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"Food Glorious Food" but will it cost a King's Ransom

Jan 13, 2013

Recent media coverage has outlined the hikes in food prices expected for 2013, with analysts and multiple retailers forecasting food inflation to hit between 4%-8% in the year ahead.

With retail bracing itself for an overall rise in food pricing of up to 4-5%, the impact on foodservice could be even higher.  This is due to transportation & delivery costs driven by high crude oil prices playing a bigger part in foodservice and the negotiating position due to lower volumes in comparison to retail being weaker.

Extreme global weather conditions resulting in poor crops and harvests combined with increased demand from a growing world population are driving many of the price increases we are seeing today.

Some relief is coming from a favourable exchange rate against the Euro which is alleviating some of the pricing pressure on goods coming from the continent. However, potatoes, wheat and dairy are just some of the key commodities that have been affected which have a knock on effect on products down the food chain.

What does this mean for specific commodities?

In 2012 the worst UK potato crop harvest since 1976, due to excessive rainfall throughout the planting and harvesting season, resulted in a combination of fewer and smaller potatoes. Large baking potatoes are scarce and, if available, prices have quadrupled in recent months. Poor weather affected harvests from important producing countries like Holland, Belgium and France which has resulted in prices in the EU and UK hitting record highs impacting on prices for chips, ready meals & fish cakes. Local UK potato prices are predicted to remain high until June/July when the new season’s crop arrives.

Wheat prices have also risen significantly due to wet weather conditions and poor UK harvests. Whilst France & Germany have produced good crops, droughts in the major producing countries like Russia, Ukraine, Kazakhstan & the USA have counterbalanced this, with fears of export embargoes to come. A shortage of corn has resulted in higher demand for wheat for animal feed so price increases in this area end up affecting a number of products down the line. This compounds the problem with pricing for Dairy & Pork products, which had already been hit by costs resulting from new legislation on the keeping of animals. Higher wheat prices end up impacting on many products including, more obviously Bread, Flour and Pasta but subsequently, Eggs, Poultry, Cheese and Bacon amongst many others.

Demand remains high for products particularly in the Dairy market, meaning buyers must offer a sustainable price to farmers if they are to secure continued supply and stop producers exiting the market. 

The trend in food inflation looks set to continue if extreme global weather conditions persist, resulting in a reducing supply in areas, coupled with increased consumer demand coming from emerging markets such as China, where new tastes are developing at pace, and overall an increasing world population.  

What can you do to mitigate the impacts?

Keeping an eye on the pricing movements of key products and what is influencing them is vital if schools are to mitigate the impact of food inflation on their budgets. This knowledge forms an essential backdrop to holding sensible negotiations with your supplier to limit any price rises. 

This is where specialist buying agents can play an invaluable role. They will be aware of what is happening to prices in the industry and how the price translates to the selling price when it reaches the distributor.

Other solutions that schools can employ are to consider product switches or changes to menus in order to combat increases on certain products. Equally important is to ensure that the prices paid are set at a realistic market level before any increases are put through.

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David Smillie (MCIPS) is a category specialist buyer at Pelicana company delivering procurement services to the Education sector.

 



Category: Cost Savings

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