Price Points

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

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

2 July 2018
fishfruitpoultrypricingseafoodvegetables

Meet the Expert

Who: David Read

What: Chairman

Where: Prestige Purchasing

UP! Just about anything that uses CO2 (and that’s quite a lot!)

Yet more food and drink supply problems have hit the national media headlines this month, on this occasion through an EU-wide shortage of CO2. April to June is typically planned maintenance time for production plants that make fertiliser and ammonia, the by-product of which is CO2. Ammonia prices have fallen to a low and imports from outside of Western Europe have been driving down prices and led to European producers coming offline for longer.

In the past week or two significant production has come back on line, and the key issue as we go forward will be the gas industry’s logistical capacity to catch up with the backlog of demand. I expect we’ll see tighter supply conditions into July with a return to normal conditions later in the month, with small purchasers waiting longer for a fix.

Slaughterhouses use industrially made carbon dioxide to stun pigs and chickens before slaughter, and it is also used in packaging to increase shelf-life, notably in the salads category. Production of UK pigmeat has already been affected and there is speculation that around 60% of the UK’s poultry processing plants could shut in the coming days. The position is mirrored throughout the EU. Beer and soft drink production has also been adversely affected.

In recent days, we have seen the beginning of shortages of product and a firming of price. In the near-term, I think it’s going to get worse before it gets better.

UP! Chicken all plucked up

A massive truckers’ strike in Brazil that went on for 10 days in late May/early June both crippled the nation and has caused lasting damage to global chicken production. The country is the world’s top chicken exporter, accounting for over a third of global exports, and is a major supplier to Asia and the Middle East. Before the strike there were around 1bn chickens in production, of which it’s estimated that around 10% have been lost because of lack of delivered feed. It’s not yet known how many of the 1.2m birds that are key to breeding have had to be culled.

This massive drop in available supply on world markets has driven up the price of chicken very quickly, and we expect the recovery to be slow, in spite of the strike ending several weeks ago. When combined with the CO2 supply issues that we are seeing in the UK, expect no respite in chicken prices for some time. Other Brazilian produce, particularly beef, has also been affected.

ONE TO WATCH! How soft will fruit be this year?

With the UK soft fruit industry gearing up for a bumper crop due to the recent burst of good weather, the question on every farmer’s lips is, “where are all the pickers?” More than half of recruiters could not find fruit and vegetable pickers even in the ‘quiet’ first months of this year, according to the Association of Labour Providers. Unpicked fruit has already been left to rot in the fields in some places as a result.

Around 99% of seasonal workers on British farms come from Eastern Europe, with many arriving from Romania and Bulgaria. Last year, the NFU reported that 17% fewer seasonal workers came to the UK to work in farming, and this is expected to rise this year.

Over the past 10 years, UK soft fruit production has more than doubled, with over 30,000 additional employees required in the summer months. There is no clear picture yet, but we anticipate a risk to UK soft fruit pricing because of a combination of more expensive labour and unpicked product. Keep a keen eye on cost, as even in peak season UK product may end up being premium priced.

UP! White Fish and salmon leading the food inflation charts

Cod and haddock, which are of course the two most popular white fish in the UK, look set to become more expensive following calls for big cuts in the Barents Sea quotas. ICES, the International Council for the Exploration of the Sea, is recommending a 13% reduction in the cod take and a 25% cut in the haddock quota to restore stocks.

The Barents Sea, shared by Norway and Russia, is the world’s largest provider of these two breeds, and buyers in the UK are bracing themselves for steep price increases, in an already volatile market.

Even before this news, fish and seafood continues to be in double-digit inflation. The market for all white fish is tight, and recent increases in crude oil prices (which are a key cost of fishing) have pushed up producer costs.

To make matters worse, salmon prices are continuing to be high due to Norwegian production shortages and poor growth rates caused by an unusually long and cold winter.

ONE TO WATCH! Lettuce is flying off the shelves

The heatwave may be great for beer sales, but it’s also been pushing up volumes of salad sales too, with numbers currently up around 40% year on year. Unfortunately, when the temperature gets close to 30 degrees, lettuces and leaf crops slow down their growth, and this is creating a shortage of UK grown leaf products.

If things don’t change in the next week or so, we can expect prices to rise sharply, and we may even see some product shortage. There is a risk on broccoli and cauliflower for the same reason.

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