Price Points

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

In the first of a monthly series, Prestige Purchasing’s chairman, David Read, gives a glimpse into the financial future for ingredients.

31 January 2018
chocolategrainsingredientsmeet the expertpricingsugar

Meet the Expert

Who: David Read

What: Chairman

Where: Prestige Purchasing


UP! The chocolate holiday is ending

Chocolate seemed on an unstoppable rise in recent years – until last year’s cocoa crop. Pushed on by strong West African production, it drove the market back into surplus. Good news for the sweet-toothed, as this sent prices spiralling downwards.

But weak prices have stimulated demand and at the same time disincentivised farmers in a year when growing conditions have been less favourable. Last year’s price slump has made it difficult for farmers to buy production equipment such as fertiliser and pesticides, making it easy for fungal diseases to take hold.

In added pressure, thousands of cocoa farmers have fled violence between separatists and security forces in Cameroon's Southwest Region, which grows more than 100,000 tonnes of beans, threatening nearly half of the country's output. And manufacturers like Mondelez are also taking steps to intervene in illegal production, particularly in Ghana, because of widespread deforestation.

On a positive note, the pound’s recent strengthening against the dollar will have a cushioning effect on UK buyers, but a steady upwards pattern on pricing can be expected for some time.

ONE TO WATCH! Wheat on the rise

We’ve been watching wheat prices rising for some time now. Given escalating demand, we are anxious about the possibility of increased price pressure throughout 2018.

In the latest International Grain Council (IGC) report on January 18th, a 2% fall in world wheat production was projected for 2018/19.

Looking at the UK specifically, wheat production could fall to 14.4 metric tonnes in 2018, down 3% on 2017. So unless there are high yields, UK wheat supplies could be pretty tight in 2018/19.

The jury is out on the extent of any price pressure, but with lower production, a season of poor weather/yield could be painful for caterers.

DOWN! Sugar takes a sweet tumble

It’s ironic that at a time when the government is introducing a tax to encourage producers to reduce the amount of sugar added to soft drinks, a large global sugar surplus in 2017-18 will push prices downwards in the first half of 2018.

The end of almost 50 years of European Union quota protection last September has shaken up Britain’s sugar industry – with the potential for boom or bust for producers. The UK’s 3,500 growers of sugar beet – a sweet root vegetable that looks like a turnip – and the country’s sole refiner, British Sugar, expect the change to allow them to increase production by 50% annually.

But the projection that mills in the world’s largest grower, Brazil, will reduce the amount of cane they turn into the sweetener should help to stabilise prices later in 2018.

ONE TO WATCH! Oil could set food inflation on fire

We all know that the price of oil has a material impact on the price of food. Our food needs to move from farm to the kitchen door, and diesel is a major cost in that process. Additionally, many items of packaging are based in plastics made from oil.

So market watchers have been holding their breath in recent weeks as crude oil hit its highest level in more than three years. Signs of a supply-demand imbalance sent oil prices nearly 6% higher, to trade at their best since December 2014. Crude has surged 133% since hitting a multi-year low of $27.30 a barrel in February 2016.

Our research is pointing to this rise being temporary, but a sustained increase without a further strengthening of sterling could easily add 1-2% points to overall food inflation. We will be watching this space particularly carefully in the weeks ahead.

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