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Get ready for the Brexit effect

08 November 2016
Get ready for the Brexit effect

Caterers should stay cautiously optimistic as they wait to see the real impact of Brexit on food and drink prices, advises Lynx Purchasing

Caterers should be aware that, although some prices have risen as a result of the drop in the value of sterling in the wake of the referendum vote in June, other factors, such as continuing low prices for fuel, are providing balance.

This is according to the autumn/winter edition of the Lynx Purchasing Market Forecast, which offers a post-referendum analysis on prices, based on information gathered from suppliers Lynx works with, as well as the most recent official pricing data from the Office for National Statistics. It reveals that caterers should remain cautiously optimistic about the long-term impact of Brexit on food and drink prices.

Rachel Dobson, managing director of Lynx Purchasing, explained: "The supply chain dislikes uncertainty more than just about anything else. With the government having confirmed that Article 50 will be triggered in the first quarter of 2017, we can start to see the timetable for Brexit, but we're still really no clearer on what it will mean in terms of our trading relationship with Europe and the rest of the world.

"In that context, it's understandable that suppliers are building plenty of caution and caveats into their forecasts. There's a wide range of products seeing changes in price, and caterers will need to keep a close eye on supplier costs over the coming months.

"In the longer term, whatever replaces the Common Agricultural and Common Fisheries policies will have a big impact on the viability of UK food production and those discussions are at a very early stage.

"For now, there are the usual effects of the weather and changes in global demand. In the run-up to the key Christmas trading period, we're working closely with our suppliers and customers to offer transparency on pricing wherever possible to allow operators to plan with confidence."

Among the factors highlighted in the latest Market Forecast are:

Poultry

As caterers plan Christmas menus, there is continued high demand for Red Tractor produce. With the fall in sterling also a factor, higher costs for turkeys seem highly likely this year.

Pork

The combination of increased demand from Asia and fewer domestic pork farmers has seen prices for bacon, sausage and other pork products rise, and the UK is likely to rely on imported products.

Salmon

Salmon is always a Christmas favourite, but with problems in Chile caused by an algal bloom that has killed millions of farmed fish and a fall in production in Norway, the supply of fresh, frozen and smoked salmon is unlikely to improve.

Dairy

With many dairy farmers having exited the market, prices are moving up. While the price of milk often hits the headlines, an increase in the cost of butter, cream and cheese should also be a concern.

Fresh produce

Labour is putting the biggest cost pressure on UK producers this autumn and winter, as wage levels continue to rise in the UK. While this will have an impact on the price of fruit and vegetables, it will be mitigated by lower fuel costs, as well as hopes for a good harvest of root vegetables, apples and pears.

Potatoes

Potatoes may be more challenging than other produce, with most caterers relying on imported products, such as frozen chips, alongside home-grown supplies. The currency issue as well as wet weather in northern Europe is expected to have an effect, with crop quality and quantity expected to be lower. The rain will also mean higher prices for other frozen vegetables from France, Belgium and Holland.

Salads

Spain supplies much of the UK's leafy salads during autumn and winter, but there are suggestions that some Spanish growers will be looking to reduce their exposure to the UK market this season. This is as much to do with the UK's retail price wars as with concern over Brexit and the lower value of sterling, with the low prices paid by supermarkets deterring growers.

Lemons

Availability of lemons has been extremely tight over the summer, with very high market prices in the wake of problems with both the Argentinean and South African crops. Demand is likely to remain very strong, and so prices high, across the autumn and winter.

Avocados

Global demand continues to increase by an estimated 30% annually, with the UK's love of Mexican menus seeing our consumption grow even more rapidly at around 35%. With global production only growing annually at around 3%, the supply gap will be wide at times.

Commodities

With all oil initially traded in Chicago, the cost has been affected by the weaker exchange rates, and both rapeseed and sunflower prices have jumped dramatically following the Brexit vote.

Brazil, the world's biggest exporter of coffee, orange juice and sugar, has been hit by unsettled weather, which has affected the production of all three commodities.

UK inflation

The Consumer Prices Index rose by 0.6% in the year to August 2016, the same rate seen in July, and a higher rate of increase than was seen throughout 2015 and the first half of 2016. Rising food prices were cited by the Office for National Statistics as one of the factors contributing to the increase.

The more detailed RPI inflation measure shows that the cost of eating out has continued to increase above the rate of inflation as factors such as higher wage costs continue to affect operators:

Hotel, restaurant and pub meals: +2.2%

Business, industry and workplace meals: +1.6%

Takeaway meals: +2%

Lynx Purchasing

Lynx Purchasing works with more than 2,200 customers in the hospitality and catering sector, on a no-membership and no-contract basis that offers like-for-like products at lower prices and, very often, better quality than operators could obtain by negotiating alone.

As purchasing professionals, Lynx works with leading suppliers in the hospitality and catering industry. These include wholesalers, specialist fresh food suppliers, catering equipment providers, utilities, and specialist service providers such as telecoms and waste management.

To download the Lynx Purchasing GP Calculator App, search for GP Calculator in the iTunes store or on GooglePlay.

www.lynxpurchasing.co.uk

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