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January 2012: Cost of Staple Foods Rises by 2% in 2011

Wholesale prices have increased on average by just above 2% over the past year for items commonly classified as fundamental ‘staple’ foods within the UK, according to a recent study conducted by Purchasing Price Index. 

These findings were based upon a comprehensive sample incorporating wholesale price data for 3,160 items from across 12 core product groups within PPI’s Catering Price Index. These included bread, flour, potatoes, rice, milk, butter, cheese, eggs, fresh vegetables, fresh fruit, sugar, and meat and fish.

As can be seen below in Fig 1, the average price trajectory is that of a gradual, though fluctuating, increase up until October 2011, with prices subsequently falling back within most item groups for two consecutive months following this peak.

The overall annual increase has, however, been partially offset by significant price decreases specific to bread and potatoes, where prices have fallen by an average of 9.96% and 7.7% respectively since December 2010. Neil Cameron, agribusiness consultant at Bidwells, has attributed the significant fall seen in potato prices to increased production within the UK, adding “we are seeing in the market some newer varieties with significantly higher yields in both the processing and ware sectors”.

Figs 2-3 represent the price trajectories for these items, which, in keeping with the overall trend, also include a further reduction for two consecutive months following October 2011.

Prices have risen considerably within some other item groups, however, with average annual price increases across butter and sugar items registering at 15.68% and 15.71% respectively, as outlined below in Figs 4-5. The rise in butter prices has been blamed upon the increase in dairy producers opting to use more milk to produce cheese, as identified by Patty Clayton, analyst at DairyCo, who added that the UK had “not been making a lot of butter, so supplies are quite tight”. However, it should be noted that butter prices fell within the previous month, a trend expected to continue due to a surplus of milk for butter production in top exporting countries such as New Zealand.

As can be seen in Figs 6-11, the price trajectory within the majority of the remaining item groups showed a trend over the past year that correlated strongly with the overall result, with average price increases varying between 0.47% and 6.26% over the course of the past year. Furthermore, the average prices within all of these item groups all incurred a similar steady fall observed across two consecutive months since October 2011.

The most anomalous results occurred within the remaining 2 items groups, fresh fruit and eggs. As can be seen in Figs 12-13 below, the average prices have also risen since December 2010 within these item groups, though the trajectory during the intervening months has been much more volatile, particularly during the earlier part of the year. Additionally, prices have continued to rise for these items over the past few months, in contrast to the prevailing trend observed elsewhere.

By Joe Bruce

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December 2011: Rising Alcohol Prices Dampen Seasonal Cheer

The wholesale price of alcoholic beverages has increased over the past year according to the latest data from PPI's Catering Price Index.

Despite receding slightly from a higher peak observed during the summer, prices across the range of alcoholic drinks have increased by more than 5% on average over the course of 2011, and look set to rise further in the run-up to Christmas, with an increase of 0.31% observed over the past month.

These figures are based upon a recent study of price data taken from across a comprehensive range of 283 alcoholic beverage items (excluding wines). The trend observed within the past year is outlined in the graph below (Fig 1).

The rising prices appear to reflect, at least partially, a ‘filtering through’ of the increase in duty across all alcoholic beverages introduced in March 2011, alongside, to a lesser extent, the additional duty increase on ‘high-strength’ beers implemented in October 2011.

However, the upward trend also appears to be driven by changes specific to beers, ales and lagers, where the price of many raw ingredients has increased markedly. The price of malting barley in particular has risen by 136% over the past two years, a trend recently exacerbated by relatively poor harvests within the UK and in major exporting countries such as Denmark. However, a spokesperson for the British Beer & Pub Association has stated that fluctuations in raw material prices, which account for ‘between 3% and 10% of the price of beer’, were ‘significant, but not when compared with other costs like tax’.

Nevertheless, retail consumers have been largely shielded from these changes; with most tax increases absorbed by the retailers themselves rather than fully passed on to customers. However, this practice may also be affected by a forthcoming ban on the sale of alcohol below cost price across England and Wales, which will come into effect in April 2012.

Meanwhile, the Office of National Statistics has also described the cost of alcoholic beverages as the ‘largest upward effect’ upon the annual rate of inflation, with a modest increase of 0.04% observed over the past year according to the latest Consumer Prices Index figures.

By Joe Bruce

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December 2011: Are School Meals Becoming A Raw Deal?

Concerns have recently been mounting that the standard of school meals in England may be suffering due to the proliferation of ‘academy’ schools.

The semi-independent schools, which now account for more than a third of state secondary schools following their introduction in 2000, are responsible for many aspects of their own governance which would otherwise be managed by local authorities, often including managing their own catering arrangements.

Without the beneficial economies of scale of centralised purchasing through their respective local authority, it is feared that these schools will either face a diminishing return in terms of the quality of the school meals they offer, or be forced to invest a greater proportion of their overall budgets, many of which are already under strain in the current financial climate, in order to maintain standards.

Compounding these concerns is the fact that stringent legal guidelines for nutritional standards, which were introduced following a 2005 campaign for better quality school dinners by celebrity chef Jamie Oliver, are not mandatory at academy schools. This has prompted accusations by the chef that standards are being ‘eroded’ by the current government, at a time when nearly a third of secondary school students are opting for school meals.

Mr Oliver argued that ‘it's very simple, the private companies come in incentivised by profit’, leading inevitably to a fall in quality ‘if the standards aren’t there’, adding that ‘headteachers are expected to do more than ever, now they have to be entrepreneurial caterers as well’.

Echoing these views, Linda Mitchell from the LACA (Local Authority Caterers Association) said its members had ‘been approached by academies to relax the rules’ and re-introduce more unhealthy items with higher profit margins, adding that ‘it is the return of the sausage roll to schools’.

However, many educational contract caterers have responded to the comments, amongst them Sodexo's Jane Bristow, who said ‘it's an easy statement to make that without legislation everything will go backwards, but I haven't seen any evidence of that’, whilst David Weller of Alliance in Partnership also argued that ‘it is wrong to pigeonhole us as profit-driven organisations that would risk the health of pupils to make more money’.

By Joe Bruce

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November 2011: Food Inflation Drops Sharply Despite Continuing Rise in Confectionery Prices

UK food inflation fell by 0.9% between September and October, according to the latest Consumer Prices Index figures, representing the largest drop between these months since 1996.

The rate of annual inflation for food & non-alcoholic beverages has also slowed to its lowest level since April at 5%, fuelling widespread expectation that the cost of food has finally reached a ‘tipping point’ and will continue to fall, with commentators such as Ernst & Young’s Andrew Goodwin surmising that these latest figures ‘should mark the beginning of a relatively rapid descent’.

The much anticipated reversal comes as a result of monthly decreases witnessed across most product categories. Fruit and vegetables in particular made a considerable impact, with monthly percentage changes registering at -1.6% and –2.4% respectively.

However, the effects of these sizeable decreases were partially offset by ongoing price rises specific to confectionery and fish items, where monthly inflation registered at 0.4% and 1.3% respectively.

The prevailing trends across these disparate product groups also appear to be mirrored across wholesale prices, where, according to data from PPI’s Catering Price Index (not to be confused with the above), the steady continuous rise in confectionery prices observed throughout the past year shows no sign of abating, increasing by a further 0.63% in the past month. This trend is outlined in the table below (Fig.1), which represents the overall price trajectory over the past year across a comprehensive sample of 1850 confectionery items.

This upward trend was observed despite prices for some raw ingredients such as cocoa and cane sugar hitting record lows, prompting Louise Lucas of the Financial Times to surmise that ‘as an affordable treat, largely bought on impulse…sweets are just less price-sensitive than other foodstuffs’.

Alongside this, wholesale price rises for fish & seafood items also appeared to be intensifying in recent months, as outlined in the table below (Fig.2), which shows the overall price trend across a sample of 340 items.

Nevertheless, according to the Office for National Statistics, food inflation actually represented ‘the largest downward pressure’ on the overall rate of annual inflation in October 2011, which has also fallen back slightly to 5% after peaking at a record high of 5.2% in September, though still remains the second highest within the EU.

By Joe Bruce

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November 2011: Coffee Prices Reach Boiling Point in 2011

The wholesale price of coffee and drinking chocolate has increased markedly throughout 2011, according to data from PPI's Catering Price Index.

A steady overall price increase of nearly 7% has been observed within this grouping over the past year. This has emerged despite price fluctuations occurring towards the beginning of the year.

These substantial increases appear to reflect continual rises in the base price for raw Coffee and Cocoa beans observed throughout 2011.

The price trajectory indicated by these latest figures, which are based upon a sample of 135 prices across a comprehensive range of coffee and drinking chocolate items between October 2010 and October 2011, is outlined in the table below (Fig.1), alongside the respective price trends for coffee and drinking chocolate items individually (Figs 2-3).

Two items that appear to have had a particular impact in driving this overall increase are cappuccino singles and hot chocolate singles, both of which have incurred substantial price increases, with prices for the former rising over 50% from those of October 2010. The price trajectories of these items are outlined in the tables below (Figs 4-5).

Though the overall figures appear to suggest that this trend may persist throughout the remainder of the year, some commentators, including soft commodities analyst Judith Ganes Chase, have speculated that the market for coffee is in fact "vulnerable to collapse". As well as citing weakening demand from within many struggling economies, the analyst suggested that despite the fact that Brazil, which alone produces almost a third of the world’s coffee, "does not have an exceptional crop, global supplies will more than likely be plentiful" in the near future, primarily due to improved production in Colombia and Indonesia. Resultantly, the coffee market "could be facing a massive oversupply".

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October 2011: Christmas Food Prices Freeze as Festive Season Approaches

The wholesale cost of Christmas food looks set to remain largely unchanged from that of the previous year, according to a recent Purchasing Price Index study of price trends across a wide range of traditional festive food items.

The study was based on price data from across a comprehensive range of seasonal staples including whole turkeys, Yorkshire pudding, pigs in blankets, mince pies, and, of course, Christmas pudding, whilst also accounting for more marginal festive foods including nut roast and pheasant.

An overall decrease of 0.4% was observed across the 233 prices sampled in the period between December 2010 and September 2011, which appears to bode well for the fast-approaching festive season.

The apparent stabilisation has emerged despite sharp price increases for meat items including gammon and whole turkeys, with prices for the latter increasing by 32.36%.

This unprecedented rise has been attributed largely to feed costs, which are estimated to have risen by as much as 25% during 2011, according to a recent survey by the National Farmers Union, prompting NFU poultry advisor Chris Dickenson to state that ‘last year, higher feed costs were in the pipeline but this year they are a reality’.

However, these rises were counterbalanced by some significant decreases, in particular for traditional vegetables such as peas, parsnips and Brussels sprouts.

The collective price trajectory since December 2010 across the festive food items sampled is outlined in the table below (Fig.1), followed by a breakdown of the price trajectories specific to some of the aforementioned items (Fig.2).

Nevertheless, the apparent overall stabilisation in prices will likely be cold comfort for hard-pressed businesses within the hospitality sector in particular as they prepare for the festive season, with many profit margins already squeezed by challenging trading conditions and soaring gas and electricity overheads, with average bills rising by 7.5% and 13.0% respectively in the past year according to September’s Consumer Prices Index inflation figures.

By Joe Bruce

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September 2011: UK Food Inflation Begins to Ease

Inflation on food and non-alcoholic beverages appears to be steadying within the UK, increasing by only 0.4% between June and August, according to the latest Consumer Prices Index figures. This is much in contrast to the rise of 1.1% between the same months last year, prompting speculation that the mounting cost of food may finally be starting to ease.

The development follows in the wake of a sustained period of record food inflation, peaking as recently as June 2011 when annual inflation rose to 8.9% for food and non-alcoholic beverages, representing the highest rate since 2008. This figure now stands at 6.2% for August 2011.

These latest figures can be attributed largely to price stabilisation across a wide range of product groups over the previous few months, most notably fruit & vegetables and meat & fish, although this has been partially offset by continued increases specific to sugar & confectionery, which rose by a further 0.9% in the past month.

The director general of the British Retail Consortium, Stephen Robertson, has attributed the comparatively modest price increases seen in recent months to ‘good harvests of fresh fruit and vegetables…boosting supplies and cheaper animal feed easing the pressure on meat prices’.

The apparent stabilisation has also been exacerbated by a reversal of recent increases specific to bread & cereals, where prices had remained volatile as recently as July, when a monthly increase of 1.5% was observed. In August, however, this has fallen back by 1.2%, despite increased demand for these same commodities from non-food industries, most notably through the production of controversial ‘biofuels’.

Clive Black, a research analyst at Shore Capital, has outlined a broader sense that ‘the peak may have passed’, adding that ‘while we expect food inflation to persist for some time to come, there are one or two signs that lead us to expect the upward pressure to ease’, citing factors including ‘encouraging’ summer harvests and the recent lifting of a year-long Russian ban on grain exports in July, the effects of which now appear to be filtering through to both wholesale and retail food prices.

Meanwhile, the overall level of annual inflation remains resiliently high at 4.5%, driven primarily by transport, clothing and utility costs, and is forecast by City economists to continue rising throughout the remainder of 2011.

By Joe Bruce

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July 2011: Sodexo Becomes First Major Catering Contractor to Offer RSPCA Freedom Food Products

Sodexo, one of the UK’s leading foodservice providers, has announced plans to introduce products originating from farms approved by RSPCA’s ‘Freedom Food’ scheme across more than 1,000 of its sites.

The move will enable its clients to offer their customers the option of eggs, chicken, pork and salmon products sourced from farms with higher minimum animal welfare standards.

Michelle Hanson, Sodexo’s commercial director, said ‘farm animal welfare is very important to us…and we are proud to have added products from Freedom Food approved farms to our procurement portfolio’.

Founded in 1994, Freedom Foods is the only farm assurance scheme in the UK to focus exclusively on improving the welfare of farm animals reared for food. Under the scheme, accredited farms must abide by stringent measures to meet the physical and psychological needs of farm animals, including providing enough space to move around in, a stimulating environment and a nourishing diet, overseen by annual inspections.

Leigh Grant, chief executive of Freedom Food (pictured left), has said the organisation is ‘delighted’ at the move ‘which means more people will have a greater choice of higher welfare food and more animals will be reared to the RSPCA's higher welfare standards’, whilst asserting that ‘Freedom Food isn’t a marketing ploy – we are looking to make a marked improvement’.

Whilst Sodexo is the first major catering contractor to join the scheme, the move appears to reflect an emerging trend in the foodservice industry towards ethical sourcing, with numerous smaller catering contractors, including Midlands-based AQCMS, already signed up to the Freedom Food scheme. Also, many amongst the UK’s major contract caterers currently offer products approved by other ethical accreditation schemes including FairTrade and Red Tractor.

Nevertheless, the move has been seen as overdue in some quarters. David Burrows of Foodservice Footprint argued that ‘for too long foodservice companies, especially those that are not consumer-facing, have been able to hide behind their clients – a ploy that has arguably left them lagging behind the grocery sector in the ethical stakes’, adding that the plans are symptomatic of ‘mounting pressure on companies…to have answers to the inevitable questions about their supply source’.

By Joe Bruce

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July 2011: Purchasing Price Index (PPI) Predicts Ice Cream Prices Will Continue to Increase

PPI’s Catering Price Index has predicted that prices will continue to rise within the ice cream industry, with prices 6.45% higher in July 2011 than a year ago.

This analysis is based on 172 items which are common to all of the monthly indices since July 2010 within the Desserts/Ice Cream product group.

Figure 1 shows that up until January 2011 the prices were decreasing, as they were 17.01% below the July 2010 prices.

However, since January prices have increased, partly due to the increase of 2.5% on VAT effective as of 1st January 2011 to 20%. Between March 2011 and April 2011 a significant increase of 15.93% can be seen.

Looking at information from the ice cream industry, who are lobbying the chancellor to see if there can be a reduction in the VAT charged on ice cream as they are being hit hard with increased overheads including the increase in the costs of ingredients, fuel and VAT increases, these factors are contributing to business closures. 

The Ice Cream Alliance have approached Chancellor George Osbourne and the Treasury Department to consider changing the classification of ice cream from a luxury item to a food category where it will have a 0% VAT classification in contrast to the current 20%.

‘Zelica Carr, chief executive officer for The Ice Cream Alliance, said: "The ice cream industry plays a major part in the economy of the UK with sales of around £1.3 billion a year but many businesses are fearing for the future after being hit by a succession of swingeing prices increases.

"I have written to Mr Osborne asking him to reconsider the classification of ice cream as a luxury product and reclassify it as a food and reduce the VAT levied on it to zero.

"Ice cream plays an important, if often under-appreciated, role in British life. It provides an affordable feel good factor which in today's economic climate is sadly lacking for many families."

In her letter, Mrs Carr said a reduction in VAT on ice cream would "be welcomed by a struggling ice cream industry and would have a significant and positive impact upon the spirit and morale of the nation".

The ice cream industry has seen massive prices increases - sugar has risen from £460 a ton in January to £800, with fears it could rise to £1,400 in June. Skimmed milk powder has increased from £1,800 a ton in January to £2,900, while cocoa powder has virtually trebled from £1,250 a ton to £3,600.

Mrs Carr said: "Unfortunately, faced with such substantial increases many ice cream manufacturers and sellers will have to pass at least part of the increase on to customers but this rise could be cancelled out if VAT on ice cream was reduced."’ Daily Record, 12th April 2011

As these are trying times, one wholesaler who is trying to help the retailers is Palmer and Harvey, who have developed a new scheme called “We’ve got it licked”.  This is aimed at helping independent retailers within its network to maximise their ice cream sales by providing information on where to sell ice cream, which ice creams to stock and how to advertise them.

Richard Hayhoe, Marketing Director of Palmer and Harvey said “The ice cream market is in growth - value sales have increased by 2.3 per cent year-on-year, with sales of £108 million in the hand-held impulse category in 2010 alone.”
“Our ice cream information pack for our independent retailers will help them maximise their sales.”  Retail Gazette, 12th April 2011

Recent hot weather will have further increased the demand for the chilled treats, but with family budgets so squeezed at present the ICA, retailers and consumers will hope that the government reassesses the ice creams tax classification.

PPI’s Catering Price Index has shown that since July 2010 the Ice Cream product group has seen prices fluctuate. Up until January 2011 they had fallen but since then prices have increased, due to a number of influences including the VAT increase, fuel and the cost of ingredients contributing towards these increases as July 2011 prices are currently 6.45% above those as of July 2010, as shown in figure 1.

By James Suther

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July 2011: Brakes to Charge Suppliers £1,500 Fee to Use Online System

Brakes Group, the UK’s largest distributor of fresh and frozen food, is demanding that its suppliers pay an additional £1,500 per year for use of its ‘isupply!’ online purchasing system from the end of July. Meanwhile, it has been reported that the system is also set to become the only means of contact with the company’s ordering teams, effectively forcing suppliers to pay for the service in order to continue working with Brakes. 

The Ashford-based foodservice giant, owned by US private equity firm Bain Capital, confirmed in a recent statement that all of their suppliers had ‘been requested to move on to the new system by July 31st’, which is marketed via their website as ‘an excellent new online tool for suppliers’, enabling them to ‘plan more effectively and be more responsive and efficient’. It added that suppliers are being ‘requested’ to pay an ‘annual licensing fee in order that they can share the benefits’, which are claimed to include ‘speeding up the order and invoicing process to improve supplier cash flow’ and ‘reducing… administration, meaning fewer man hours will be needed’.

The unprecedented move has been roundly condemned by many of Brakes’ suppliers. One supplier, who wished to remain anonymous, insisted that ‘if Brakes were a large UK retailer, this behaviour would breach the Groceries Supply Code of Practice (GSCOP) guidelines’.

One former Brakes’ employee, who also wished to remain anonymous, described the imposition of the fee as ‘daylight robbery’, adding that the company ‘imposed a similar system a couple of years ago, when they launched their online specification system 'Assure', where all suppliers must cough-up at least £1,000 per year, in order to supply goods through their technical portal. Now they are charging another £1,500 so that suppliers can process orders’.

The move also comes amidst recent concerns regarding Brakes’ IT services, which are outsourced to ATOS Origin, following a massive technical breakdown the company suffered in April this year, which severely impacted on customer deliveries.

Founded in 1958, the Brakes Group, otherwise known as Brake Bros Ltd or simply Brakes, originally began with brothers Frank, William and Peter Brake supplying poultry to local restaurants in Kent, though following a sustained period of growth since the early 1990’s, which included a series of acquisitions including M&J Seafood and fruit & vegetable suppliers Pauleys, is now the UK’s largest food distributor, boasting an 18% share of the market.

The group supplies restaurants, pubs, hospitals and schools across the country, and also enjoys a considerable presence in Ireland, Sweden and, in particular, France, where it acquired major buying group Carigel. However, the Brake family relinquished ownership of the business in 2002 when it was sold to US private equity firm Clayton, Dubliner & Rice, before being subsequently purchased for £1.4billion by current owners Bain Capital.

By Joe Bruce

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