Food inflation rates to continue to beat Consumer Price Index

CHICKEN AND pork prices expected to drop, but food inflation rates are to continue to beat CPI rates as it eases slightly from 4.4% to 3.8% in 2014.

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  • Prestige Purchasing, procurement specialist for the food service industry is warning that food inflation is expected to reach 3.8 per cent next year, over-indexing predictions for consumer price index (CPI) rate of inflation (2.3 per cent).
  • Good news for Nando’s and pulled pork fans as prices are expected to drop
  • Beef, cheddar and wine prices to remain high
  • 2014 inflation prediction sees food fall from 4.4% to 3.8%, soft drinks rise from 1.4% to 3.2% and alcohol rise from 3.1% to 4.2%

 

Prestige Purchasing’s annual Food Inflation Report, used by the restaurant and leisure industries to plan their finances, has found that in 2013, food inflation has hit 4.2 per cent, and increased at a faster rate than last year.

 

Lower harvests as a result of volatile weather and the horsemeat scandal has resulted in a ‘perfect storm’ that have pushed food inflation to these levels with fruit rates in excess of 10 per cent, while vegetables and meat also drove the average figure up.

 

Next year, Prestige Purchasing is predicting that food inflation will hit 3.8 per cent meaning that food prices will rise faster than the consumer price index (CPI) rate of inflation of 2.3 per cent. Compared to 2013, this rate represents a stabilisation of food inflation, but this figure is expected to rise again in 2015. 2014 inflation prediction sees food fall from 4.4% to 3.8%, soft drinks rise from 1.4% to 3.2% and alcohol rise from 3.1% to 4.2%.

 

These predictions are based on rising food prices in the first half of 2013 as a result of supply issues following the unpredictable and horrendous weather experienced across the world in winter 2012. This new weather front has the ability to maintain high inflation figures – current high prices dictate a lower inflation figure next year, but unpredictable weather indicates prices will still rise. The weather in particular affected grain and grape harvests, which push up prices of alcoholic beverages.

 

It is also important to note the unavoidable macro factors, which have a huge impact on food inflation rises. These include:

  • Climate Change - one of the top risks to food security, with more droughts, floods and hurricanes resulting in volatility in production and prices
  • Population growth- this combined with the predicted increases due to extreme weather conditions mean an increased demand in food, thus creating unstable food markets
  • Production costs and commodity markets - fluctuating coal, oil and gas consumption, as well as rising energy and water bills, will lead to higher production costs, which in turn impacts food inflation rates
  • Water scarcity - water shortages and pollution can impact our ‘water footprint’, leading to a rise in food prices

 

Food wastage is another important factor in rising food inflation figures and has recently been thrust into the limelight with the news that the UK hospitality sector last year had a total waste of 600,000 tonnes a year, a 1.2% increase from four years ago. Research has already shown that avoidable waste amounts to £296 million for the industry, and two-thirds of food thrown away could actually be eaten if it had been better managed, prepared and/or stored.

 

Winners and losers in food inflation:

  • Beef – the horsemeat scandal earlier this year has meant that traceability remains an important issue. Coupled with the rising costs of production, this has been keeping beef prices high
  • Mature cheddar cheese – this has been rising an average of 13 per cent year on year because of limited milk supply and shows no sign of abating
  • Salmon – after years of rising prices, due to changing sea temperatures and shorter fishing periods, costs are starting to stablise as high prices are labelled as unsustainable by buyers
  • Wine – prices have increased by 16 per cent year-on-year and were particularly affected by the latest Budget announcement. While 2013 harvests have been better than the previous year’s, the industry is still recovering from very poor harvests in 2012. This will keep wine prices high in 2014
  • Chicken – the cost of corn, a common feed for poultry is expected fall by up to 20 per cent next year which will in turn mean that the price of chicken breasts fall by five to seven per cent
  • Soft drinks - coffee and tea prices are set to rise due to poor harvest, monsoons and political turmoil, particularly for East African coffee growers

 

Explaining the reasons behind the rise in food prices, David Read, chief executive of Prestige Purchasing comments, “Unpredictable weather patterns caused by climate change, an ever-increasing global population, rising production costs, commodity futures trading and water scarcity is putting a lot of pressure on food prices around the world. And this isn’t going to stop any time soon. It’s imperative that the food service industry takes steps to ensure that these costs are not simply passed on to consumers, but find ways to safe-guard a quality dining experience”.

 

Prestige Purchasing is advising clients and the industry to take steps to mitigate the effects of food inflation to ensure that customers continue to enjoy a high quality dining experience.

  • Keep it simple - control stock costs by paring back menu options and focus on quality. A well-developed menu, with fewer items, particularly when this covers more than one site, can maximise sales and greatly reduce wastage
  • Create confidence by focusing on the provenance of ingredients – the horsemeat scandal knocked consumer confidence. Organic, locally-sourced or home made ingredients will go a long way to build confidence with consumers and create a competitive edge
  • Offer flexibility with portion sizes - create different options for different budgets such as sharing platters or tapas-type dishes

 

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