Pelican Procurement Services Market Report Q2 2023

Market Report

Quarter 2 2023

Included in this report:

o Cost of Living Update

o Weather Conditions

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

Cost of Living

The recent announcement in the Spring budget that the energy assistance payments that we received over winter would be stopped This was not surprising and somewhat dampened by the announcement that the Energy Price Guarantee will be held at the previous level of £2,500 rather than increasing as had been reported throughout winter. This is largely due to the fact that costs of Natural gas had decreased by 50% during this period and that UK stores of gas were above a 90% threshold

Good news from the budget announcements came in the form of cash payments to low-income households, a reported 10% increase to benefits and pensions as well as the National Living Wage being increased. These measures were introduced to directly target those most vulnerable individuals and families.

The latest concern is the cost of housing and rental increases being seen across the country. With interest rates consistently going up - they have more than doubled from 2% in September 2022 to the current rate of 4.5%as well as rental properties increasing by the same or higher percentage, many families are

worried about housing, both the cost and availability of it. It is hoped that the inflation rate will stabilise and eventually begin to recede as we see a decrease in the production costs of fuel, fertiliser and feed which filter into almost every aspect of the supply chain.

Alex Gess Business Supply Chain Analyst Pelican Procurement

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

Weather

Despite the recent 5% increase to the cost of oil after OPEC+ decided to cut the amount of production once again over fears of the price being too low, the costs of oil and its subsidiary products, of which there are many, has steadily been decreasing.

We have seen a small reduction in the pricing of petrol and diesel at the pumps, but these reductions should be having more of an effect in the processing of products and the transportation of goods. With these costs reducing it is expected that these savings can be passed onto the consumer, much in the same way the price increase are, and this will help combat not only the rising interest rates but also the historic levels of inflation we have experienced.

Despite a very icy and cold period during December we were all pleasantly surprised by the milder winter weeks we experienced as it meant our energy bills (most notably our gas bills) were much lower than was feared and any notion of energy rationing was swiftly dismissed. Whilst this is undeniably a boost to households at a time when they most need it as the cost of living continues to increase it is also an indicator of a wider issue.

The regions and environments that we have relied so heavily upon for produce and proteins are changing, largely due to the dramatic changes in weather and climate we have experienced. In one year, we had the lowest winter temperatures for more than a decade, the hottest summer heatwave we have ever experienced and the most devastating storms we have seen for nearly ten years. Extreme weather both in the UK and across the world is becoming more normalised but it is causing

a host of issues throughout the supply chain.

The most recent example of this is poor weather conditions affecting Morocco and Spain and having a direct impact on the availability of tomatoes, peppers and cucumbers among others. The yields of the produce grown in this region was disrupted by flooding and colder temperatures throughout the year, whilst the process of shipping the goods was delayed due to high winds and rough seas, resulting in a spate of social media posts about the lack of available vegetables.

In reality, produce was still available often at smaller and local retailers but at very high prices, prices that many supermarket chains were unwilling to pay and so until they had sourced an alternative the shelves were more empty than usual. This situation has now improved but we should expect more of these types of shortages.

Global Markets

Markets across the world are impacted by this change in weather and climate, not just those directly tied to the UK. China and Pakistan experienced horrendous flooding last year that cost thousands of lives in addition to lost production and delayed transportation of key goods into domestic and international markets. Hurricanes and storms disrupted travel across America and Europe respectively, restricting supply chain efficiencies.

and the recovery associated afterwards. As we have touched on this extreme weather is going to become more and more frequent and so the impacts on the supply chain will continue to become more severe

As we move past the first year of the war in Ukraine, we have seen huge fluctuations in cost and availability for staple goods such as wheat, corn and vegetable oil and these changes have been tracked and well documented.

as well as a plethora of bank holidays throughout April and May During April, we will be celebrating the Easter Holiday, Ramadan the Muslim festival and Passover of the Jewish faith. These events bring people and communities together in celebration and remembrance. As people spend more time out with families and friends it’s hoped that hospitality can capitalise not only on this widespread feeling of joy and togetherness but also the excitement and anticipation for a long awaiting Spring/Summer

It’s not just the immediate impact that closures, delays and even loss of life causes, but the longterm impact of such disruptions

Now with the establishment of the Black Sea Agreement and trade routes, as well as the fall in price of both Oil and Natural gas, most of these initial issues are abating and we are seeing some return to normalcy. Natural gas is a main component in many nitrogen-based fertilisers that are widespread in agriculture and as the demand for and price of this gas goes down so does the cost to farmer of their fertiliser. This will obviously have a more direct impact on those arable farmers producing crops but will also positively impact livestock farms as the price of feed begins to decrease. One of the main uses for the wheat and corn is in animal feed and so with consistent high-quality supply coming through, prices have been steadily decreasing and livestock farmers can once again afford to feed and house their animals in the standard ways. There is some hope this will lead to herd sizes increasing again and yields increasing across all UK farms.

Spring Holidays

In what could be a timely boost to the UK economy, we see three hugely important religious festivals taking place in and around the same period this year

The Easter Holidays are well known for increasing the spend in pubs and restaurants with the bank holidays being a particular favourite and with a total of five bank holiday days during April and March we really expect consumers to be out with their friends and families, enjoying some springtime sunshine as well as good food and drink.

Whilst it has been one of the mildest winter periods on record for a decade the seemingly relentless rain, wind and dark skies are hopefully coming to an end as we fully embrace spring and all the delights it brings. We go into more detail about what the spring months can provide in terms of seasonal produce that will both engage and excite potential customers, whilst ensuring margins are kept positive and availability is always there.

Reduction in the cost of Natural Gas Fuel

Key commodity tracking

Source: Mintec Analytics @13/04/23

Key commodity updates

Meat

With the cost-of-living crisis in full swing, the retail demand for premium cuts of beef such as steaks has reduced dramatically There has been a 9% quarterly increase to the price of beef cuts. This is largely due a smaller herd size and higher production and processing costs. As a result, there is less available produce in the market.

Beef is also traditionally the most expensive meat protein and so consumers are frequently searching for alternatives such as pork or chicken before seeking out beef. This is compounded by the current under-supply from the EU market and so we are expecting increased imports from South America, further increasing prices. It is expected that as we move through Spring and the barbecues come out that burgers and grilling steaks will increase in popularity but until then expect further price increases to a weak beef market.

It is expected that demand for Pork will begin to increase through Q2. But even within Q2, previous year trends indicate that demand will increase and this is likely to lead to yet more increases in price. Over the last year farmers have reduced their herd sizes because of the costs of feed and shelter.

Since the pandemic, the cost of meat processing, in addition to 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. In real terms this resulted in 4.6% fewer carcasses being processed last year compared to the previous. All of these have been major factors in farmers deciding to keep smaller herd sizes and contribute to pushing pork pricing higher and keeping them there.

We are at the very beginning of the price increase to Lamb that we talked about in our last piece to market. After a positive first quarter in which the prices decreased by -11% due to good availability, the last month has seen a +16% increase and an +8% increase on the previous quarter.

Largely attributed to all winter stocks being bought up and that we are now in the lamb season, the demand for lamb is still slow in the face of the cost-of-living crisis but is increasing and is likely to be fulfilled by mostly domestic produce as we see fewer imports from New Zealand. One piece of good news for farmers and processors is that the demand for UK lamb and sheep meat throughout the EU has been increasing and so exports for the first part of the year were up +45% against last year. Whether this has a long-term impact on the domestic supply we will wait and see.

Chicken has been negatively impacted by the European strain of Avian Flu and with more culls expected the prices

have continued to trend upwards in this new year. So far, we have seen a +1% monthly increase and a +22% quarterly increase but with supplies being tight and demand for the cheaper protein always high, we are seeing the market react accordingly.

Chicken vs. previous Year -7%

Some demand relief is now coming from South America. Europe’s biggest external supplier of poultry is now Brazil as they have not experienced any of the Highly Pathogenic Avian Influenza (HPAI) virus and so supply has been consistent. The main issue is with the increased transport and processing costs the prices for these birds are higher than European ones so a reliance on this market comes with a cost. In the last few weeks, a case of HPAI has been identified in Argentina so the region is currently on high alert trying to contain any spread of the virus.

Two main factors have negatively impacted Egg prices recently to the point where we are seeing a 7.5% increase on last quarter where Egg prices were already at an all-time high meaning, they are now 48% more expensive than this time last year. The first issue relates to the HPAI virus we have previously discussed. With egg laying birds being culled it means there are less available eggs. A cheap source of protein, eggs had become increasingly popular and now demand far outstrips supply. Add to this the Easter period naturally increasing demand for eggs

and we will continue to see increasing prices.

The government announced during April that UK poultry farms can resume outdoor operations and chickens can return to the outside. This will reduce costs of heating and storing the birds and those eggs can once again be labelled as free range. It remains to be seen how the industry will react but it should provide some positive impetus for pricing for the rest of the year.

Fish

White fish such as Cod and Haddock have been long time favourites in the UK but the spring season stocks will mostly have to come in from Norway with some supply being sourced domestically from the North Sea. The yield per fish is lower than optimum at this time of year and so costs of transporting are increased if demand is to be met.

sanctions and it means that supply of whitefish is somewhat limited right now.

Two types of fish with good availability and can be caught in domestic waters are Plaice and Monkfish. Flatfish in general tend to fatten up over the spring period and so those caught fresh should provide enough substance for a main dish. Monkfish has long been seen as a premium fish and so if you need to fill that space on your menu try to source some Celtic water Monkfish

month and the -11% decrease against the previous quarter.

Salmon is in a particularly bad place at the moment after it reached its highest ever price on record during the month of February. Reports from Norway indicate that a high proportion of the fish stock has been seen with winter sores meaning extra processing times are required as well as adverse weather conditions that have slowed down both catch rates and the processing of these fish as well as limiting transportation.

Dairy

The main issue is the supply of whitefish. Temperatures in seas and larger bodies of water, where fish farms traditionally are, are increasing which creates a difficult period for breeding and thus lower available stocks. Iceland have had to reduce their quotas this year and are seeing catch rates sometimes as much as 45% down on last year and as we all know these species of fish need to be protected from overfishing. Add to this the lack of produce coming straight from Russia since the

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 and this popularity has been maintained now that we are in the cost-of-living crisis and more people turn to homemade sandwiches and salads which canned tuna is perfect for. This popularity has been shown in the reported 100% increase in the sales of canned tuna over the last 5 years. As most of our tuna is sourced from Asian waters, there may be some disruption in the first part of April due to Ramadan and changes to the fishing schedules but there is little to no concern of supply shortages.

Almost all tuna we consume in the UK has been imported and so the pricing is dependant on shipping and fuel costs. These have been decreasing recently which should help support good tuna pricing throughout the year and this is reflected in the -1% decrease over the last

Whereas most other foodstuffs are consistently and repeatedly increasing, the cost of Milk and other dairy products have been decreasing since the start of the year with a slight uptick in February. For the most part these price decreases seem to be coming from the oversupply of milk from farmers who are trying to capitalise on the high farmgate pricing. As a result, processors have excess stocks and use the additional milk to make items such as butter and cheese whilst having no negative impact on the Milk market.

As such we are currently experiencing a -21% monthly decrease and a -10% quarterly decrease and this is being fed through to the rest of the dairy processing industry. Domestic cheddar Cheeses are -15% down on the previous quarter and Butter is -6% better off over the same period.

As such it is a great time to be introducing more cheeses or dairy items onto your menus. Having cheese boards as either a starting or ending option is a great way to keep menus fresh and can be done

Cod vs. previous quarter -4.8%

by using either locally or domestically sourced products to keep costs down even more and you can add in some variation by including Goat cheese which are in season right now.

Fruit & Vegetables

Spring brings many of our favourite fruits and vegetables back into season and with this will come a domestic supply of goods that improves both pricing and availability. We have seen the impacts of weather and transportation issues with the shortages of peppers, tomatoes and cucumbers and the higher prices we have seen for them, but it is hoped that this shortage has now passed and we will return to full shelves in stores.

keep those costs low and margins profitable.

Unfortunately, other staple vegetables have not experienced such decreases. Potatoes, Onions and Peppers all form a crucial part of our diets and menus and they have all seen a +4% increase over the last week albeit the latter has decreased by -3% against last month because of the shortages The problem with many of these commodities is that they are not in growing season in the UK and so we must import them in and while shipping costs have decreased from their highs of last year, the price of transportation and fuel is higher than it has been and so the prices are stuck at higher levels than we may be used too. Some domestic growers are still struggling to be able to afford to operate in the same way as they have done over the last few years. Tomatoes are expected to be the most affected by this as greenhouse costs have soared over the last two years and growers are unable to keep themselves open.

Edible Oils

In the coming months items such as Carrots, Lettuce and Spinach will all be coming into season in the UK and so we should start seeing prices come down for these items as domestic product makes its way onto the shelves. we are already seeing some of these decreases with the above three products showing weekly price reductions of -2%, -5% and9% respectively. It’s a great time to start looking at lighter salad options that perhaps use some of these locally and domestically sourced items that will delight guests and

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 trade routes out of the region were established.

VEGETABLE OILS

-25% -21%

In the last quarter, we have seen a reduction of -25% and21% 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.

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 -16% and -12% 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.

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 throughout what will no doubt be 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.

We have reported on the favourable conditions for Sugar and coffee in the last few editions of this report. This trend is reversing. The opening part of 2023 has seen some concerning price increases. Egypt has announced an export ban and India is set to slow sugar exports over the next few months meaning the European shortage of white sugar is set to become worse. Compounded by Easter purchasing we are now looking at monthly increases of +18% with no indication of a reversal. Any sugar that will come into Europe and the UK will most likely have to be sourced from Brazil and whilst this crop is of good standard and quantity, the transport costs will mean the base price is going to be quite high.

Similarly, Coffee has seen quarterly increases of 22% since we last covered the commodity and it’s thought that this increase is largely attributed to concerns over weather conditions in growing regions as well as the current stock levels being low. A lot of

this pricing is driven by market speculation with fears over the weather throughout this year in Brazil having an effect on current prices. Once the speculation moves on it’ s hoped that prices will trend a little lower although perhaps not to the degree we have seen in recent months.

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 working closely with the French market, there has been some stability in the prices for both Gas and Electricity with reductions of34% and -40% respectively There is no indication that we will see increases such as those experienced last year and if the supply of fuels continues then the expectation is that prices will drop slightly again. This has been combatted by OPEC+ manufacturing an increase to the oil barrel pricing so we shall have to wait and see how the market reacts.

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 (per OPEC announcement) 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. The good stocks of natural gas left over from the winter period have been reassigned to nitrate fertiliser production and this should go towards assisting farmers with crop yields as we move forward.

Packaging

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

The major announcement for 2023 was that the UK government intends to introduce a ban on certain types of single use plastics. This mostly affects 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.

In the Press

In Season

o Artichoke, Asparagus, Aubergine, Beetroot, Brocolli, Chicory, Chillies, Coley, Elderflowers, Lambs Lettuce, Marrow, New Potatoes, Peas, Peppers, Plaice, Radishes, Rhubarb, Rocket, Samphire, Sorrel, Spinach, Spring Greens, Spring Onions, Strawberries, Sweetheart Cabbage, Wild Garlic, Watercress