Price Points

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

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

1 November 2018
Brexitcoffeeingredientsmeet the expertpricingseafood

Meet the Expert

Who: David Read

What: Chairman

Where: Prestige Purchasing

 

Apart from fish and oils/fats, food and drink markets are relatively quiet, as everyone holds their breath on the biggest risk out there – a no-deal Brexit. 

ONE TO WATCH! Brexit countdown

As I write, there are less than five months to go before Brexit. There is broad agreement that an exit deal requires completion within the next eight weeks for it to be ratified in time. The few bookmakers still offering odds on a no-deal Brexit are offering evens or marginal odds-on.

My City of London sources all confirm that this outcome would likely 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.

UP! Fish and seafood crest the price waves

Over 70% (by value) of the fish and seafood we consume in the UK is made up of salmon, prawns, tuna and leading white fish cod and haddock. When these markets come under pressure, the impact can be big.

The Foodservice Price Index (FPI) for this category is now showing a record 26% inflation, and the outlook over the winter months remains uncertain. Salmon pricing has been all over the place, with an almost 20% drop in the summer now reversed and the price creeping slowly down again since.

All imported fish has been affected by recent further declines in the value of the pound, and trade turbulence has been created in world markets by the imposition of a 10% tariff by the US on Chinese fish imports, which in turn is pushing up demand (and price) in other countries.

Against a pattern of long-term decline in the number of fishermen in the UK, the next few months will see the full implementation of the EU Common Fisheries Policy on landing obligation, requiring all fish caught – desired or not – to be landed rather than thrown back into the sea. This is now driving vessel owners to invest in gear modifications and changes in fishing methods, contributing to increasing costs.

DOWN! Coffee cooling too fast?

At the end of 2016, the price of Arabica coffee on the New York Stock Exchange had fallen to $1.55 per pound (454g). Since then, the price has dropped further to a dramatic low point of less than $1 per pound, attributed to surplus supply from Vietnam, the world’s second largest coffee producer.

Whilst this is good news for operators, this price is below the cost of production, jeopardising both the livelihoods of up to 25m coffee farming families worldwide and potentially even future supply capability. Even before this recent price slump, of the total value of coffee (around $200bn in 2015), only 10% stays in the countries of origin.

In the UK, Fairtrade, which is the only certification mark that requires a minimum price of coffee for buyers ($1.40 per pound), has a market share of around 25%. This means that for three-quarters of all packs of coffee in the UK, no price security is offered for coffee farmers.

ONE TO WATCH! Edible oils and fats are becoming indigestible

In February this year, the FPI index for edible oils and fats was at 117. Since then, the index has risen every single month to a high of 156 in the most recent edition. Much of this rise has been driven by a huge surge in the price of butter over the past two years, where the upstream wholesale price reached a peak in October 2017 of almost three times the level of the prior year.

Around 70% of this price spike came off in the early part of this year, but the weather problems of this summer pushed it back up again to a mid-point between the two. We expect this now to ease as we enter the winter period, as the upstream wholesale price eases off.

The edible oils market remains unstable. Palm oil has been recovering price, while UK rapeseed production is provisionally estimated at a 5% fall from 2017 and 7% below the five-year average. Prolonged dry conditions and warmer than average temperatures across large swathes of Europe have raised concerns for the coming year’s rapeseed crop.  

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