Price Points

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

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

6 February 2019
Brexitmeet the expertpricingseafoodsugarvegetables

Meet the Expert

Who: David Read

What: Chairman

Where: Prestige Purchasing

 

Food and drink inflation in foodservice remains abnormally high, being more than 3 percentage points ahead of consumer price inflation, but with most categories in the CGA Prestige Foodservice Price Index now in month-on-month decline, the overall basket is continuing to moderate.

UP! Chips no longer cheap as chips

image credit: Getty Images

Potatoes have been severely affected by the harsh spring weather and summer droughts of 2018, and many growers have seen the smallest harvest for six years. This is likely to impact potato availability and cost at least until the early summer.

Other winter vegetables have been similarly impacted, especially onions, where smaller sizes and reduced availability are putting pressure on price.

The increase has been aided by the rise of Veganuary, greater promotion of vegetable-based diets and the vilification of meat production due to its environmental consequences. The full basket of vegetables is just under 10% higher than this time last year.

Fruit saw the largest month-on-month rise of any category during December. Last month, I reported a period of heavy rains and flooding in Spain and this is now affecting the citrus fruit market in the UK. Some Spanish growing regions experienced the equivalent of four months' rain over one weekend, resulting in losses to production, poorer quality of fruit and shipment delays. It doesn’t look like prices will fall for a while yet.

DOWN! Is sugar about to march to a different beet?

We’ve all become used to the price of sugar falling – it is still approaching 15% lower than last year, but for the first time in over a year we saw a month-on-month firming of price at the end of last year.

Sugar cane production is now being impeded by drought conditions in Brazil, and if early forecasts are accurate, the drought could be quite severe and extensive.

Indian sugar cane production in the second largest growing region of Maharashtra is also struggling, this time due to pestilence. An infestation of white grub has reduced output forecasts by as much as 10%. Burrowed deep in the earth, white grubs are hard to eradicate, requiring complete removal of the sugar cane – a costly activity. Canes affected by white grubs must be destroyed completely.   

For those in the habit of drinking a sweet cup of cocoa before bed, there is even worse news: cocoa prices have been increasing as well, with dry conditions in the Ivory Coast slowing production. London cocoa prices rose by 30% at the end of 2018.

ONE TO WATCH! Which way are the fish swimming?

image credit: Getty Images

The old phrase ‘What’s that got to do with the price of fish?’ is often used to make an argument that something is irrelevant, but it seems to me that just about everything in the whole world has something to do with the price of fish.

We saw a surprising fall in the price of salmon in December due to high stocks of Scottish fish, meaning a lower level of Norwegian and Chilean imports, reducing the Foreign Exchange Market (Forex) exposure. White fish remained firm under the influence of smaller quotas, though better-than-usual weather improved catch volumes.

Our dependence on imported fish exposes a vulnerability to Forex movements caused by the Brexit process – in mid-January, sterling fell to a three-month low after the Withdrawal Bill’s defeat in the Commons. But most of all, the impact of the timing of our exit from the Common Fisheries Policy may well cause serious fluctuations of availability in the first half of this year. Paddy Power has begun to take bets (albeit at 25-1) on fish being rationed in the UK in the event of a no-deal Brexit.

ONE TO WATCH! No-deal Brexit

With around 50 days to go (yes, just 50) before Brexit, there remains no clear outcome as to how we will leave.

Bosses from some of the UK’s best known high street names, including Sainsbury’s, Co-Op, Pret a Manger, Lidl and KFC, have raised the alarm that prices could spike if there is a chaotic no-deal Brexit. They wrote to MPs on the eve of a Commons showdown over a series of amendments, including to block no deal and delay Brexit beyond March 29.

In their letter, the food bosses warned that millions of consumers could be hit by “significant disruption” to supply chains of goods due to no deal.

“Our supply chains are closely linked to Europe – nearly one-third of the food we eat in the UK comes from the EU," opined the signatories. “In March the situation is more acute as UK produce is out of season: 90% of our lettuces, 80% of our tomatoes and 70% of our soft fruit is sourced from the EU at that time of year. As this produce is fresh and perishable, it needs to be moved quickly from farms to our stores.”

A no-deal Brexit would also be likely to result in another significant correction in the value of the pound (consensus -10% to -20%), which in turn will inflate imported food prices significantly next year. Conversely, any deal that has tariff-free and frictionless status will strengthen sterling, with a positive impact on prices.

 

Resources to help you plan for a no-deal Brexit are available here from Prestige Purchasing.

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