFSM as inadequate. “It’s 2022 and we can’t put a hot meal on the table for children – that’s a sad indictment of this country.”

Knight does all the catering in-house, rather than using an outside contractor, and the school – which serves a largely disadvantaged, white community – prioritises good food, cooking and food education. Of the 470 children on the school roll, more than 50% are eligible for free school meals.

Price rises, however, are already reshaping the menu. The cost of a pack of 60 fishcakes has doubled from £5.95 to £11.95. Breakfast used to be free, now the school charges 40p. And by September, Knight says things will be worse.

“We are going to have to give some serious thought to our menu and the services we provide to our children. It’s going to be unsustainable. Putting up the price [for those that pay] is not an option for us. Anecdotally, people are struggling massively.”

Anne Giliker, an education procurement consultant, said school caterers were not only struggling with funding levels, but also with recruitment. “It’s very hard for them right now, both to recruit and to make everything balance,” she said.

In one recent case, she said, a catering firm was forced to pull out of a retendering process for a catering contract with a primary school because of low funding levels. Ordinarily, an incumbent contractor which had successfully fulfilled previous contracts would automatically resubmit. “They just said they could not make the income work.”

A government spokesperson said the £18m boost to UIFSM would help schools continue providing free, healthy nutritious lunches for 1.25 million children, adding: “This government has expanded access to free school meals more than any other in recent decades, and we continue to work across government to address rising costs, building on over £37bn announced to help the most vulnerable.”

How school meals are changing to keep costs down

Beef mince: caterers are adding either pulses – like red lentils – or a protein substitute to make mince go further and reduce costs.

Lamb: off the menu – too expensive.

Fish fingers: costs of white fish have gone up, particularly as much of it is caught in Russian waters, so pollack and coley are being used as substitutes. “We’re going to have to get used to grey fish fingers,” said one caterer.

Fruit: pricier summer favourites like strawberries and melon are disappearing, in favour of cheaper alternatives like apples and oranges.

Buy British: “We all want to buy British where we can,” said one school food supplier, “but we’re at the point where that’s potentially going to be compromised. If we can buy chicken from an EU source that’s cheaper, we may have to.”