Food prices fall in 2014 for first time since 2000

03 December 2014 by
Food prices fall in 2014 for first time since 2000

Food inflation is expected to increase to 2.03% in 2015, after 2014 saw the first decrease in 14 years.

That's according to procurement specialist Prestige Purchasing, as part of its Annual Food Inflation Report.

Prestige said there had been an unexpected drop in prices in 2014 of around 1.5% - the first time since the year 2000 that prices have fallen.

That decrease was due to a series of factors, including good weather, a significant drop in the price of crude oil and several economic factors including the strength of the Pound against the Euro.

However, the foodservice industry was unlikely to have seen a decrease as great as 1.5% over 2014, and could in fact have seen a slight increase of around 0.5%.

Similarly, the year 2015 is likely to see a steeper rise in prices for foodservice companies. While Prestige's overall prediction for the year is a 2.03% rise in prices, it said it could be as much as two percentage points higher for foodservice.

The reason for the differential is the fierce price war being waged among supermarkets and other retailers. That means that producers who are struggling to deliver extremely keen prices for retail customers are forced to increase prices elsewhere.

Prestige said that 2014 could be seen as an "unusual" year, and that longer term factors such as global population growth, water scarcity and an unstable international political environment meant that while food prices fell in 2014 and are expected to do so in the early part of 2015, it is a short-term trend and food inflation is set to return.

As ever, different food categories are expected to rise and fall at different rates. Among those categories Prestige highlighted were:

Milk - as well as milk powder, butter and whey powder have dropped in price and are expected to stay low; this is due to a combination of increased production, coupled with a reduction in demand

Chocolate - Cocoa consumption is growing faster than production. Attempts to avoid higher costs could result in manufacturers using alternatives such as vegetable oil and flavourings to reduce the demand for cocoa. Prices have also been impacted by the threat of the Ebola virus hitting cocoa-producing countries, Ghana and the Ivory Coast

Beer - The House of Commons recently voted against the Pub Beer Tie, which currently allows large pub companies to tie their tenants into deals where they are forced to buy beer from their landlord. If passed, this would allow pub tenants to agree deals with their landlords that allow them to buy beer on the open market leading to price volatility

Chicken - a new bird flu strain has recently been found in the UK. If it spreads, this will pose a significant risk to the poultry sector. The effects of this on pricing can counteract one another to some degree. On one hand, supply is reduced, as there are physically less birds, leading to higher costs. However, extensive media coverage can increase the level of fear among consumers, meaning that demand could drop

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