Food and drink market update - Autumn

30 September, 2022

Food markets have continued to see rising prices as we experience record levels of inflation globally. The summer/autumn season sees major contract negations for harvested crops in the canned and frozen categories along with many other key moves across product ranges.

As we enter autumn, headlines continue to be dominated by the record levels of inflation being experienced in much of the developed world.

In the UK the ONS (office for national statistics), who measure the value of a fixed basket of goods and services, now estimate that the annual inflation rate has risen to 10.1%. This is the highest level of inflation UK consumers have faced since 1982, and currently greater than all other G7 nations. In the eurozone inflation is also at the record levels (8.9%) however the UK faces the added burden of a greater reliance on imports. This puts particular pressure on food prices where the UK imports close to 50% of that which it consumes.

Russia’s invasion of Ukraine sparked a fresh wave of commodity inflation which is hitting the different categories within the foodservice sector at different times. For products with short production schedules such as fresh meat and dairy cost increases came very quickly. Inflation is dominated by the longer term impacts faced by producers where cost pressure has built up and is now being reflected in contract negotiations.

Key Price Movements:

Chips and frozen potatoes
Drought conditions across Europe bring fresh concerns to this seasons potato crop. Potato producers have seen sustained cost rises throughout 2022 with market participants estimating that growing costs have increased 20-30%.

Frozen veg
Farmers across Europe are warning of potential crop shortages as they contend with record temperatures and lack of rainfall. This comes in a season where elevated fertiliser and fuel costs are already squeezing margins for producers.

Canned tomatoes
Prices for processed tomatoes have increased significantly over the summer as the new seasons crop has been limited by drought conditions across Europe and rising production costs.

Fruit juice
Commodity prices for both apple and orange juice have increased over 30% in the last year.

European wheat prices peaked in May having risen over 80% since August. Prices were driven higher by rising global demand combined reducing supplies, punctuated by an almost complete removal of Ukrainian grain from the world market.

Sugar prices have been increasing in 2022 as growers and manufacturers face the global inflationary drivers of fuel, energy and labour.

Cod and pollock (see fish update for more detailed pricing analysis)
Prices for both cod and pollock have been highly inflationary in 2022. Norwegian cod in particular reached an all time record high in June, up over 70% since August 21.

Like many other commodities, chicken markets experienced rapid inflation during the first half of 2022. Prices for deadweight chicken from Europe peaked in May and are currently up c30% YoY.

European and UK butter prices reached record highs in June as input and production costs soared. Since that time prices have eased slightly as demand seasonally declines and consumers cut back in reaction to the current high price point. Those with short term purchasing agreements are able to capitalise on this softening in the market which will be reflected in selling price.

Moving forward, the trajectory of the market is unclear. There is downward pressure on the demand side as household incomes are squeezed by the cost of living crisis. However, on the supply side upward pressure remains, milk yields are expected to seasonally reduce after the summer and farmers continue to face high production costs.

Similar to butter, UK milk prices set record highs over the summer. The spot price shown in this graph is now up 70% year on year. This follows a temporary drop in spring which was not aligned to market fundamentals, instead being caused by operational issues at major factories resulting in a short term sell off of product. Prices have since quickly recovered to the market level.

Non-food / packaging
Packaging costs experienced another surge in inflation in H1 of 2022 as uncertainty regarding the availability and price of oil and gas rose following Russia’s invasion of Ukraine.

Source: Brakes UK.

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