Industry
03 Oct 2018

PRICE WATCH: FOODSERVICE INFLATION UPDATE

Headline Finding: Foodservice inflation drops in August but key prices likely to rise in coming months.

The latest Foodservice Price Index from CGA and Prestige Purchasing has given fresh insight in to present pricing in the industry.

It has found that overall inflation in the foodservice sector dropped in August due to a fall in meat and poultry prices compared with last year – but the hot summer means key prices are likely to rise soon.

The meat and poultry index has continued to decline since spring, falling 2.1% in August month-on-month and 5% year-on-year. However, after a very dry summer more price rises are expected, with some reports forecasting a 5% increase during the next 18 months.

The index said the recent decline in price was due to an increase in slaughter levels as the hot weather has significantly reduced grazing pastures, while feed stocks are likely to become increasingly limited, prompting farmers to take precautionary action to relieve demand for livestock feed.

Elsewhere, sugar has continued to remain relatively low in price, with the index down 9.3% on August 2017. Although prices are up slightly month-on-month, this is likely to be a seasonal movement and not necessarily reflective of the overall trend, the index said. India and Thailand have had record production in 2017-18, with global production forecast to yield an 11% increase year-on-year. A 17 million metric ton surplus of sugar is predicted for 2018, and is likely to keep sugar prices low for the foreseeable future.

The long, dry summer of 2018 has affected wheat production across Europe, and the report’s bread and cereal index shows a 4.3% increase on July’s prices. Stock-to-use ratios for major exporters are nearing record lows, with some predictions estimating a drop in the UK’s wheat crop yield of 10% on last year, leaving a potential shortfall of 2.5 million tons. To exacerbate matters, wheat is likely to be redistributed as animal feed after the summer’s hot weather reduced the availability of natural silage. The bread and cereal index is now predicted to rise because of these factors. The index said the unusual weather patterns of 2018 would continue to push up inflation in cereal-related foodservice items.

Knock-on impacts are also likely to be seen in other categories including meat, where feed stocks and grazing pastures have been reduced by the hot summer. Outbreaks of African swine fever in China and, potentially, elsewhere, are adding to concerns over meat prices.

Prestige Purchasing chief executive Shaun Allen said: “While the overall drop in inflation this month indicates positive news for operators, the outlook appears to look less encouraging, with the effects of the dry weather particularly on wheat and cereal crops looking set to add more upward pressure on food pricing over the coming months. The natural volatility within the supply markets experienced this year has proven to be challenging enough for our industry, and with more turbulent times expected as we head towards Brexit it will be critical businesses take a proactive approach to managing the future risks of inflation.”

 

Fiona Speakman, CGA client director – food, added: “Overall inflation in foodservice prices appears modest but beneath the top-line figure there is a lot of turbulence. Brexit’s impact on currencies, trading and labour has concerned the sector for a couple of years but this year’s extreme weather patterns have overlaid more problems. Foodservice businesses must be braced for more inflationary pressures through the remaining months of 2018 and stay alert to ways of mitigating the challenges.”

The CGA Prestige Foodservice Price Index is jointly produced by Prestige Purchasing and CGA, using foodservice data drawn from 7.8 million transactions per month. More information on specific categories is available on a subscription basis.