Price Points

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

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

4 January 2019
Brexitdairyfruitgrainsmeet the expertpricing

Meet the Expert

Who: David Read

What: Chairman

Where: Prestige Purchasing

 

Food and drink inflation remains abnormally high and will remain so for a while yet, as fish and oils/fats are still priced at more than 30% above this time last year. But with seven out of 11 categories in the CGA Prestige Foodservice Price Index now in month-on-month decline, the overall basket is very slowly moderating.

UP! Citrus prices going sour

I promise I didn’t wish for this outcome, but last month I warned that in winter a high proportion of our seasonal fruits are imported, and that these are vulnerable to weather conditions in growing regions. True to form, news is emerging of a period of heavy rains and flooding in Spain that looks likely to affect the citrus fruit market in the UK. Some Spanish growing regions experienced the equivalent of four months’ rain over one weekend during December, resulting in losses to production, poorer quality of fruit and shipment delays. Orange and lemon orchards have been significantly affected by the flooding, and persimmons (already damaged by 2018 spring frosts and July hail) have also been impacted.

ONE TO WATCH! Will wheat prices puff up or down later in 2019?

The summer harvest of wheat and grains in the Northern Hemisphere resulted generally in reduced yields and poorer quality, and as a result we have seen prices on the up for a while. It will take some time for stocks to recover, but the UK Agriculture and Horticulture Development Board’s Early Bird Survey of cropping intentions for cereals and oilseeds in 2019 suggests that decent autumn weather conditions have meant good planting conditions, resulting in an expected 4% increase in planting area for wheat – the highest since 2014. Higher pricing for combinable crops has also meant expected increased winter planting of 9% for oats and 13% for winter barley. If the weather holds prices should ease, though keep an eye on the spat between Russia and Ukraine, which could upset the wheat cart in the weeks ahead.

DOWN! Butter melts at last

It’s got a long way to fall to reach historic levels, but we are at last seeing a decline in the price of butter. Month-on-month improvements are just a few percent, which – against a more than doubling of price in 2017 – makes them look rather paltry, but I expect them to be sustained over the months ahead, so we should see more realistic prices by the summer. For some it may be useful to know that there is a current, and increasing, divide between supplies of fresh and frozen butter. Frozen butter stocks are plentiful and falling faster than fresh butter, which is still being sold at a premium.

UP! If you haven’t yet heard of Xylella fastidiosa, you soon will

Xylella fastidiosa is sadly not a new Italian opera singer. It’s a bacterial plant disease that affects olive trees. First reported in Italy in 2013, it’s now present in Spain too and is considered one of the most dangerous plant diseases in the world by the European Commission. As 65% of global olive oil production is from the EU, knock-on effects to global markets are inevitable. The decline in harvests will continue and effects within the olive oil market will be felt for years. If critical to your business, consider stockpiling, particularly as a no-deal Brexit remains a distinct possibility.

ONE TO WATCH! Eggs falling, how hard is the floor?

We’ve previously mentioned that eggs are set for a boost as production takes a sharp leap over the winter months. But before we get too relaxed, it seems that egg sales have significantly increased following revision of Food Standards Agency (FSA) guidelines, which now deems eggs produced to British Lion standards safe to eat when undercooked and raw. This revision was made in October 2017, since which a 4.9% increase in egg sales has been recorded. The rise in sales is expected to continue as the public become increasingly aware of the new guidelines, so the increased production may be (literally) swallowed up by the hungry demand.

ONE TO WATCH! No-deal Brexit

With less than 100 days to go before Brexit, there remains no clear outcome. The debate recommences on January 7, with the meaningful vote now scheduled for the week commencing January 14.

Our departure from the EU will create major changes in the UK farming sector. For example, in dairy production we may see increased UK milk production, as removal of Common Agricultural Policy subsidies may affect lowland beef and sheep farmers significantly. Some predict that as subsidies are removed, red meat producers will abandon production, forcing rent prices down, allowing milk producers to expand.

Indeed, if there is no deal we can expect meat production to be affected even more, as both beef and lamb going into the EU would be subject to tariffs of up to 40%, making the product much less affordable.

In fishing, an agreement over sharing of fishing waters has not been reached, and Michael Gove has stated that the Royal Navy will be deployed in defence of British fishing territories. A no-deal Brexit would make affordable access to many species of fish very difficult.

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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