Overview – Current Market Conditions
With the Summer months firmly behind us, we turn our focus to the Festive Peak Trading Period and look at the factors influencing the supply chain within the industry.
The fallout from Brexit still hangs over supply chains with delays and additional expenses for ‘health check’ paperwork at UK ports impacting on both shelf life and pricing. Many operators are moving towards domestic regional produce such as UK cheeses which offer great value and are readily available from most suppliers – if you haven’t already, it may be time to revisit your cheese boards and move to UK produce for price stability and local provenance.
Ongoing tensions in the Red Sea and Middle East are negatively contributing to pricing on produce from the East and the uncertainty is forcing shipping to divert via the Cape of Good Hope, adding fuel costs and time onto shipping costs.
The welcome news from the ONS that the reported headline rate of inflation fell to 1.7% year on year will hopefully give a boost to our industry restoring consumer confidence in the lead up to the crucial Festive period. It should be noted however that food inflation still remains on an upward trajectory with sharp YoY increases in staples such as orange juice and dairy produce. Prices on other commodities that exhibited double digit % increases 12-18 months ago (pasta, oil) are showing declines, helping to offset products affected by poor weather and planting conditions. The need to diversify supply chains following the Russian invasion of Ukraine has contributed to a more secure food supply chain, with less reliance on single markets for core foods.
Category Insights
Dry & Frozen Goods
Chocolate Products
Cocoa bean commodity pricing has increased four-fold in the 12 months to May 2024, with chocolate ingredient pricing up almost 60% year-on-year caused by a combination of weather-related crop failures and increased demand. Cocoa bean prices are expected to remain high whilst new crops planted reach maturity.
Tomatoes
The 2024 season pricing is trending below that of 2023 however, supply remains tight with less of the 2023 crop carried forward in canned product.
Potatoes & Chips
The impact of the extremely wet planting conditions experienced last year has not affected the supply chain as much as was initially feared, and the early 2024 potato harvest has produced good quality product. Increased planting (+5% Y-o-Y) has relieved the supply chain and prices have fallen back to below January 2024 levels.
Frozen Vegetables
As expected, frozen vegetable prices follow those of fresh pricing (albeit with a production and storage lag). Indications are that once processed stock from last year and early this year is sold through, frozen veg pricing will return to normal levels.
Frozen Fruits
High fresh fruit pricing has forced consumers to move from fresh to frozen fruit where possible, impacting on the supply chain. Early frosts in Europe have affected harvest of raspberries and at the other end of the temperature spectrum, heatwaves in Egypt have impacted the strawberry growing producers. As new crops are harvested and processed at higher costs, the finished product pricing remains higher than previous. Increased demand from consumers not moving back to fresh fruit has also forced pricing up.
Dried Fruit
The biggest impact in this category is the rising freight costs attributed to the Red Sea and Middle East current situations, causing not only costs to increase, but shipping times and subsequent ‘misplacing ‘of containers around the global trade routes impacting all associated transportation costs.
Key Commodities
Wheat prices have eased somewhat over the last 12 months, returning to below August 2023 prices. Whilst price reductions are welcome, any change in wheat pricing takes some months to reflect in finished goods so an immediate impact is unlikely.
Pasta (Durum Wheat) pricing has fallen dramatically since September 2023, although expected to remain somewhat firm as Italy reduces production by up to 15%.
Rice export bans by India last year (40% of global rice suppliers) has kept prices firm and allowed them to build up reserves once more; this may mean that the export ban will be lifted and subsequently may ease pricing pressures as the balance of demand & supply is shifted.
Sugar pricing and supply is extremely volatile and there may still be global shortages this year and into 2025.
Oils are beginning to report a slowing of the volatile spikes experienced post Ukraine and the extreme temperatures in mainland Europe. Higher anticipated harvests of olives (up to 1.4 million tonnes) are being suggested, with Greece expected to double harvests this year. Consumer switches away from the higher priced olive oils to rapeseed and sunflower blends are easing pressures on the market.
Fruit juices have experienced unprecedented price rises this year following the Cirtus Greening outbreak in South America; prices of other juices are also increasing as consumers switch to less expensive fruits and/or producers are blending orange with apple for example.
Coffee pricing has experienced increases and all-time highs since January 2023, and current forecasting is predicting no change in the next 12-18 months.
Meat & Poultry
Beef
Despite very wet weather causing problems for grazing, beef pricing remains steady and expected to remain so for the remainder of the year, although still well above the 5-year average.
Lamb
Lamb prices have been at record levels throughout 2024 and expected to remain significantly higher than 2023. There may be shortages in Q4 as supply of Australian & New Zealand product enter their off-season.
Pork
Pork pricing has remained stable during the first half of 2024 and is expected to continue this trend with healthy supply levels in the market.
Chicken
Whilst above the market average for the previous 4 years, poultry pricing remains similar to 2023. The ever-present avian flu still hangs over producers and any future outbreaks at major processors will affect supply and subsequently pricing.
Fresh Fruit & Vegetables
Fruit
As we enter ‘Winter Pricing’ many produce lines exhibit quality variances as we switch from Northern to Southern Hemisphere (and vice versa) producers, and in exceptional circumstances, pricing hikes until the season is fully established.
Oranges in particular are still experiencing pressures on supply as the main growing areas recover from the Cirtus Greening outbreak with the Brazil crop yield estimated to be down 24.3% Y-o-Y [Source: Mintec].
Lemon crops are expected to yield 20-30% down this season resulting from disease, adverse weather conditions and poor irrigation; this will impact on prices for Q4.
Vegetables
UK & European grown root crops are expected to have a much-improved harvest than last year, and prices expected to be normal and quality of produce good.
Mushrooms
Mushroom costs have increased dramatically since the war in Ukraine, due to the cost of energy partnered with labour costs. Pricing continues to rise and are expected to remain high.
Onions
A global shortage of onions in 2023 resulted in high pricing; current prices are expected to remain higher than average before reducing in Q1 next year.
Fish & Seafoods
Overall, the processing industry is still struggling with labour shortages and industry bodies continue to lobby both UK and Scottish Governments to allow access to foreign labour markets.
White Fish
Latest supply intelligence from the Groundfish Forum in Denmark is suggesting a sharp decline in Atlantic cod availability following significant reduction in cod quotas. Haddock quotas whilst reducing, are not affected as much however, as supply constricts and pushed prices of cod up; operators will naturally move to haddock, possibly resulting in price increases and availability problems.
Salmon/Trout
Salmon pricing and availability is expected to mirror that of 2023, with prices and availability stable and unlikely to change.
Prawns
Reduced landings in Vietnam are adding significant availability pressures in the market, Indian suppliers are unlikely to be able to provide the expected shortfall and prices are predicted to rise and remain high for the remainder of the year.
Dairy
Milk & Cream
Increases in animal feed prices affecting the cost of production, coupled with high demand from the EU has caused prices to increase for the domestic UK market. Further increases in costs are expected as feed that could not be harvested during the summer months is in short supply, meaning that farmers are having to start on bought in feed earlier. Industry intelligence suggests that a further increase is expected in October on milk with no sign of the dairy fats market improving in the short term.
Eggs
Avian flu remains a key factor in the supply chain and despite numbers of reported AI cases in the UK falling significantly recently, the market has not yet returned to levels pre-AI two years ago. The change in buying trends moving to ‘cage free’ flocks poses an increased risk of AI outbreaks and producers are mindful of this, keeping flocks to a tighter level to match but not exceed demand.
Beverage
The growing trend of ‘zebra-striping’ (alternating alcoholic with non-alcohol/low alcohol drinks) is demonstrating a change in consumer habits – 25% of UK adults [Source KAM Insight]. Operators must be mindful of this trend and ensure that a wide range of low/zero alcohol beverages is available for this year-round change in behaviours.
With the party season almost upon us, now is the time to revisit your range to ensure your offering is market trending.