Pelican Procurement Services Market Report Q4 2022

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

Since our last report there has been much turmoil and change in the UK Government, causing significant instability in the economy and the marketplace. The cost of living crisis is well documented and with inflation currently sitting at 10.1% and expected to hit 11% during the month of November, consumers and businesses are all preparing themselves for a tough winter. Our reports have followed the increases in interest rates and inflation closely, reporting on the steady increase since the pandemic and the initial supply chain challenges, but there is no indication that this trend is going to reverse.

Following Government announcements, the pound dropped in value but has now seen some recovery after sitting at its lowest ever level against the US dollar. This has an impact on the entire UK economy and will make it especially difficult for companies that rely heavily on imported goods. When the value

of the pound dropped, imported goods, services and labour became more expensive This at a time when many businesses are already facing tough choices between passing costs onto customers or absorbing the cost increases. This decision is particularly tough given the increase in business foreclosures and liquidations, reportedly up by 42% against last year.

Graham Coles Procurement Director at Avendra Group Europe

We’re here to help you.

hello@pelicanprocurement.co.uk

As a method of controlling the rising inflation, the Bank of England announced an increase in the Interest rate; up from 1.75% to 2.25%. Whilst this was slightly lower than the market expected, it is anticipated that this will increase into The interest rate dictates mortgage, loan and credit card repayments, all things which will negatively impact both businesses and consumers.

Energy & Fuel

We had seen one main commodity fall in price after some heavy increases. Petrol and Diesel fuels had been steadily decreasing since our last report with a reduction of 11% against the previous quarter.

Unfortunately, this trend is unlikely to continue to the end of the year and into 2023. The instability of the pound in conjunction with an announcement from OPEC to slow production for October has meant a small increase which precludes a larger predicted increase in the cost of oil (petrol) and gas. The fluctuations in the value of the pound impact our fuel prices because all gas and oil are tracked against the US Dollar, even domestic fuel.

One positive we can take from recent government intervention is some of the changes to the Energy Price Cap. Previously the cap had been increased to £3,549 from October 1st onwards, an increase of nearly 80% to some households. The Government has put new regulation in place which limits the costs to an average of £2,500 per year, a reduction of £1000 and providing some much needed relief to households and small businesses. A recent review of this policy changed the guarantee from 2024 to be until April of 2023 at which point it would be reviewed as the latest energy cap change would occur around this same time.

There is also assistance to households in the form of the Energy Bills Support Scheme. A government backed programme

THE INFLATION RATE 10.1%

that gives £400 to qualifying households that will directly help with the increases to the energy bills over the next 6 months. It has been announced that business will also see assistance from similar programmes that will help them with energy bills, but the full details of that plan have not been released at the time of writing.

Labour

There has been slow and steady improvement to the level of employment within the hospitality sector but there are a reported 400,000 vacancies open across the industry and this shortfall is still preventing many outlets from operating at maximum capacity. A recent report has indicated that this shortfall in workers is having a negative impact on the customer experience as wait times have been an issue. Also, employees are seeing increased workloads, longer working hours and reduced stability in the industry, leaving 8 in 10 workers feeling undervalued and looking for work outside of this sector.

There is some good news for employees, but it comes in the form of cost increases to employers, particularly smaller businesses. There has been an increase to the hourly wages of any employee who is under the Real Living Wage scheme. This is a voluntary scheme which employers can enter to ensure their workers are paid according to the market and with the rising levels of inflation there has been a £1ph increase in the wages of roughly 400,000 workers across the country.

There is some good news for food processors as we move into the winter months. The Seasonal Workers Visa Scheme is once again in place this year and appears to be a much better system. Last year there were only 1,500 applicants to the scheme whereas this year it is expected that 40,000 people will come to our shores and assist with certain processes and procedures that have been authorised by the government. These mostly revolve around the picking, packing and processing of fruit & vegetables, farming and activities that come under the Horticultural category. This should assist some of our farms and food processing facilities with the large quantities of produce that pass through using this labour force to ensure it reaches the market and end user in a timely fashion. This labour is heavily restricted and cannot be involved in the processing or butchery of meat and poultry products nor are they able to operate heavy goods vehicles or transport the goods, so whilst this is helpful as we move into the winter season, the limitations mean we might still see some availability issues.

Global Markets

The conflict in eastern Europe will continue unabated as Ukraine begins to push back into its own territories and Russia has announced conscription within the male population. The impact of this continued conflict has been lessened by some of the agreements for goods and services that have recently been put in place.

The most important of these is the Black Sea Grain Agreement. This policy has set out defined trade and transport routes that Ukraine can use to ship its grain and corn out to the global market. So far, we have seen a total of 1.5 million tonnes of grain being shipped just since these lanes were established in August Overall, the shipments are 53%

down on last year but given the circumstances and that the expectations were far worse, its hoped that this fresh batch of grain and corn will help stabilise some of the pricing for animal feed, cereals, grain and other staple foods like bread and pasta.

We've already seen a 5% reduction against the previous quarter for the price of wheat and grain and it’s hoped that the amount of corn that is going to be shipped out will help the cost of feed on farms in order to feed the animals as we head into the festive season and its tradition for meat and poultry. As we have discussed in previous reports, farmers have had to make the tough decision to reduce their herd sizes following huge increases in the cost of feeding and housing. Now with a new shipment of corn being introduced to the market it's hoped that this pricing can stabilise, and this can be passed on to consumers.

The final benefit from the new trade agreement, and another high cost area farmers had struggled with is fertiliser. The trade agreement allows for certain products to be exported from Russia without the usual sanctions that had been put in place. These products are most notably aluminium and fertiliser It is hoped, much like the corn shipments, that this influx of goods can help alleviate some of the pricing farmers have been paying and that the supply chain will benefit overall.

Key commodity tracking

Food & Beverage Q-o-Q Change Y-o-Y Change

Chicken 0.0% +19.5%

Beef 1.4% +6.9%

Lamb 18.1% +4.0%

Pork +6.1% +32.5%

Cod 2.4% 18.2%

Haddock +129.5% 56.5%

Salmon 26.8% +9.3%

Tuna +13.4% +36.7%

Milk 8.6% +47.2%

Butter +1.4% +64.3%

Cheddar Mild +2.1% +59.2%

Cheddar +2.5% +56 4%

Eggs +20.2% +58.9%

Potato +44.8% +55.6%

Tomato +123.8% +39.9%

Sugar +47.5% +113.6%

Coffee Arabica +3.6% +25.1%

Coffee Robusta +17.5% +24.8%

Sunflower Oil 6.7% +14.8%

Rapeseed Oil 12.9% 7.1%

Non-Food

Paper +1.8% +46.0%

Cardboard 0.0% +57.7%

Aluminium +242.7% +2641.3%

PET Plastic +2.1% +36.8%

LDPE Plastic +4.4% +5.1%

HDPE Plastic +8.2% +9.1%

PLA Plastic 14.7% 44.3%

Polystyrene +23.4% +38.3%

Electricity +66.4% +105.6%

Gas +13.8% +92.2%

Shipping; China UK 25.8% 44.1%

Shipping; Brazil UK +51.5% +118.5%

Shipping; US UK +5.1% +42.3%

Shipping; Vietnam UK 30.1% 42.2%

Source: Mintec Analytics

Key commodity updates

Meat

Preferences on which cuts of Beef to use both at home and in the service sector have changed over the last quarter and its thought this is likely to continue into the winter period. With the increases to the cost of housing, feeding and processing cattle, consumers have switched to cheaper cuts to combat the higher retail prices especially rump cuts and the more robust cuts of meat that are best used for stews and casseroles.

This has two benefits; the service sector can capitalise on cheaper, seasonal dishes and products to keep attendances high but costs manageable Secondly, the demand and thus pricing for some premium cuts of beef in particular Striploin and Fillet has fallen and continues to do so even as we move into a season where beef is a traditional menu item.

The Pork market has possibly been the most negatively impacted out of all the proteins. Currently at its highest price for more than 25 years in the UK following a +6% move on the previous quarter, there may be some small relief as we move out of barbecue season and demand reduces somewhat.

This has slowed the price increases rather than reversed them because of the rising energy costs and feed

availability. There is some hope that the corn being shipped out of Ukraine using the new trade routes will alleviate some of the price pressure on the pork market, but the belief is this relief will take some time to reach the farms and even longer to reach the end consumer.

The increased costs of keeping and raising a herd is being reflected in the numbers of animals that are being kept and reared. There are more than 6 million fewer pigs being recorded this year than against the last and this is a trend we expect to continue having a direct impact on the availability of the protein as we move forward.

Demand increased in the face of other forms of protein becoming too expensive. This meant that the cost of chicken to consumers began to rise and in May we saw it hit a peak price for the last decade. Since then, the market has stabilised and whilst we haven’t seen a large scale price decrease from suppliers that is usually associated with a slowdown in demand, we also haven’t seen continued increases. As we head into the winter period it is anticipated we’ll see another slight increase in pricing due to increased demand, but that supply should be able to cope sufficiently.

Fish

A large proportion of the UK Lamb market is served by domestic product and so the prices had been steadily falling as supply increased and demand remained relatively stable. As a result, prices are 20% lower than against last quarter and this is a great situation to be in as we hit the festive season in which Lamb is always particularly popular. It is expected that as demand increases and the flow of products begins to shorten the prices will trend upwards again but we hope they won’t reach the same heights as last year.

Chicken was steadily on the rise at the start of 2022 with prices increasing following supply issues after a bout of avian influenza was found in the UK and nearly 3 million birds had to be culled.

Tariffs are still being imposed on Russia which imports large amounts of white fish into the EU and so to keep up with demand there has been an increase in the purchase of frozen or processed fish coming from China. Pricing for Cod and Haddock has been extremely volatile since the start of the year and so whilst the market shift to alternative sources isn’t expected to impact price it is hoped that availability will continue to be good

Following the record high prices for Salmon that were seen in April and May the catch rate from Norway this year has been recorded as the highest ever tally, an increase of +9% on last year. As a

LAMB vs. previous quarter -20%

result, we have seen large amounts of stock hit the markets and with availability being so good this has caused a reduction in pricing up to October. With a 27% reduction on the previous quarter there is some hope that as we move into the festive season Salmon will be a popular and comparatively affordable option

The fluctuations in the value of the pound had an impact on the prices of Cheese both domestic and imported. As previously discussed, imported goods became more expensive overnight making it more prohibitive to buy in different cheeses ahead of the festive period. Cheddar cheeses are one of the UKs biggest exported food goods and the change in the pound meant that it now actually became more profitable to export more cheese to Europe and Ireland. It’s expected that with more being sent abroad the supply in the UK will be negatively affected.

saw increased prices following the driver strikes in the country but now the prices remain high largely due to the poor growing conditions and the extreme temperatures.

The UK is in the top 10 countries in the world for imported Tuna and the majority of this comes from Asia. As such the availability has not been affected by conflicts or poor weather seen in Europe, but instead by the low catch rates and high costs of maintaining fishing fleets. Yellowfin Tuna is +14% more expensive than it was last quarter and with increases to the costs of processing it is expected these prices will continue to increase.

Dairy

Milk pricing began to improve in the last month due to an increase in the supply coming from farms. Following a period of higher farmgate prices, farmers began to use feed supplements to combat the increased feed prices whilst maintaining and, in some cases, even increasing the yield output. As a result, we have seen a small improvement in the pricing of milk, 8.6% against last quarter and it’s hoped that these improved prices will not only continue but begin to filter into the other parts of the dairy industry.

The price rises in Butter has continued for the whole of 2022 and it now sits +64% against this time last year which is when the increases really started to gain momentum. Much of this increase has to do with higher feed, energy and processing costs being that butter is quite far down the processing chain and has a lot of different input costs.

Demand had largely been stable meaning the market could predict upcoming price movements but now we are seeing a slowdown in the foodservice sector as more people are eating at home to combat the rising cost of living.

Fruit & Vegetables

European grown fruit and vegetables have seen large and more sustained increases over the last quarter. Many crops are dependent on nitrogen rich fertilisers which, as we have covered previously, experienced large increases since the start of 2022 and these costs have not abated. Tomatoes and Peppers coming from Spain initially

Potatoes have been a victim of fertiliser and planting costs with a notable reduction in planting area of 5% against last year. Once again the dry, hot conditions throughout most of the year have impacted the growing cycles. It is expected that 2022 will produce the lowest yield for years. The main issue of a low yield is that it won’t meet demand for a product which is hugely popular in the UK and crucial to many restaurant menus. Many potatoes end up as chips or other processed goods and whilst there has been an increase in healthier menu alternatives nothing will replace this staple British product.

One piece of good news is the amount and variety of British veg that is coming into season It is expected that we will see prices decrease and availability increase. Such examples include Broccoli, Onions and Parsnips all of which make great accompaniments to hearty dishes or can be used in soups and stews to create seasonal, hot filling dishes for a reasonable price.

Focussing on salads, lighter main options and fruit based desserts is a great way to give your customers a British seasonal menu full of fresh light foods whilst also keeping

vs. previous quarter

costs low on proteins and fish. Moving to a more fruit and veg focussed menu, whilst extolling the virtues of vegetarianism and environmentalism will not only keep costs down but depending on location and customer base can provide a good image boost.

Edible Oils

The market for Oils such as Rapeseed, Vegetable and Palm oil has been incredibly volatile since the start of the year. The second half of 2022 has seen consistent and measurable decreases in the prices of vegetable oils and fats following demand rationing, export ban lifts and trade agreements to get sunflowers out of Ukraine. As a result Sunflower Oil is currently 7% on last quarter and Rapeseed Oil is 13%. There had been an additional reduction in demand as the foodservice sector saw a slump in sales but with the festive season approaching its expected some of this demand will return and there may be a slight increase in prices

Following the Export ban on Palm Oil by Indonesia earlier in the year, the market stabilised and their own inflation flattened out and so the ban was lifted. After the initial shock from the market caused panic buying and trading, the prices stabilised and then began to fall back towards familiar pricing and now actually sits at 19% against this time last year before any of the vegetable oil issues.

Dry Stores

Wheat and other grain based products have been severely impacted since the Ukraine

conflict adding to pressures already being felt by farmers for feed and fertiliser prices. Some of this pricing pressure has been alleviated following the establishment of trade routes out of Ukraine into the EU and Africa predominantly. Whilst the prices against last year are showing as +25% higher, this follows a year of conflict, restricted trade movement and increased demand and so the 2% reduction against last quarter and 4% reduction against last month show that there is some improvement, albeit slow, to the price of this building block of the food chain.

expected yields meaning a +25% increase in coffee costs against last year and sugar is up by +113% for the same period.

-7%

RAPESEED

VEGETABLE OILS SUNFLOWER

This has all had a direct impact on foods like Pasta, Bread and Cereals each increasing by as much as +10% throughout the year so far but it’ s expected to begin stabilising as we see more wheat, oat and grain enter the market. This increased availability should help with more than just these direct products, the increased availability and thus better pricing of animal feed, mostly made from wheat and grain, will mean there should be some price relief for animal by products too although this remains to be seen

Sugar and Coffee are two continuously in demand commodities and we've seen the prices creep higher and higher throughout the year indicating there’s only so much pricing pressure that demand can exert. The poor weather in South America with flooding and storms has resulted in lower than

Shipping Continued industrial action at ports in Felixstowe and Liverpool have caused disruption to UK and European shipping routes and plans. Strikes at both ports began in September as nearly 2000 union workers negotiated over better working conditions and pay, causing significant congestion at both locations Pressure was felt at other ports around the country as increased traffic arrived at places like Southampton in an attempt to reduce the delays and congestion.

With another round of strikes planned from the 11th October for another week it’s expected that delays in processing goods through UK ports will be as high as 45 days causing significant supply chains issues when it comes to transferring goods around the country in the run up to the festive season.

The delays are having an impact on shipping around Europe with Rotterdam, Antwerp and Hamburg all registering slower processing and adjusted schedules. This is happening at the same time as we are beginning to see improvements in the shipping costs and lead times for goods coming from Asia. Costs have decreased by more than 40% when compared with this time last year allowing companies to combat the fluctuating exchange rates previously covered.

Packaging

The rise in internet shopping since Covid 19 first hit and the associated increase in use of packaging and boxes has meant the cost of these materials has been on the rise for 18 months. Packing paper and Kraftliner are +46% and +26% more expensive respectively than this time last year and both are becoming more difficult to obtain. These increased costs are filtering down through the product

In the Press

chain and are now affecting the end customer in the form of higher prices, an unwelcome addition to the already high costs of living.

Finally, there is one piece of good news. The costs of both plastic packaging and metal have begun to stabilise and due to the downturn in general demand in the face of economic difficulty it’ s expected this trend will continue. The supply of plastic packaging and metal for cans

and tins has been increased in the wake of Covid 19 and now with the market slowdown the supply is beginning to outnumber demand meaning both materials should continue to become cheaper. Aluminium does currently sit at an extraordinarily high price following the sanctions placed on Russia, the biggest exporter of the raw material, but it’ s hoped that savings on purchasing cans and tins can be made and passed down through the value chain.