Potato contracts for the 2022/2023 season have experienced a considerable price hike due to a combination of market challenges faced by growers.

High energy and fertiliser costs following market disruption caused by the war in Ukraine have had a significant impact on the production cost of potatoes. Moreover, the extremely warm and dry conditions during the summer months have driven up costs further, as growers have had to resort to artificial methods of irrigating their crops.

Potato growers are grappling with the difficulties posed by adverse weather conditions and rising cost drivers, a situation that is echoed throughout the wider fruit and vegetable market.

In the UK and across Europe, growers experienced a hike in costs for nearly every stage of the production process. The main concerns cited by suppliers were related to fertilisers, energy, labour and irrigation water.

Consequently, the agreed-upon prices at the start of the season often translated to much lower profits or losses by the end.

The inflation in orange juice prices has been notably severe due to the record low levels of supply in the United States.

In late September, Hurricane Ian caused significant damage to crops and infrastructure in crucial orange-producing regions in Florida, exacerbating the situation.

In addition to weather-related damage, crops are also being affected by "citrus greening," a disease that spreads via infected insects and can be fatal to plants.

The cost of producing apple juice continues to be significantly elevated. Fertiliser prices have surged compared to previous years, and the juice-making process is highly energy-intensive, requiring electricity for activities such as crushing, washing, storage, sterilisation, and cooling.

Canned tuna, beans, and tomatoes have experienced year-on-year price hikes, particularly in the case of tomatoes. However, the increases in canning and energy costs are also crucial factors contributing to the final price.

Most wheat suppliers are still dealing with a higher year-on-year cost base when renewing ingredient and energy contracts. Nonetheless, wheat prices are expected to continue to fall in the long term, which should allow for more savings in the second half of the year.

Over the past year, European sugar prices have experienced a significant increase, mainly due to the surge in energy prices during the same period. Consequently, raw European sugar has transitioned from being one of the most affordable options in the global market to becoming one of the most expensive.

The future prospects for the sugar market remain uncertain, with projections from the EU Commission and British Sugar estimating a combined decrease in production of 11% for the 22/23 season. While Brazil and Thailand are expected to have better yields, India and Ukraine are likely to have lower outputs, resulting in mixed forecasts for other significant sugar-producing countries.

Last year, a severe drought in the Iberian Peninsula resulted in a nearly 50% decline in Spanish olive oil production compared to the previous year. Consequently, prices for olive oil have increased by more than 60% over the last 12 months.

Although future prices will largely depend on the weather, some softening of prices is expected due to product substitution and demand destruction caused by the high price point.

The outlook for the UK dairy industry in the longer term is uncertain. This is due to the ongoing decline in the size of the milking herd, which could affect production levels.

The initial expectation was for a sustained high price for dairy products during the Christmas period, which typically sees a surge in demand. However, demand from both retail and foodservice sectors began to decline, leading to an increase in stockpiles across the EU and a subsequent downward trend in prices.

This trend was further supported by falling spot prices for milk, which prompted producers to shift towards cheese or butter production instead of liquid milk.

There are now indications that prices could start to rise from March, with futures prices for the summer suggesting a potential floor for the market.

Similar to butter, the 2022 price spike for cream was affected by high input costs and supply concerns. In Q4, prices fell due to weaker-than-expected seasonal demand in a challenging economy. However, buyers are now returning to the market as supply security becomes more important than waiting for the best price.

Consequently, prices have started to rise in the first week of February. Although the dairy market fundamentals suggest that this could be a short-lived correction, as the spring flush typically keeps prices low in the first half of the year.

The prices of frozen white fish are now stabilising, and depending on run rates on current stock, cheaper products are expected to be available within the next three months. Similar reductions are also expected on warm water prawn lines.

However, value-added lines such as breaded and battered products remain on the higher end of the scale due to limited availability and higher ingredient costs.

The increasing costs of raw materials, production, and transportation have put pressure on farmers in the Mediterranean region, leading to a spiral of price increases on fish species such as salmon, sea bass, gilthead bream, and trout.

Based on forward prices, it is expected that there will be inflation in March, and it is likely that prices will continue to increase leading up to Easter, which is consistent with past trends. Industry data suggests that prices will not decrease significantly until June.

Beef

Following historic highs in December, GB cattle prices continued to rise in January 2023. The GB all-prime deadweight cattle price averaged 454.7p/kg during the month, which was an increase of 13p from December's average and a rise of 48p year-on-year. GB steer prices averaged 456.2p/kg in January, up 12p from December and up 49p from the average recorded for January 2022.

Weekly prices appreciated continuously as the month progressed, rising by 15p from the first week to the last. Meanwhile, for heifers, weekly prices saw steeper growth, rising by 17p during January, with a monthly average of 454.8p/kg.

This was a further increase from December's average, up by 14p, and up 48p compared to January 2022. The increase in cattle prices has been sustained over the past few months.

Lamb

Over the past 12 months, prices for agricultural products have remained strong, with both exports and domestic demand providing support.

Despite the high prices, producers have been under pressure due to high input costs and challenging weather conditions, particularly during the summer of 2022.

As we move into 2023, farmgate prices have come under pressure compared to the levels seen in 2022 and 2021, and have fluctuated closer to five-year averages.

Pork

There are significant movements happening in Europe, which continue to have a positive impact on the UK pig price as supplies continue to tighten.

Last week, the pig price moved up significantly in a number of EU countries, including Germany, Belgium, Spain, and the Netherlands (the largest producer of bacon and gammon) and a buyer of pork legs, loins, and bellies.

Spot bacon pigs are currently scarce, making it difficult to find price comparisons, but buyers may have to think in terms of paying 215p – 220p/kg. The GB price was up by nearly 15p/kg for the second consecutive week, but this is purely a reflection of the tight pork market in Europe.

Poultry

UK producers are facing significant demand in the hospitality sector, while supply remains limited, resulting in ongoing price reviews on a weekly basis. The challenge for producers is to balance carcasses in order to reduce waste and limit costs associated with sending pallets to cold stores.

Additionally, there is a shortage of duck legs and breasts from France due to increased demand, putting processors under pressure as they try to replenish birds on the ground and recover from Avian Bird Flu.

The market appears to be balancing, with China beginning to open up, which will drive new demand, while European producers are slowing production in line with the market.

However, paper and cardboard prices have been slower to react to the economic slowdown, with the estimated cost of a cardboard box still up year-on-year, as the market has been hampered by supply and logistical challenges across Europe, which has slowed production.

In addition, pulp prices also remain more than 10% higher than one year ago, as the market deals with the lack of imported timber from Russia.

Moreover, it has been observed that the current price for shipping containers on east-west trade routes has almost completely reversed the 2021 increase and is back within the boundaries of the previous 10 years.

Although contract lengths and long lead times mean that this change takes some time to feed through to UK wholesale prices, some savings are now here for high volume/low weight products such as disposables and packaging.

On the other hand, road freight costs remain high, with driver shortages and wage costs more than outweighing any benefits derived from lower diesel prices.