Should we be preparing for even higher food prices?

11 February 2022 by
Should we be preparing for even higher food prices?

As Procurement Director at allmanhall, Mike Meek, has years of experience and insight when it comes to analysing the factors that impact food inflation and what that means for our food prices. Here he takes a look at what can be expected in 2022 and whether prices are likely to continue to climb.

Last year allmanhall forecasted the impact of labour challenges and, specifically, driver shortages, which had an impact on prices and on product availability in 2021. This is something we can expect to see continue in 2022. Storage services and transportation are seen to be providing the largest contribution to the upward surge we've been experiencing of late.

You may already be aware that global food prices are now at a 10-year high. Current inflation figures are reaffirming that prices are being pushed up not just by the storage and transportation we've already touched on, but through a combination of factors, globally, throughout the entire supply chain.

We're seeing that this is having a greater impact on goods than services. The rising global price of energy, surging commodity prices, higher shipping costs are all significantly impacting the annual rate of inflation for goods. In December, the latter reached a remarkable 6.9% and services inflation was at just 3.4%.

UK manufacturers have been facing significant increases in input prices – this is what manufacturers pay for goods before any onward processing. The annual headline rate of inflation for manufacturers input prices is currently at a massive 13.5%. The result? Significant and ongoing increases in the price for which manufacturers then sell their goods (otherwise known as factory gate prices).

So, what are the global commodity impacts causing this? What do we know about them and what do they mean?

La Niña weather event has impacted for 2 years running. Causing significant weather changes in different parts of the world, the result is drastic impacts on food production and harvest yields which then go on to reduce global food commodity inventories. Those inventory levels are important – they provide a protective buffer around food commodity prices and reduced inventories causes greater price volatility.

allmanhall anticipates global food prices have now peaked and are likely to remain static for a time, but at eye-wateringly high levels. For example, food prices in 2021 were 28% higher than 2020. And it's not over – La Niña is likely to continue affecting growing conditions until June 2022. We will keep you updated about the longer-term, knock-on impact of this.

The price of fertiliser is also playing its part. Global fertiliser prices, and nitrogen especially, increased by 175% which was in part driven by the cost of natural gas used in its production.

Well documented across the media, and not just in relation to food, rising electricity and gas prices are also making their mark, impacting us all. These are set to increase further still.

And what about the role of transportation? We've already mentioned labour and driver factors, but the global impact of transportation is broader than that. Breakbulk container prices have exploded to 10 times that of pre-pandemic prices and, whilst there has been a fall from their recent high, shipping costs for bulk and breakbulk shipments are still very volatile. A global shift in spending, through less services expenditure and consumers purchasing more products has created elevated volumes of international shipping trade. This has resulted in port congestion and the lack of availability of goods due to ongoing high demand.

What can we forecast when budgeting for 2022 food costs?

2021 concluded with December's annual CPI rate sitting at a lofty 5.4% and our ongoing analysis anticipates a continued upward trend which we expect to result in a peak in food inflation in the spring. This may be as high as 7% or more.

You can read more about this here and we will provide another update from allmanhall, soon.

Find out more from allmanhall, here, and stay up to date with key food topics.

Images: Shutterstock

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