While the conflict in the Middle East continues, the full inflationary impact has yet to be felt - though cost pressures are expected to build later this year. Markets initially responded positively to the prospect of diplomatic progress, however disruption to shipping, along with elevated war-risk costs and the time needed to restore normal trade flows mean supply chain pressure will persist.

CONFLICT RESILIENCE PLANNING

Businesses should plan for further disruption over the next 12 months, with El Niño expected to increase weather-related risk across key food-producing regions.

The current Gulf disruption is an energy and agricultural input shock. The region supplies around 34% of global fertiliser, making this a structural issue. Since the first strikes in February 2026, Brent crude and gas prices have risen sharply. The full inflationary impact is still building and expected to
feed through later this year and into 2027.

WHERE THE PRESSURE IS SHOWING UP

Energy: Commercial gas and electricity bills set to rise further. Energy-intensive operations hit hardest as tariffs track wholesale prices

Fertiliser: UK granular urea at £613/tonne - up 34.7% (+£158). EU nitrogen imports fell 80%+ in Jan 2026; autumn demand (Jul–Sep) to push higher; Farmers using less; Lower yields anticipated

Fresh produce: Greenhouse energy is 5–50% of cost. Expect higher prices, lower yields on tomatoes, peppers, cucumbers, salad leaves

Protein: Feed is 60–70% of poultry/pork cost. Ireland already shows beef +23.7%, poultry +8%, eggs +5.7% YoY.

CO₂ supply: Natural gas = 80% of the cost of producing ammonia-based fertilisers. Supply of food-grade CO₂ reduced. Further risk to carbonation for soft drinks and beer, as well as chilled distribution

Packaging: Strait of Hormuz disruption (~12% of global aluminium trade) pushed London Metal Exchange (LME) prices +5% in a session; stockout risk forces premium alternatives of packaging.

WHAT’S COMING NEXT

• Delayed pass-through - annual contracts mean today’s cost rises will be seen when contracts are renewed. The Food and Drink Federation forecasts food inflation of 8–10% by the end of the year.
• “Super El Niño” - The National Oceanic and Atmospheric Administration puts emergence at 82% (May–July), rising to 96% through winter 2026–27 - potentially one of the strongest on record. This, alongside thin fertiliser stocks, makes higher food inflation structurally persistent.
• UK Government action - tariff-suspension consultations launched (covering 100+ food items, plus separate consultations on fertiliser and kerosene) close on 24 June 2026. The impact on prices is expected to be limited.

OUR RESPONSE — INTELLIGENT MITIGATION OVER REACTIVE MEASURES

Mapping Risk Exposure: We are identifying which menu lines carry the highest vulnerability. This currently includes greenhouse produce, packaged goods, protein-heavy formats, carbonated beverages, potato-based dishes, and chicken and burger categories, where input cost inflation has already hit 8–10%

Engineering Substitution Pathways: Transitioning away from the most heavily impacted ingredients toward cost-stable, high-quality alternatives before price spikes force reactive decisions

Leveraging Procurement Scale: Utilising our global procurement framework and supplier relationships to secure cost advantages that are simply not available to standalone operators or independent sites

Forward Budget Modelling: Incorporating a baseline assumption of persistent, elevated food cost inflation that is consistent with the Food and Drink Federation's 9–10% forecast into FY2026/27 planning cycles now, rather than absorbing unplanned variance mid-year.

CONFLICT RESILIENCE ANALYSIS

THE ENERGY OUTLOOK

As previously stated, unlike earlier conflicts that mainly disrupted grain flows, the current Gulf disruption is primarily an energy and agricultural input shock. The gulf region supplies around 34% of global fertiliser, making this a broad structural issue rather than a narrow commodity problem. Since the first strikes on 28 February 2026, Brent crude and Title Transfer Facility gas prices have risen sharply. For energy-intensive
foodservice and food production operations, whose tariffs track wholesale prices more closely than the domestic cap, the cost impact is considerably higher.

What does this mean?
Energy UK has confirmed that gas and electricity bills for commercial operators are set to rise further as a direct result of sustained increases in wholesale energy costs from the war in the Middle East.

ONGOING BLOCKADE & FERTILISER SPIKES

The effect on UK fertiliser prices has been sharp and directly measurable. According to the Agriculture and Horticulture Development Board’s weekly price survey (week ending 22 May 2026), UK fertiliser (Granular Urea) currently stands at £613/tonne, up £158/tonne (+34.7%) from the pre-conflict baseline. UK-produced ammonium nitrate has risen by 22.9% and imported ammonium nitrate by 21.7% over the same period. With
autumn application season demand arriving in July–September, prices are projected to rise further before any relief. EU nitrogen fertiliser imports fell by more than 80% in January 2026, tightening the broader European supply pool that UK markets draw from.

What does this mean? Higher energy costs are raising expenses across all agricultural supply chains, from farming and irrigation to processing. These pressures ultimately feed through to consumer prices.

FRESH FOOD & GREENHOUSE COSTS

UK greenhouse growers typically buy energy on 4–8 week forward contracts, which leaves them exposed to the current shock. Energy can account for 5–50% of production costs depending on the category.

What does this mean? Costs are rising and yields are reducing for energy-intensive fresh crops. This is increasing price pressure on tomatoes, peppers, cucumbers, and salad leaves across UK supply chains.

THE CARBOHYDRATE & PROTEIN WAVE

• As fertiliser becomes significantly more expensive and harder to source, UK farmers are applying less - a well-established predictor of lower staple crop yields in the future
• We continue to anticipate a meaningful increase in carbohydrate prices by early summer 2026. The knock-on effect on protein is already visible in UK data
• Feed costs represent 60–70% of total production costs in poultry and pork, so as grain prices rise, that pressure cascades through the meat, poultry, and dairy supply chains that underpin UK foodservice menus
• The Central Statistics Office’s January 2026 figures for Ireland showed beef up 23.7% year-on-year, poultry up 8%, and eggs up 5.7% - all signals of what UK consumers and operators are facing

RISK TO CO2 SUPPLY

Natural gas can account for up to 80% of the cost of producing ammonia-based fertilisers. As energy prices rise, fertiliser plants cut ammonia output, which also reduces the supply of food-grade CO₂, a key byproduct. This is a further risk to carbonation for soft drinks and beer, and limits dry ice availability for chilled distribution. The UK Government has put contingency plans in place, such as reopening the Teesside Plant,
which we continue to monitor.

UK hospitality is already absorbing these pressures in real time. Their data confirms that 762 hospitality businesses closed in Q1 of 2026, with pubs, hotels, and restaurants collectively bearing an estimated £3–4bn of additional costs in 2026. Operators are being forced to lift prices by up to 10% on average against a backdrop of already depressed consumer spending. In the QSR channel, hot drinks rose 14%, breakfast
items 10%, and burgers 9% in February 2026 alone, while overall fast-food traffic declined 1.5% year-on-year.

PACKAGING, ALUMINIUM & TAKEAWAY MARGIN PRESSURES

Approximately 5 million tones of aluminum transit the Strait of Hormuz annually, and with that route effectively closed, the global aluminum market is tightening significantly. The Strait handles an estimated 12% of global aluminum trade, and a single force majeure declaration has already pushed London Metal Exchange prices up more than 5% in a single session.

What does this mean? Tightening aluminum supply, alongside the high energy cost of plastic production, is increasing packaging stockout risk across UK and Irish supply chains. This forces a pivot to alternatives, which are typically premium-priced, packaging formats simply to maintain operations.

THE ANNUAL CONTRACT LOCK-IN EFFECT

Food inflation is being delayed because most UK and Irish food prices are set through annual contracts, so rising energy and input costs are not passed through immediately. Those higher costs are building in the system now and are expected to feed into contract renewals later this year. Additionally, UK farmers have not yet locked in autumn fertiliser for the 2026/27 crop, so many will have to buy at peak summer prices. In turn, this will raise next year’s growing costs and is likely to push up food prices in early 2027. The Food and Drink Federation has predicted food inflation to rise to 8-10%.

UK TARIFFS

On 30 April 2026, the UK Government announced it was opening a consultation regarding temporarily suspending import tariffs for over 100 everyday food items, with the aim of easing cost of living pressures and addressing rising food prices, until 31 December 2028. The tariffs cover items such as fruit and nuts; pantry staples – e.g. olive oil, pasta, couscous; bakery and confectionery and seafood.

However, over 90% of UK food imports are already duty free, meaning the 100+ items targeted for tariff removal represent a relatively small proportion of total food consumption. Tariffs are only one element of overall product cost, and in many cases other input costs remain elevated. While these reductions are welcome, their impact is limited and in the current environment, it is possible that overall pricing may not
reduce and could still increase. The primary effect is therefore expected to be to moderate inflation rather than reverse underlying price pressures, on a small subset of items.

OTHER GOVERNMENT CONSULTATIONS

The Government has also opened a consultation on fertiliser and Kerosene tariffs, noting the importance of fertilisers for food production. The government is considering where a one-year only temporary suspension could assist in lowering the import cost for fertilisers. The consultations close on the 24 June 2026.

“SUPER EL NIÑO” AND ITS POTENTIAL IMPACT

El Niño is a cyclical climate pattern characterised by abnormally warm sea surface temperatures in the central and eastern equatorial Pacific Ocean. It alters global atmospheric circulation, disrupting normal weather systems and causing extreme heat, severe droughts, or intense rainfall across major agricultural hubs, including the UK and Ireland.

Current likelihood & intensity

NOAA's Climate Prediction Center (issued 14 May 2026) confirms that El Niño is likely to emerge soon, with an 82% probability in the May - July 2026 window, rising to a 92% chance by June - August and a 96% chance of persistence through Northern Hemisphere autumn/winter 2026–27.

New forecasts show increasing confidence that the developing El Niño in the tropical Pacific Ocean could be one of the strongest on record with warnings of record global temperatures and significant humanitarian impacts. This is being called a “Super El Niño.”

WHAT THE LAST EL NIÑO DID TO UK & IRISH AGRICULTURE - AND WHY IT MATTERS NOW

Mediterranean South — Extreme Heat & Drought
Mediterranean sea surface temperatures reached 5.5°C above average in summer 2023 - the highest ever recorded for the region, devastating southern European crops that feed UK and Irish supply chains. Spanish olive oil production collapsed, driving wholesale prices up more than 200% by 2024. Tomato, pepper, and stone fruit yields across Spain, Italy, and Greece - key suppliers to UK and Irish retailers and foodservice distributors - were severely reduced by heat and water stress.

Northern Europe & UK — Flooding & Harvest Devastation
Exceptional autumn rainfall across the Netherlands, Belgium, France, Germany, and the UK brought potato harvesting to a near standstill after just three weeks. Around 15% of the Dutch crop and 11% of the Belgian crop were left unharvested entirely - both critical suppliers to UK chip and crisp manufacturers. English white potato prices surged 81% year-on-year, hitting an all-time high. A 20% reduction in seed potato availability followed, compounding damage into the next growing season. UK winter cereal and oilseed rape planting was also severely delayed across Northern England, Scotland, and Ireland, with knock-on yield reductions the following summer.

WHAT DOES THIS MEAN FOR THE SUPPLY CHAIN IN 2026/27?

The incoming super El Niño arrives in a structurally far more dangerous context than 2023/24, layered directly on top of already-elevated energy costs, critically thin fertiliser inventories, and reduced farmer application rates.

Based on the 2023/24 pattern, we should plan for renewed heatwaves and drought threatening Mediterranean suppliers of fresh produce and olive oil in summer 2026, followed by heightened flood risk disrupting autumn harvests (particularly potatoes and winter cereals) across the UK and Ireland. Moving into 2027, this weather-driven supply deficit will collide with the delayed contract pass-through of elevated energy and fertiliser inputs, ensuring that higher food inflation is structurally persistent rather than temporary.

HOW WE ARE RESPONDING

INTELLIGENT MITIGATION OVER REACTIVE MEASURES

Mapping Risk Exposure: We are identifying which menu lines carry the highest vulnerability. This currently includes greenhouse produce, packaged goods, protein-heavy formats, carbonated beverages, potato-based dishes, and chicken and burger categories where input cost inflation has already hit 8–10%

Engineering Substitution Pathways: Transitioning away from the most heavily impacted ingredients toward cost-stable, high-quality alternatives before price spikes force reactive decisions

Leveraging our Procurement Scale: Utilising our global procurement framework and supplier relationships to secure cost advantages that are simply not available to standalone operators or independent sites

Forward Budget Modelling: Incorporate a baseline assumption of persistent, elevated food cost inflation that is consistent with The Food and Drink Federation’s 9–10% forecast into FY2026/27 planning cycles now, rather than absorbing unplanned variance mid-year

Mitigating Surcharges and Availability: Where we are seeing surcharges and potential risk to availability, our teams are being advised to review usage and put in more efficient measures e.g. consumables, chemicals and laundry usage.

CONTINGENCY PLANNING

Middle East Resilience Working Group: The group is meeting regularly to review the ongoing impact of the Middle East conflict and identify mitigation measures that need to be taken. As well as monitoring potential supply chain disruption and inflation, we are also mindful of the impact on our own people and the operations of our business.

CYBER SECURITY

Against the wider backdrop of conflict around the globe, cybersecurity remains a key threat from both hostile state actors and criminal enterprises. The UK National Cyber Security Centre continues to set the ongoing threat level at Heightened. To mitigate such risks we have robust cyber security measures in place which are certified to ISO 27001. We continue to run cyber-security awareness campaigns to ensure it’s front of mind of our employees and suppliers.

Data has been sourced from our own internal insight and intelligence as well as external sources such as FT, Bloomberg, Eurostat and FDF.