Price Points

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

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

8 March 2019
bakeryBrexitdairygrainsmeatmeet the expertpricing

Meet the Expert

Who: David Read

What: Chairman

Where: Prestige Purchasing

 

Food and Drink inflation in Foodservice remains scarily close to 10%, but with most categories in the FPI (CGA Prestige Foodservice Price Index) now in month-on-month decline, the overall basket is continuing to moderate, and we expect to see levels of inflation falling before the summer.

DOWN! The milk of pricing kindness

Farm-gate milk prices have been falling and milk production volumes rising, and with the relatively mild weather so far this year we have seen good early grass growth, which has eased the silage shortage and reduced farmers’ reliance on winter feeds. Milk production has increased too as a result of better quality forage. Fingers crossed that this trend will continue through the spring months.

ONE TO WATCH! Oils and fats in choppy waters

image credit: Getty Images

Trump’s trade battle with China saw soybean prices drop fast in 2018 and will most likely keep prices soft for a while yet. Estimates of US soy stocks suggest the 2018/19 season is over 50% higher than a prior year, and China has been swiftly reducing its reliance on soybean imports, so demand is falling.

On the other hand, weather phenomenon El Niño, which last occurred in 2015/16, severely hampered palm oil production in the southern hemisphere, strengthening prices.

Butter, which was at record highs last year, is at last returning to more sensible levels of pricing. So, pick your specific oils and fats carefully as the basket is turbulent – good deals can be had but shop around.

DOWN! Nothing to beef about

With Christmas now well and truly history, and the extra seasonal demand for meat diminished, beef prices have been falling. We expect this to last for the first quarter of the year before rebounding. Farmers, particularly in Northern Ireland, are expressing concern over their current pricing, which they feel is unsustainable. Production of UK and Irish beef in the year ahead is predicted to rise, which will also supress prices.

Pork has been dropping in price as well. Slaughter volumes of UK pigs have risen this month and stocks are plentiful – so get the barbecue dusted off. 

DOWN! Bread costs less dough

image credit: Getty Images

We’ve seen quite a hike in bread and cereals pricing through the last six to nine months because of poor UK and global harvest volumes, but the 2019 wheat harvest is anticipated to be larger than 2018, both domestically and globally.

The Agriculture and Horticulture Development Board has suggested a 4% increase in UK wheat planting area and good summer weather would boost yields as well, while a marginal increase in global planting area has been forecast by the International Grains Council.

After harvests begin in the summer, we would expect to see wheat fall significantly year on year as a result of the high prices of 2018, which were caused by the poor summer growing conditions.

UP! Fruit gets pulped

It’s all been rather difficult in the fruits market recently, pushing prices up across the board. Apple prices have gone up a lot, with recent reports suggesting that the Pink Lady harvest in Europe is going to be far below expected volume. With imports reduced, prices of apples can be expected to rise higher still for the short term.

The flooding across Spain occurred a few months ago and was severe enough to continue causing availability and quality issues even today. Legal disputes are now emerging between producers and commercial operators with contracts going unfulfilled. Spanish citrus doesn’t look like it’s going to recover any time soon, and the UK is supplementing these shortages with imports from Egypt and Morocco.

On the other side of the Atlantic, flooding is wreaking havoc on Bolivian banana production. Losses have been seen in over 10,000 hectares of plantation, with damages to both plants and picked stock.

ONE TO WATCH! No-deal Brexit

With around 21 days to go (yes, just 21) before Brexit, there remains no clear outcome as to how we will leave.

A no-deal is generally accepted as being highly detrimental to the economy – mostly as a result of the trade chaos that would ensue. Last week, the government issued its own report on the impact of no-deal.

"One of the most visible ways in which the UK would be affected by delays in goods crossing the Channel is our food supply, 30% of which comes from the EU. Possible disruption to cross-Channel trade would lead to reduced availability and choice of products," the document said.

"This would not lead to an overall shortage of food in the UK, and less than one in 10 food items would be directly affected by any delays across the short Channel crossings. However, at the time of year we will be leaving the EU, the UK is particularly reliant on the short Channel crossings for fresh fruit and vegetables. In the absence of other action from government, some food prices are likely to increase, and there is a risk that consumer behaviour could exacerbate, or create, shortages in this scenario.”

We believe that this is (at best) understating the impact, as there is no reference to exchange rates, which our City advisors suggest will be subject to a further (15-20%) correction in the event of no deal, adding significantly to import costs, regardless of any shortages of product.

On February 26, the prime minister promised to hold another meaningful vote on her Brexit deal on March 12. If that fails to pass, MPs will be given a vote on leaving with no deal and, if that also fails, on extending article 50 beyond the March 29 departure deadline. This reduces the probability of no deal to a low level, as parliament has shown no stomach for it.

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

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