The level of Foodservice Price inflation has reduced by a third, as Meat prices fall in the short term whilst Breads & Cereals reflect harsh summer.
Overall inflation in the foodservice sector dropped in August 2018 due to a fall in Meat and Poultry prices against the same month last year, the latest Foodservice Price Index from CGA and Prestige Purchasing reveals—but the hot summer means key prices are likely to rise soon.
The Meat and Poultry Index has continued to decline since the spring, falling by 2.1% in August month on month, and by 5% year on year. After a very dry summer more price rises are expected, with some reports forecasting a 5% increase over the next 18 months. The recent decline in price is due to an increase in slaughter levels as the hot weather has significantly reduced grazing pastures, and feed stocks are likely to become increasingly limited, prompting farmers to take precautionary action to relieve demand for livestock feed.
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. 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 Breads and Cereals 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 Cereals index is now predicted to rise because of these factors.
The exclusive Foodservice Price Index report from CGA and Prestige Purchasing highlights important recent developments and trends in many other food and drink categories, analysing the effect of both macro issues including Brexit negotiations and currency fluctuations, and micro factors relating to supply and demand.
The unusual weather patterns of 2018 will 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.
Shaun Allen, Prestige Purchasing Chief Executive, said: “Whilst 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 that businesses take a proactive approach to managing the future risks of inflation.”
Fiona Speakman, CGA Client Director – Food, said: “Overall inflation in foodservice prices appears modest, but beneath the topline figure there is a lot of turbulence. Brexit’s impact on currencies, trading and labour has concerned the sector for a couple of years now, but this year’s extreme weather patterns have overlaid more problems. Foodservice businesses must now be braced for more inflationary pressures through the remaining months of 2018, and stay alert to ways of mitigating the challenges.”