Market Report early 2015


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Market overview

Overall Summary

  • Overall food prices remain relatively stable, and we forecast this to continue during 2015 at least until the autumn harvest.
  • But operational costs have risen sharply throughout the end to end supply chain, driven predominantly by a UK wide driver

Focus on Food

  • We continue to benefit from a macro economic correction which has seen global demand stabilise following years of inflation fuelling
  • At the same time global harvests on the key ingredients of sugar, oil and wheat have also been favourable – this is visible in the graphs below that show the prices back to 2010

                                                              

  • The Russian export ban has created an additional surplus across the EU in some categories – for example dairy where 2014 has seen prices softening from the peaks of 2013
  • Overall stability in food prices forecasted to continue for the first half of 2015 – but higher operational costs are affecting the total supply chain

Key cost moves in brief

UPS

Fish & Seafood – Cod (quota reductions) / Haddock (quota reductions) / Cold water prawns (heavy supply shortages)

Meat & Poultry  Beef (demand, decreasing availability) / NZ lamb (demand from Asian markets)

Eggs (Avian flu)

Grocery  Canned tuna (exchange rate) / Corned beef (demand) / Baked beans (raw material) /Pepper (demand) / Pasta (raw material)

Coffee (world demand)


STABLE

Meat & Poultry  Chicken / Pork

Fish & Seafood – Salmon / Warm water prawns

Bakery & desserts

DOWNS

Flour (crop yield)

Dairy  Spreads (raw material)

Grocery Canned fruit & vegetables (various) / Long grain rice (strong supply)

Juice – Apple (raw material) / Cranberry (raw material)


RISKS

Brands – unconfirmed

Imported goods exchange rates, particularly dollar trade


Focus on Operational costs

The rise in operational costs is an industry wide challenge

A UK wide shortage of drivers

  • Legislation enacted in September compels all drivers of lorries over 3.5 tonnes to gain a “Certificate of Professional Competence” (CPC) and then commit to 35 hours of training every 5 years ongoing – at their own expense.
  • Although estimates vary, all sources agree that thousands of drivers have left the industry rather than paying to update their CPC. The subsequent shortage has driven up wage rates across the market.

The driver shortage is not just a seasonal issue but a long term problem”. (Sept 2014)
Sally Gilson of the Freight Transport Association

There is a 45,000 driver shortage now, 35,000 drivers due to retire within the next year and only 17,000 drivers joining the industry.” (Sept 2014)
Richard Burnett CEO of the Road Haulage Association

And surprisingly little respite from falling crude oil prices – why?

  • The price in dollars per barrel has clearly fallen >>>>
  • But tax accounts for c60% of the price paid
  • The weakening of the sterling to dollar exchange rate softens the impact within the UK.
  • Following years of inflation, many suppliers chose to hedge – smoothing the downs as well as the ups.
    Brent Crude Oil $ per barrel

 


Focus on food

Impact on the UK

  • Exchange rates continue to be a driver of UK food
  • The year on year improvement in sterling versus the euro helped soften prices following this year’s harvest, and since then has remained relatively benign.

    £ vs Euro
  • The dollar exchange rate has weakened however with the result that the UK has not enjoyed the full impact of deflation across a number of globally traded commodities – which in turn drive finished product prices.

    £ vs Dollar

 And in spite of a stable position overall, there remain significant pockets of inflation

  • Fish and Seafood – Restricted quotas and poor fishing have reduced supplies at a time when demand continues to grow – the adjacent graph for prawns demonstrates a wider trend.
  • Beef – The scandals in recent years prompted producers to diversify out of the category – and now that consumer confidence is returning demand is outstripping supply.