Price Points

Cost watch: what’s going up and what’s going down in August

Prestige Purchasing's chairman, David Read, gives a glimpse into the financial future.

31 July 2018
Brexitdairyfruitgrainsmeet the expertpricingvegetables

Meet the Expert

Who: David Read

What: Chairman

Where: Prestige Purchasing

 

UP! Fruit and vegetables drying up

Until the storms of recent days, the last time we saw widespread rainfall across the UK was way back on May 29. The World Cup was yet to start. Schools – now broken up for summer – were just halfway through the term. And as July progressed we didn’t just have drought, we experienced record temperatures in many parts of the country. This has seriously stressed our fruit and vegetable sources in the UK.

Lettuce and salad leaves have been in increasingly short supply, and prices have already risen dramatically, as demand has risen sharply and production – hit by weather-related late planting in spring, high temperatures in July, and two months of almost no rain – has been much lower than normal. Stocks have been supplemented by imports (mostly from Spain, Poland and even the US) but expect prices to be at a 20% plus premium throughout August.

Other crops, including celery, onions, carrots, potatoes, broccoli, peas and cauliflower, are also being affected by high temperatures (which stress the plants and halt growth) and lack of rain. Irrigating crops is simply keeping them alive at current temperatures – alive but generally not growing. Crops without irrigation are dying. Expect UK vegetables to be smaller than usual as yields fall, and prices (already rising fast) to continue to be high throughout the summer.

Many soft fruits have been suffering similarly. The very high temperature is lowering fruit size, shortening the picking window, and the shortage of pickers created by Brexit is causing fruit to deteriorate before picking.

Relying on imports is not always a simple fix, especially since these difficulties come as supplies of tenderstem broccoli, mangetout and sugar snap peas have been hit by heavy rainfall in Kenya that has destroyed thousands of hectares of crops.

DOWN! Sugar more sweetly priced

While global consumption of sugar is still rising, the pace of growth has slowed to an average 1.4% in recent years, down from 1.7% over the past decade.

This comes at a time when production is booming, especially in India, the world's number two producer (behind Brazil). Farmers in Thailand are also collecting massive crops. World stockpiles are set to swell to the highest ever this season and stay near the record next year, according to the US Department of Agriculture. Global production will top demand by 19.6m metric tons in 2018 – the biggest overhang ever.

It seems that everyone in food is trying to do away with sugar and sugary products – not just in the UK, but globally. Demand is going into decline and the price of sugar is destined to stay low for quite a while.

UP! Here comes the grain drain

Wheat is feeling the heat as well this summer, as global producers are sweating over a drought that has seriously curbed output. We’ve had several years of strong harvests, but Russia, Australia, Argentina and the EU have all experienced scorching heatwave conditions, with the IGC (International Grains Council) cutting its production forecast to a five-year low.

Wheat prices are heading up, so expect breads and other flour-based products to surge in the weeks ahead.

ONES TO WATCH! Absolutely everything imported

In case you hadn’t noticed (and if you haven’t then lucky you!), the UK government is busy negotiating our exit from the EU. In recent weeks, the betting odds on the UK ‘crashing out’ have fallen sharply. Betfair are now offering odds of 1/2 for “no trade deal being agreed with the EU by April 2019” – that’s an ‘odds-on’ bet. The papers are suddenly full of articles advising stockpiling of imported foods.

In the event that we do leave suddenly, expect supply shortages and a rapid escalation of price on anything entering the UK, in some cases dramatically.

So now is a good time to consider your supply agreements and to talk to your suppliers about any products that you buy (particularly the critical ones), trying to understand their sourcing and contingency plans. Onshoring your sourcing as a contingency measure is worth considering for critical products if you can.

ONE TO WATCH! A long and slippery climb

Regular readers of this column will know that oils and fats have been abnormally high for some considerable time. But events may push things further.

Escalating trade tensions between the US and China have made oilseed markets extremely volatile – US futures slumped days ago with China threatening to impose a 25% duty on US soya beans in retaliation for president Donald Trump’s trade measures against the Chinese.

This in turn may chase oilseed prices up, which will almost certainly chase up the price of other oils too. The situation remains dynamic (after all, Trump is involved), but don’t bet anything on food oil prices going down for a while.

ONE TO WATCH! Dairy has a milky future

Milk never seems to be far from the news these days, but in some parts of the UK, the recent drought and heatwave has been causing acute distress to dairy farmers. In the hot weather, milking yields fall by about 3 litres per head, but it’s the lack of grass – and in some cases difficulties providing water – that has been the cause of greatest anxiety.

This has caused many dairy farms to resort to using their winter supplies of fodder to feed livestock, and with fodder already at a premium, this could become a real problem later in the year. Watch this space.

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