Summer Market Update

Market conditions across the Summer continue to be extremely troubling. Global inflation and logistics challenges impact all aspects of the worlds food markets,  pressuring the already struggling procurement sector. Across the globe countries continue to battle the COVID-19 Pandemic which only hinders good practice and on a national level the UK has the fallout of the Brexit measures which currently cripple it’s trade. As restrictions ease we are seeing economies slowly trying to recover, which in turn comes with an increase in demand. Due to this almost all markets are experiencing issues in stock for both raw materials and food products. Each sector has a knock on effect to the other and we expect the pressures to continue to tighten.

Logistics

The UK haulage industry is facing its biggest labour shortage on record. The Road Haulage Association (RHA) estimates that there is a shortfall of 100,000 drivers in the UK.

This situation has occurred due to a combination of new and existing challenges:

1. The average age of HGV drivers is 55
and the industry is struggling to attract
younger workers.

2. Many European workers returned to their
homes during the pandemic and struggled
to re-enter the UK market due to post
Brexit immigration rules.

3. New rules have also created extra border
checks and the potential to reduce the
profitability of routes into the UK.

4. New tax rules (IR35) have made working
in the UK more expensive for European
drivers.

5. A backlog in HGV driver tests reducing
the number of new drivers entering the
labour market. It is estimated that 25K
fewer candidates passed their test in 2020
than in 2019.

The industry is responding by increasing salaries by up to 30% in some regions and many firms are also offering welcome bonuses for new drivers.

Catering

Commodity trackers for amalgamated packaging components show continuous cost inflation since early 2020. Prices have reached all-time highs in 2021 due to a combination of COVID-19 disruptions and adverse weather events. Paper, Plastics and Metals have all hit record highs causing a huge increase in the cost of packaging within the foodservice sector. Products are in high demand as economic growth rises however production globally has slowed due to adverse weather. As economies recover from COVID-19 there is an expectation that conditions will ease, however the high prices we see now are likely to remain for quite some time.

Pork & Beef

After declining at the end of 2020, pork prices in both the UK and Europe have risen over the summer period. In Europe prices saw a sharper increase earlier in the year as several outbreaks
of African Swine Fever in China resulted in high levels of speculation around export demand. The EU is a net exporter of pork and this reduced demand has allowed prices to soften in recent months. UK pork has seen a more steady increase in price over the summer and are continuing to trend upwards. Domestic demand has remained high in 2021 with retail sales still above pre-COVID levels. As foodservice continues to recover this is expected to add to demand and support prices for the rest of 2021.

Lower cattle availability in both Ireland and the UK has supported the elevated prices and the trend is expected to continue for the rest of the year. Retail demand has held up well through the lockdowns and while demand from foodservice will increase as it opens up, this is likely to be lower than pre-pandemic levels. The popularity of imported beef in foodservice should ensure that GB beef remains at a premium price. The longer-term issue is the impact of Brexit on an industry heavily reliant on overseas or migrant labour. Most of the meat processing plants recruited approximately 80% of their staff from the EU. However, post-Brexit, the industry is struggling to recruit staff from the EU due to issues around extra documentation and legal complexities.

Dairy

For butter and cheese, the drop in imports has been greater than the drop in exports. Butter has relatively tight domestic supply and so until foodservice volumes recover fully, and more commodity butter is imported, prices will remain high. For cheese, the drop in imports is substantial enough to incur a year-on-year drop in available supplies, despite higher domestic production. In the longer-term, as import demand returns, UK pricing will again be influenced by global trends which may mean lower prices. The extent of this will depend on how new import regulation for EU products and on-going logistical challenges affect the competitiveness of imports. For milk, the industry continues to balance higher yields and a long-term reduction in the milking herd, but high feed costs could limit how much farmers push for yield. This tightness in global supply and demand on feed is leading to upward pressure on domestic prices.

In short until foodservice stock levels fully recover and more commodity value butter is imported the price of dairy products will remain high. This can be applied to all food products and raw materials. Whilst the foodservice and procurement sectors continue to struggle it is of paramount importance to evaluate your purchasing and alternative products available to you to help you save money.

All information taken from the Brakes ‘Summer Market Report’ which can be found here.