Current and future market pricing

25 May, 2020
Allan Peart

Current & Future Market Pricing

The current situation with COVID-19 has put the market into uncertainty and is making what was a relatively stable; or certainly a justifiable market, uncertain and more challenging to forecast.

Whilst the Foodservice sector has experienced a significant drop in sales, there is an element of slack that has been picked up in retail, which has maintained some manufacturing and distribution of certain product lines.

Milk

Fresh product is the key area of concern with consumer habits differing in the way we eat at home, from the way we eat when we are out.

The latest update from the Agriculture and Horticulture Development Board (AHDB), reports that demand for milk is 2 million litres per day lower than it was prior to lockdown. We simply do not drink the same amount of Lattes and speciality coffees at home.

Farmers have had to dispose of a huge amount of milk due to the demand drop off. This will have a significant effect on not only how quickly we can get production back up to fulfil demand but at what cost once we come out of lockdown.

Fresh Meat

Fresh Meat as you would expect has also been hugely effected by the current lockdown.

With the Foodservice sector closed, Retail sales have grown, but not enough to fill the gap. More specifically, there is a lack of demand for specific cuts of meat which people are perhaps less comfortable with cooking at home or indeed chose not to cook at home (steaks as an example that need an exceptionally hot pan and tend to smoke out the kitchen).

This has led to instability in Beef deadweight pricing as the most valuable cuts such as fillet and sirloin steaks are not being purchased by consumers in supermarkets in the same quantities. Whilst these cuts can and are being aged there may come a point where they have to be disposed of.

This has impacted the reduction on beef pricing with Deadweight Cattle currently circa £3.24 /kg versus £3.50/kg last year.

The correction of this market could also be a problem depending on how restaurants are reopened for sit down meals again. A single date opening across the industry will inevitably create a spike in demand which could impact pricing short term

The lamb market in the UK started the year off extremely strongly with exports up and imports down. Dead weight prices at the start of 2020 were around £4.50 per kilo and hitting a high of £5.50 in mid-March.

Lockdown in China and Europe quickly impacted these statists and the UK saw a drop in price of 20% in a matter of days which it is yet to recover.

Deadweight pork pricing has consistently continued to rise however, last year pricing was around £1.40 per kilo and has steadily increased to £1.61 per kilo this year.

By contrast, where people are more used to cooking chicken at home, fresh chicken was the first item the UK food market ran out of. Thankfully the stocks of frozen chicken were plentiful, but potential increases in these areas are likely.

Fish

The Fresh Fish market are currently seeing very few boats heading out in UK waters. The demand from Foodservice dropped immediately following lock down and exports also dropping has created huge volatility in this space.

It will be an interesting area as more fishermen get back to work and our Brexit negotiations continue. The new rules and controls of British waters will no doubt have an impact on pricing, as well as plentiful stocks and good fish size given that we have been fishing significantly less.

Fruit & Vegetables

The Fresh Produce category whilst dependent on weather and harvest yields, has in large been one of routine with many Food Service wholesalers beginning to offer a much welcomed home delivery services. Although most are still operating at around 30-50% of their usual volumes despite this shift in gear.

It isn’t just the movement of current stock this sector needs to consider however. The current uncertainty of the UK’s ability to secure a workforce from Europe to harvest is only part of the challenge, learning to work and harvest under social distancing guidance is an added difficulty.

Harvesting iceberg lettuce as an example involves the workforce working within a very close rig. Social distancing will undoubtedly impact the pick rates and is already being estimated to be a third less efficient. All these of challenges are forecasted to affect the price of iceberg between 5%-10%.

The change of purchasing behaviours and in particular the emergence of the ‘Veggie Box’ which many wholesalers are delivering to homes is hugely innovative but it has also created some pricing challenges.

A staple item in every Veggie Box are carrots, which are not traditionally purchased in the same quantities by customers in supermarkets. The Veggie Box has meant we have brought forward the end to the UK carrot season forcing prices up by over 20% as a result, with supplies now coming from France, Spain and Israel. Pricing will now remain high until July when the UK season starts again.

By contrast, we are seeing a softening in some prices that would not traditionally be purchased for use in the home such as lolo biobdi, lolo rosso and oak leaf. We are seeing some correction with less of this product being planted currently, but as of today, this product is readily available.

Transport

Supply chain and our ability to bring product in from overseas will also be a factor. Airfreight is currently at a huge premium due to the lack of commercial flights around the globe. The travel industry has an uncertain outlook, with many countries suggesting their borders maybe be closed for some time and the general public choosing to travel less even if they do, potentially meaning this issue is with us for the medium term.

PPE

In the disposable category the big item is of course PPE.

Since the Pandemic started we have seen pricing for plastic gloves vary from £1.95 for a box of 100 through to some care homes paying as much as £24.45 for a pack the same size! We’ve also seen face masks ranging in price from 30p to £3 per unit.

Clearly there is some profiteering going on here but again the biggest issue beyond availability is cost of delivery.

By boat pricing remains reasonably stable but a lead time of 3-5 weeks applies.

Pricing for airfreighting PPE has risen from $800 per pallet to almost $14,000.

Other disposable items such as food wrap and take away packaging has not been used in its usual quantities despite more businesses moving to a take away model. This has left some manufacturers and wholesalers with warehouses full of product, which should keep pricing low for now.

Other manufacturers and wholesalers have moved their focus onto PPE in order to generate sales over this difficult period. This means in some instances there is significant stock and in other cases suppliers need to stock up before deliveries start again.

Others have ‘homed in’ on certain products and are limiting their disposables range moving forward to ensure they can continue to supply consistently to clients.

A very mixed message with different markets taking various approaches.

Credit & Stock Holding

Another element that will have a potential effect on pricing is how Manufacturers, Suppliers and Customers have conducted themselves during the pandemic and indeed how they chose to trade moving forward.

The biggest challenge for wholesalers and suppliers now will be the credit line. Cash has always been ‘King’ but now it is ’Cash is Everything’.

Farmers, brand owners, B2B wholesalers are all reducing the credit line which will put wholesalers under greater cash flow pressure. At the same time, many have outstanding debts from customers who are still waiting for loans to come through or the trade to start again before they can pay old debts.

As the pandemic took hold most wholesalers and suppliers stopped orders coming in or sent product back to reduce stock holding and get money in the bank.

Typically we are seeing fresh suppliers reduce stock holding by 80% but at some point as lockdown eases they will have to ramp up their stock, putting pressure on cash flow.

By contrast, some frozen and grocery suppliers are still holding excess stock over fears of boarder issues at the start of 2020 as we negotiated the UK’s Brexit deal.

Consumer habits and lock down release

The final challenge lies in both countries and consumer behaviour.

The extent at which each country comes out of lock down, the speed at which they open their leisure and hospitality businesses and the new behaviours of the consumer will all influence the food markets.

China’s lock down reduced the EU’s exports of fish into the Asian market and in some areas where we have stopped fishing we have allowed the fish stocks to recover like never before. So whilst we see some pricing increases, there are plenty of examples where seafood, beef and lamb and many other areas may also decrease.

Unlike Brexit where it was easier for us to forecast the market by understanding the impact in the event of a hard or soft Brexit or indeed World Tariff Organisation terms, this is very different.

There are too many factors in play to forecast accurately. Much like operating a leisure or hospitality business in today’s market, you cannot plan today and be sure that is the right answer tomorrow.

Things will change daily, we shall have to work harder than ever to navigate through the challenges and to make sure that the leisure and hospitality sectors continue to pay a fair price for product.

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