Pelican Procurement Services Market Report Q1 2023

Market Report

Quarter 1 2023

Included in this report:

o Financial uncertainty

o Industrial strike action

o Key commodity updates

o What’s in season

Welcome to the Market Report

This report aims to provide you with information on what’s happening in the marketplace and the key factors affecting supply and product availability. We look at key commodity price trends and provide recommendations on ways to mitigate price increases and we provide insight to what produce is in season, guiding you to what’s best right now We hope you find this report helpful.

Market Conditions

Financial Situation

The financial worries of 2022 seemed to be with us every month in one form or another and it feels like this is continuing into the New Year. 2023 has begun with talks of a cost-ofliving crisis as homes and businesses struggle to pay for leases, bills and goods.

There were some financial assistance packages brought in last year that were designed to help people pay for the costs of energy after seeing the huge price increases to the cost of gas and electricity. These schemes come to an end in March and whilst there is some expectation that the domestic and household assistance will continue in some form, the Chancellor has announced that the business support will stop in March due to the expected costs of the programme. Without this additional support, many smaller businesses, particularly in the hospitality sector, are concerned they will not be able to keep up with costs and that without the

ability to raise prices any more they will struggle to keep trading. Quoted as being too expensive for the taxpayer, the business support scheme will be replaced by another scheme from April onwards and it’s expected that this relief will be roughly half of the value but will last into 2024 providing prolonged reliable support.

Graham Coles Procurement Director Avendra Europe

We’re here to help you. hello@pelicanprocurement.co.uk

indications of this during November, with the inflation rate coming down from 11.1% to 10.7%. Whilst this is only a small reduction, it is hopefully the start of a trend in reductions.

Cost of Living

Some good news is that the value of the pound stabilised in the last part of 2022 and the financial statements and plans coming out of the latest Government have been largely positively received by both UK business and global interests. This consistency means we have a better idea of the value of imports and exports allowing companies to plan their trade much better. This was supported by some improvement and growth in the UK GDP over the last 3 months of the year with an improved performance during October and November largely attributed to the World Cup.

With more sensible fiscal policy, the aim of this Government is to reduce the inflation rate back to its 2% target and we saw the first

It is expected that consumers will continue to “tighten their belts” this year and become more conscious of their spending habits. Decreases in petrol and diesels costs will help, not only is this reduction good for business in terms of lower transportation, heating and processing costs but it also favours the end consumer, allowing them to spend the money elsewhere, hopefully within the hospitality sector.

Early indicators are that spending over the Christmas period in nonfood outlets reduced by 22% against the previous year, and 2021 wasn’t a record-breaking year in terms of spend. This reduced spending, along with a negative consumer confidence score for the UK, suggests that any savings that are found are being saved or used to purchase other necessities rather than a treat, gift, or evening out. One positive is the reported spending in the supermarkets. Almost all the main chains have announced a positive return from the weeks leading up to Christmas, part of this will be the effects of inflation

THE INFLATION RATE 10.7%

as prices are at a higher point but additionally there is evidence to suggest that people spent more on food this year as a way of treating guests and family just before the start of a particularly tough year.

One source of relief for a lot of consumers is the help and assistance many businesses have begun offering to their employees. Some companies, including us here at Pelican, have found ways to offer employees free or subsidised meal choices to reduce the costs of work lunches. The most recognisable form of employee assistance is extra pay and there has been a lot of discussions around one-off payments and bonuses, with some businesses taking extra steps such as providing subsidised transport, childcare assistance and more flexible working hours or environments to reduce the cost and stress of travelling. All or some of these measures can be put in place to look after employees and financial security will often lead to more positive buying behaviours.

Industrial Action

One of the biggest talking points of 2022 and one that is likely to continue into 2023 is that of industrial strike action. We have seen one of the worst years for public sector strikes since the Winter of Discontent in 1979 Many of the trade unions that have successfully voted for strikes, go slows and other industrial action are the usual ones; RMT for trains, Unite for Bus services and the Royal Mail all announced further strikes and days of no service over the Christmas period and into January.

We have experienced travel delays and short services before, but the issues with the trains are being compounded by all the other services seeking similar resolutions to the RMT and feeling that now is the time to

act. It’s difficult to measure how much of a direct impact these altered travel schedules have on shopping, eating out and the hospitality sector in general but it’s not hard to see that a lack of direct and affordable transport going into towns and city centres is something that will negatively impacts revenue and footfall.

More recently and arguably more concerning is all the emergency and healthcare services that have announced plans and intentions to strike. There is planned action in January from Nurses, Ambulance and Fire Services with polls indicating the public are still in favour of the strikes, at least for now. It’s going to be important for this government to stem the tide of strike action and provide the public sector with some of the things it is asking for, otherwise it will likely continue to affect the wider UK economy.

Global Markets

It has been almost a year since Russia’s assault on Ukraine Some of the impact has now been mitigated; the fuel and feed crisis that was initially started by the war has slowed somewhat after the opening of the Black Sea Grain Agreement. The consistent supply of good quality produce has meant the prices for these staple cereals have seen a huge reduction when compared with the prices quoted in May/June of last year. With Wheat decreasing by 19% and Corn by 32% in the last quarter, this has meant that farmers can now feed their animals for a more manageable cost. This reduction will also eventually filter its way through the supply chain to those products made from these base raw materials.

One of the region’s most important exports is vegetable and cooking oil, particularly Sunflower Oil In March we saw the price of this commodity increase by more than 100% in a matter of days and this had a

huge impact on the pricing and availability of other types of cooking oil. Thankfully, this market has resolved itself and we are seeing prices for cooking oil return to normal, but it is an indicator at just how fragile our global markets are to external pressures.

-19%

Reduction in the cost of Wheat

Outside of the Russia/Ukraine conflict, we have also seen dramatic weather conditions impact crop yields and shipping routes across the globe. Here in the UK, we had the hottest ever year in 2022 and expectation is that this trend will continue. This heatwave had a negative impact on many of the domestic and native crops that we grow here but it wasn’t just the UK that suffered. Pakistan saw millions of casualties as a third of the entire country was flooded and left underwater, ruining many rice and wheat crops. Droughts in Spain and other agrarian parts of the EU decimated fruit and vegetables that are heavily imported, especially into the UK, continuing to push prices up even further.

Key commodity tracking

Source: Mintec Analytics @09/01/23

Key commodity updates

Meat

With a small rise of +1%, the festive period increase that we usually see in Beef was not as dramatic as expected at the end of 2022 We are currently in winter period heading into spring and so we are seeing an increase in the pricing of chuck and briskets more commonly used for stewing and roasting. As such, these cuts are trading higher now, but moving forward through the year this is likely to change as steaks and burgers become more popular during barbecue season.

High feed and processing labour costs have kept the UK pricing higher than other EU countries and especially other beef exporting countries such as Argentina and Australia. Even though a large proportion of the beef that we eat is domestically reared and processed, these higher costs are a barrier to reaching the sorts of prices that we were paying pre-pandemic even though reports indicate that the size of the UK beef market has returned to 2019 levels after a 56% increase on the volumes sold during 2021.

The last period of 2022 saw the prices for most Pork cuts stabilise after nearly a full year of repeated price increases. It is thought that whilst pork is still popular around the festive time, most of the dishes involve a lot of pre-

preparation and so commercial buying was done well ahead of the season, demand for regular pork cuts such as chops or loins is low due to demand for other proteins and so the price remained at its previous level. This is good news for the market, but the problem is this stabilisation came whilst pork is at its highest price mark for 25 years. With a 40% increase on last years already inflated pricing, it is unlikely that we see any sort of major recovery in the pricing of pork as the methods required for price reduction; greater processing economies, cheaper labour process or greater product yields are just not attainable in the current market conditions.

Farmers have reduced their herds because of the costs of feed and shelter over the colder months meaning there is less product. Since the pandemic, the amount of available labour, both low skilled and professional, has decreased due to changes in the freedom of movement and an increased early retirement rate. Both major factors pushed pork pricing higher and kept it there.

demand in 2022 than previous years. The market prepared for a busy festive period with production up by +5% in terms of tonnage, but demand fell 19% short of that experienced during 2021 so prices held relatively firm and even stayed 11% lower than this time last year.

Now might be the best time to be looking at including a lamb dish on your menus The pricing per kg is now comparable to many types of beef cut and is more readily available than some types of pork. In addition, based on past trends, we would expect to see a big pricing spike in the second quarter of the year for lamb and so having a dish on the menu now capitalises on a lot of positive factors.

Unfortunately, after months of price stabilisation that we hoped would result in a lower cost, the price of Chicken has once again risen. In November and December, we experienced a +7% increase on the previous quarter and that was on top of the already record high prices for the bird.

In the lead up to the festive period we expected to see a major increase in the pricing of Lamb given that traditionally it is one of the more popular proteins for this time of year and that was reflected but at a much lower rate with a quarterly increase of nearly +4%. This is much lower than anticipated with most of that being attributed to a lower

The reasons for the increase in pricing on chickens is particularly interesting and may be an indicator for livestock farming as a wider industry. There has been a big focus on the living and slaughtering conditions for chickens with an emphasis on better living conditions, improved feed and increased yields per bird. This has meant that the costs of keeping flocks of chickens, raising them and slaughtering them have all increased throughout whilst at the same time decreasing how quickly the meat gets to the market. An increase in cost as

Lamb vs. last year -11%

well as a decrease in output has naturally led to a higher entry cost and its unlikely that we will see a return to prepandemic pricing we were so used too.

This improvement in standards has also influenced the pricing of Eggs. We saw another huge increase in the cost of eggs with a +17% increase on last quarter and that was already on the rise with chickens having to be placed in barns to contain the spread of the Avian flu that had been so rampant for the majority of 2022. With chickens in barns the price to keep them increases and this filters down into the cost of eggs to the consumer.

Fish

Currently the UK has imposed a 35% import tax on Russian seafood and this has meant that many buyers are looking to source Cod or Haddock from an alternative country, usually Norway or Iceland. Coinciding with the tariffs, the Icelandic yields of whitefish this year were particularly low and when combined with the increased costs of diesel for the boats and machinery its thought that there was a big reduction in the number of fish that were caught in the North Sea during 2022.

It can be hard to accurately predict the changes in the pricing of these two popular whitefish because the market has been so volatile over the last 18 months, but we are seeing some stabilisation

monthly basis, which is good for consumers. It provides some consistency with Cod improving by nearly 5% against the previous quarter and Haddock down 50% against last year It is thought availability at least in the short term should improve because the demand from Asia and in particular China has decreased due to strict Covid controls and a preference for Pork.

Cod vs. previous quarter

The UK is in the top 10 countries in the world for imported Tuna The popularity of this protein rich food increased due to its canned nature during the pandemic This popularity continued and there has been a reported 100% increase in the sales of canned tuna over the last 5 years. As most of our tuna is sourced from Asian waters, it has not been so adversely affected by conflict or poor weather conditions but does suffer from high shipping costs and extensive processing and packaging costs, both of which have increased in the last year. As such we have tracked Tuna throughout 2022 as increasing by +43% on the previous year and unless the catch rates for 2023 are higher than 2022 and diesel costs continue to fall for the fishing boats, it’s thought this trend wont reverse.

Dairy

The improvements in Milk pricing that we began to see at the end of last year have persisted. Over the last 3 months we have seen a -56% reduction and even just over the last month the price has dropped by -44%. This is

largely being attributed to continued levels of production against a steadily declining market demand. Both commercial and consumer demand for Milk and other Dairy products has begun to decline in the face of a costof-living crisis and items such as butter and cheese will see a decline in the volumes purchased. This has led to a decrease in the Farmgate pricing of milk with Arla, Muller and Freshways all reducing their wholesale prices.

We have seen similar trends over the last two years as Milk processors look to sell off a lot of the excess goods around Christmas time leading to a market reduction and this should not only filter through to the market and end consumer, but additionally has a direct impact on the pricing of other dairy products.

With the demand for Cheese and Butter declining we have seen a Quarterly change of15% and -29% respectively. Following on from the winter festive rush, which sees an increase in the demand for these two items, there is some expectation that the demand for these products will decrease slightly or that purchasing habits will change to focus on the cheaper products where possible. As a result, we should see some reduction to the pricing of these products

Fruit & Vegetables

Many of the fruits that we enjoy are currently out of season for UK production and so must be imported either from Europe or South America. With the fluctuations in value to the pound we have experienced over the last 6 months, these shipping costs are higher and so imported goods such as Bananas, Pineapples and Oranges all have a higher base price than this time last year. In fact, those specific products have seen monthly increases of +15%, +21% and +12% respectively and that’s before you take in account all the costs of transportation.

One of the main problems that fruit producers and processors are facing is the increased costs of storage and production. To combat this many farmers are not harvesting the full crop due to these costs, as well as sending more of it for processing into juices and other foodstuffs. This allows the producers to capitalise on the current pricing for their products, reducing the amount of fruit that will reach the end market, further increasing prices to the consumer.

European grown vegetables have seen large and more sustained increases over the last month Tough growing and harvesting conditions after a year of tumultuous weather, as well as the increased costs of nitrogen rich fertilisers, has left many staple vegetables at an increased price;

Mushrooms, Peppers and

Onions have all increased by +33%, +154% and +41% respectively in the last quarter alone. This is largely attributed to the increased costs of growing and harvesting produce, like the fruits previously mentioned. In addition, poor growing conditions and the extreme temperatures throughout the year seem to have persisted into 2023 - across Europe there have been record January temperatures recorded indicating further yield problems are to be expected this year.

One positive is the pricing and availability of domestically grown produce. Apples, Pears and Tomatoes have all had a good season and as they are domestic products the costs of transporting and shipping are significantly less. The warmer temperatures in the UK have helped with growing these types of produce and the strong availability has meant reductions of -27%, -22% and -10% over the last quarter respectively.

Throughout 2022, the growing cycles for Potatoes were disrupted by the turbulent weather conditions, both too hot and too wet. The yield anticipated for 2023 is not positive, some farmers are expected to reduce their growing areas in an attempt to battle overheads and some farms are moving away from potatoes entirely The main issue with a low yield is that for the second year in a row we may struggle to fulfil all the demand for a product which is popular across all business sectors.

Edible Oils

The market for Oils such as Rapeseed, Vegetable and Palm oil has seen a record

amount of change since this time last year. We have previously documented the large increases experienced in the wake of the Ukraine conflict, but the second half of 2022 saw prices decrease steadily as demand levelled out and trades route out of the region were established.

In the last quarter, we have seen a reduction of -18% and14% to Rapeseed and Sunflower Oil respectively and this trend is expected to continue. The greater than expected yields that came out of Ukraine, as well as a high processing rate in 2022, means that stocks of both types of oil are high with the UK and it’s likely the prices will continue to drop steadily.

VEGETABLE OILS

RAPESEED -18% -14% SUNFLOWER

Dry Stores

As we mentioned, the market for grains have been in flux since the start of the Ukraine conflict as this was the main exporting region, but we have seen some stability in the Wheat and Corn pricing with reductions of -19% and -32% respectively during the last quarter.

One major advantage of this is the immediate impact it has on the costs to farmers and producers. The cost of feed has been prohibitive for livestock farmers and now more access to a greater amount of quality grain will ensure that there can be a return to normal herd sizes. A combination of better-thanexpected yields from Ukraine and Australia, as well as slower

demand from China following Covid lockdowns, meant that there was more grain available and at better prices.

There is some concern for 2023 however. The grain crop is not only heavily affected by global conflict, but also the severe weather that has been seen. The latest concern is how hot the dry season in South America will be and how any export shortages in that region will affect the demand across the rest of the world. The market is currently positive, but that may change throughout 2023, weather dependant.

We expect that these decreases will be reflected in the by-products such as Pastas and Cereals. Last year, both categories increased by as much as +10%, but we have seen stabilising prices of Durum Wheat and Rice, with a -1% reduction against last quarter for both, meaning that pasta and rice should remain stable. It's important that these products remain both available and affordable as we enter a tough year financially, they may become a more common menu item and will allow for a lot of variation with the addition of just a few ingredients.

The final quarter of the year was a particularly good one for both Sugar and Coffee. These two products are in regular demand and these days form a large part of our lives. Coffee saw reductions of nearly -30% across both key types and sugar decreased by -7% in the quarter A combination of good harvests for Q4 in South America, combined with lower-than-expected demand from Asia due to high processing costs, means there is currently a surplus of sugar across the markets and until

that changes we should expect to see further improvements in the pricing.

Fuels

Initially the UK fuel market was heavily impacted by the Russian invasion of Ukraine as they supplied a large proportion of the EU with its gas, but through clever purchasing and sourcing gas from other corners of the globe, as well as working closely with the French market, there has been some stability in the prices for both Gas and Electricity with reductions of59% and -65% respectively. It is hoped that these trends will continue.

There has also been a reduction in the cost of transport fuels. A combination of government policies to restrict the burgeoning prices of gas, as well as warmer weather than expected throughout the initial winter period, meant gas usage was down on the previous year and current storage levels are higher than anticipated, meaning demand is being met by supply. This is supported by a drop in crude oil pricing of3% in the last quarter which forms the basis of Petrol and Diesel pricing. With availability to cheaper fuels, the costs of heating and lighting have reduced and the costs of shipping product from ports and factories to their destinations.

With all the striking announcements we saw in the

last quarter of the year, it may have gone unnoticed that Unions were able to agree a deal that kept the ports of Felixstowe and Liverpool open and operational. This was important for the delivery of goods ahead of Christmas but in the long term means that there is a consistent flow of goods in and out of the country. One factor that may disrupt this is proposed border force strikes at Dover, but this will be on a smaller scale and is likely to have less effect

Packaging

The major announcement at the end of 2022 was that the UK government intends to introduce a ban on certain types of single use plastics This mostly effects food establishments that offer a takeaway service. At the centre of the new legislation is a focus on plastic cutlery, plates and polystyrene items such as cups and containers with the aim of removing these from circulation and introducing biodegradable alternatives. Whilst this is undoubtedly good for the environment and is a decision that should be praised, it’s also one that will increase the cost and difficulty, at least initially, to many food-focussed businesses. Procuring the new items will likely be more expensive than the current items due to scales of production, so, until stocks of the biodegradable products are plentiful, its likely this will add further cost.

Packing paper and Kraftliner are +33% and +2% more expensive respectively than this time last year but have decreased by -3% and -8% in the last quarter, indicating a change in the current market trends.

In the Press

In Season

o Apples, Beetroot, Brussels Sprouts, Celeriac, Chicory, Cod, Duck, Hare, Leeks, Lemon Sole, Mushrooms, Onions, Parsnips, Pears, Red Cabbage, Savoy Cabbage, Sea Bream, Spring Onions, Squash, Swedes, Turnips, Venison