Pelican Procurement Market Report Q2 2022

Market Report Quarter 2 2022

Included in this report: • Inflation pressures • Energy market • Key commodity updates • What’s in season

Market Report | Quarter 2 2022

Welcome to the Market Report

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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.

Graham Coles Procurement Director at Avendra Group Europe We’re here to help you. hello@pelicanprocurement.co.uk

Market Conditions Ukraine Conflict The ongoing conflict in Ukraine has had a direct impact throughout the supply chain from the farming and harvesting of products to then shipping them around Europe. Most notably affected are some of the core building blocks of the food chain: wheat, corn and oil. Ukraine and Russia are Europe’s largest producer and exporters of wheat and corn, 67% of the wheat supplied to the EU comes from these regions and together they account for 80% of the global supply of sunflower oil.

Sourcing alternative producers has been difficult; there is supply available but alternative suppliers come with their own risks, most notably price and reliability. The shortages experienced with these products is leading the market to try and source alternative products. The downside of this is that the prices of the alternatives now also increase rapidly, and we are in the position where sunflower oil increased by 60% in the month of March alone but the demand for vegetable oil of any type has meant that prices for rapeseed and soyabean oil have risen by 71% and 42% respectively.

There is a lot of uncertainty around how long the conflict will

continue for, how disruptive it will be for new harvest seasons and what kind of condition will Ukraine be in once this has ended. It’s expected that farmers in the country will be able to plant some crops but with most of the farming happening in the east of the country and this area being under threat it’s thought that the total yield vs a normal year for crops such as wheat and corn could be reduced by as much as 69%. With no end in sight, it’s likely the conflict will continue to impact the regions exporting ability.

Inflation

Since the end of 2021 we’ve seen inflation continue to increase steadily from 4.2% in October to now hitting 7% in March, its highest level since March 1992.

This is largely a result of the Ukraine conflict but also the high costs of energy and issues still surrounding the global supply chain. The UK government introduced a temporary cut to Fuel Duty, but we are seeing

average prices across the UK reaching all-time highs of 168p per litre for petrol and 180p for diesel. It’s not just fuel that has seen major price increases. Across the food chain we’ve seen significant increases in meat, fish, dairy, fruit and vegetables, bakery and the majority of other food categories.

The increase to prices has negatively impacted the level of consumer confidence (lowest since July 2008 mid recession) in the UK and this has led to a reduction in the amount of money being spent per person with reports suggesting the levels of borrowing will also increase this year directly impacting the ability of people to save or spend on luxury items.

As we come out the other side of the Covid pandemic, the government has also returned the rate of VAT for hospitality and tourism firms back to 20%, pushing costs in those industries back up at a time when they will need more help to get back to a pre-pandemic level. With the cost of living reportedly set to increase further, as well as continued rises in fuel bills, the remainder of the year will be tough if consumer confidence and levels of spending are dropping. There are real fears that the reduced levels of

Market Report | Quarter 2 2022

spending we have seen since January will continue for some time yet.

Labour There is still a reported shortfall of 400,000 workers in the UK workforce compared to pre pandemic and Brexit, numbers within hospitality, travel and farming all being the most negatively affected industries.

This has been attributed to more early retirement and long-term sick leave post pandemic.

Much of the hotel sector is struggling to fully occupy rooms due to staff shortages in housekeeping, farms are unable to get a full yield from their harvest because of a lack of manual labour, and airports have had to cancel flights because of a lack of staff and crew.

Energy As anticipated, the Energy Price Cap was raised at the start of April, an increase of 54% following the higher costs our energy providers are facing for Natural Gas. This caused a +200%

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increase in the price to suppliers.

We've seen the effects the increases to wholesale gas prices have had with a total of 30 energy companies failing since the start of 2021.

It’s expected that more than 5 million households now spend 10% or more of their monthly salary on energy bills and fears are that this number could jump to 1 in 4 households if the cap is raised again in October. The government has stepped in to try and assist in the face of these price hikes; setting up a scheme that allows households to claim up to £350 back. It’s worth noting that these price increases apply to both Natural Gas and Electricity.

Shipping The start of 2022 had seen the first decreases to shipping costs since the backlog began in October 2020. Shipping containers coming in from China, Brazil and Thailand were all down on the previous quarter by 9%, 13% and 5% respectively and there was some expectation that this trend could continue as ports

were able to free up containers that had been held for months and begin to clear the congestion.

Unfortunately, China has gone into another major lockdown since the start of the year.

Chinese ports have had strict restrictions on the amount of people that are able to work and the hours that they are able to do and as such the delays have begun again. In real terms this is reflected in the amount of time it takes for goods to travel from places like China to the US in comparison to how long it would take pre-pandemic. In 2019 it could be up to 45 days for a product to make it from the factory in China to the main ports in Europe, that journey is now taking up to 118 days for the same process to be followed.

With more than 200 ships still waiting to dock at the Shanghai port, an increase of 35% on the queues seen last year the early indicators are that this latest shut down is going to cause ripple effect issues for the whole of 2022.

Market Report | Quarter 2 2022

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Key commodity tracking Food & Beverage

Q-o-Q Change

Y-o-Y Change

Chicken

+9.2%

+35.4%

Beef

+6.6%

+7.5%

Lamb

-1.0%

-12.4%

Pork

+12.6%

+10.7%

Cod

+2.8%

+53.0%

Haddock

+83.3%

+25.7%

Salmon

+20.1%

+42.9%

Tuna

+1.9%

-10.3%

Milk

-24.5%

+60.9%

Butter

+21.3%

+72.7%

Cheddar Mild

+34.1%

+66.2%

Cheddar

+32.3%

+57.8%

Eggs

+ 31.5%

+37.3%

Potato

- 12.5%

-35.2%

Tomato

+20.0%

+20.0%

Sugar

+13.1%

+24.0%

Coffee Arabica

-2.1%

+77.9%

Coffee Robusta

+0.9%

+59.5%

Sunflower Oil

+54.5%

+34.8%

Rapeseed Oil

+33.8%

+71.7%

+20.6%

+60.0%

Cardboard

+7.7%

+25.9%

Aluminium

+28.7%

+116.4%

PET – Plastic

+2.1%

+35.8%

LDPE – Plastic

+7.9%

+13.8%

HDPE – Plastic

+9.0%

+16.8%

PLA – Plastic

-17.5%

-35.0%

Polystyrene

+6.3%

+28.3%

Electricity

-6.8%

+190.1%

+11.8%

+353.4%

Shipping; China – UK

-8.9%

+47.4%

Shipping; Brazil – UK

-13.0%

+77.9%

Shipping; US – UK

-5.3%

+75.9%

Shipping; Vietnam – UK

-8.3%

+84.5%

Non-Food Paper

Gas

Source: Mintec Analytics

Market Report | Quarter 2 2022

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Key commodity updates Almost all commodities have been affected by the shortage crisis of the “Three F’s”: Fuel, Fertiliser and Feed. The natural gas shortage was initially caused by an increase in demand after the pandemic slow down and then exacerbated by the sanctions placed on Russia, which has meant that fuel is in high demand and short supply. A weekly increase of +80% during February meant that for Q2 natural gas is up by +12% against Q1 and +353% on this time last year.

These shortages have had a knock-on effect to the quantity of available fertiliser.

Natural Gas is a key ingredient in the creation of nitrogenbased fertilisers and the shortages have meant that prices of fertiliser have gone up by +30% in the last quarter.

Farmers across the country have had to take the decision to reduce the amount of planting as well as buying less fertiliser to ensure they still make a profit from this year’s crop. As a result, yields across most of the UK crops are predicted to be lower than usual for the year.

Additionally, the shortages of crops such as wheat and corn are having a direct impact on the amount of animal feed available. Russia and Ukraine account for more than two thirds of Europe’s wheat and this is a main constituent of animal feed. Farmers are having to find solutions and without many alternative feed options, farmers are cutting down the number of animals they are keeping on the farms.

Again, this is expected to impact yields and this is affecting current prices.

Meat

Avian flu has been extensive across 33 European countries in the first part of this year.

The situation in France has been considered the worst ever outbreak. More than 15 million birds have been culled in Europe alone and these factors have played a huge part in driving the cost of Chicken up to its highest ever levels. After a slight price plateau in December and January we are now seeing Chicken carcasses being traded at their highest ever price (£2.37/kg) an increase of +35% on last year’s Q2 price which had been the highest ever price up to that point too.

The Avian Flu has also kept UK birds inside since November and this has meant that all Eggs have had to be sold as Barn eggs. Processors had to alter their packaging to reflect this change. The mandatory housing order for the chickens will come to an end on May 2nd.

Beef has been struggling for some time now with prices on the rise since the start of the year. With the slaughter and processing figures so far being reported at 7% lower than last year, signs are that this is not going to change soon.

Demand remains high but a combination of increased farming costs and difficulty in processing the animals due to factory and abattoir

restrictions has left the market with a shortfall.

Pork within the UK is a highly volatile market. Following the processing issues last year that initially led to farm culls, prices were at their highest levels in the summer of last year before ending 2021 in a better position. This pattern looks to be repeating itself this year with prices beginning to sharply increase during this quarter. This time the prices are being attributed to the increased input costs that we have already described; feed and fuel are the biggest factors here; farmers have had to reduce the amount of pigs they are keeping (-3.6% sows vs last year) due to the cost to feed them and then transport them to markets or slaughterhouses, all of which is impacting the profit margins that farmers are able to make.

Lamb prices have been decreasing. This decrease has been supported by good volumes and availability of both UK and New Zealand lamb. However, prices are starting to rise again.

Fish

Cod and Haddock prices are highly volatile and dependent on several factors. Russia is responsible for 40% of the global whitefish production as well as being the largest exporter of Cod into the EU and the UK. The reliance on

Market Report | Quarter 2 2022

Russian fish has meant prices are highly unpredictable. The UK put an import tariff on fish that comes from Russia and so we look to alternatives such as Norway, Iceland and Chile. This will likely have an impact on the availability and pricing.

Salmon has been affected by the conflict in a similar way with uncertainty and demand both high in the current market. Currently at its highest price in three years, both frozen and fresh varieties of Salmon are suffering from low catch volumes across all markets so far this year and this has meant that prices around +60% higher than they were this time last year and it’s predicted that this will continue throughout 2022.

Tuna has seen a rapid decrease in price over the winter months, but this has steadily been increasing once again and is now at a price comparable to September last year. This is largely attributed to the rising costs of obtaining the fish but also the prices for Aluminium have increased since the conflict began, with Russia being the second largest exporter of raw aluminium. The sanctions and increased costs are starting to filter through to the customer.

Dairy Milk production is predicted to be down again this year after a 2% reduction in the amount of milk produced on the previous year. This has been attributed to the smaller herd sizes but most notably the feed and fuel issues. With cattle feed increasing, these costs must either be mitigated by the farmer or passed on to the consumer. Initially it appears as if farmers are reducing herd sizes and processes to try and keep

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costs down, leading to a possible 5% reduction in the amount of milk produced this year. It’s thought that the price of milk will have to increase even further than the levels we’ve seen vs April last year and this is due to these higher input costs and lower yields.

Butter has suffered so far this year with a quarterly increase of +22% and a yearly increase of +73%. The Easter break had the usual effect of stemming some of this demand, but it’s expected that the price rise will continue after the holidays.

Fruit & Vegetables

We reported previously on the driver strike in Spain due to the costs of fuel. These strikes affected the transportation of key exports such as Peppers, Tomatoes and Citrus fruits.

The strikes ended at the start of April but the effects on the market were plain to see with Peppers increasing by +61% during the month of March and a +47% increase on Tomatoes for the same period.

It is expected that supply of these items and many more will return to normal levels and, with good strong availability in the market, prices are expected to plateau albeit higher than they originally were at the start of the year, but this is mostly attributed to the fertilizer and fuel costs.

Edible Oils

Vegetable oil has featured heavily in the news recently. As previously mentioned, Russia and Ukraine are responsible for 80% of the global supply of Sunflower Oil and without the ability to process or ship the seeds out of the country the supply of the oil has dropped dramatically meaning its unable to fulfil the demand.

Supermarkets have put a limit on the amount of vegetable oil one person can buy at a time, reminding us of the shortages during the height of Covid-19.

There is some hope that Ukraine will be able to ship part of this year’s crop out of the country using trains to neighbouring countries who have begun the crushing process, but this has left the market with uncertainty of the quality or quantity of the crop that is being turned into oil.

Rapeseed Oil is a close comparable crop to Vegetable Oil, with stock coming from the UK, Germany and Canada.

The market immediately sought out huge quantities of Rapeseed Oil in the early part of the conflict and this move pushed the price up to record highs. All edible oils experienced an increase in price due to the shortage of sunflower oil. It’s expected that these prices will begin to plateau as the market continues to react to the situation in Ukraine and the news that some of the harvest is being exported, but it is one

Market Report | Quarter 2 2022

of the products more heavily affected by the conflict.

Dry Stores Rice and Pasta have seen reasonable increases of around +4% over the past quarter.

Flour increases are more substantial. Due to the issues with Wheat grains and the availability, the prices for flour have soared, increasing +21% against last quarter and +17% yearly. The global trends of fuel and fertilizer are compounding the issues surrounding this crop and it’s expected that the lower yields and higher costs of production are likely to last throughout the year. This has the knockon effect of making bread and most dough-based products that bit more expensive. Staple foods such as bread are going to see price increases through 2022 because of these difficulties in obtaining large amounts of wheat.

Sugar has seen an increase of +13% in the quarter. The fuel shortages are having an unexpected effect on the pricing of Sugar whereby the main producer and exporter of sugar is Brazil and they have been devoting most of their cane sugar towards Ethanol production. Ethanol is one of the main ingredients in motor fuel and so Brazil made the decision to make this their top priority considering the issues around fuel. This has meant that supply of sugar from this region has dropped, and the market has reacted accordingly with quarterly

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price increases of +13% and a yearly increase by comparison of +24%.

It’s expected that with the start of the new harvest season in April the focus will switch back to a more balanced production cycle and the production of sugar should return to a level that is more acceptable thus bringing the prices down to a more acceptable level.

Coffee has had a good quarter with stable pricing in comparison to other commodities. Robusta has increased on last quarter by less than +1% and Arabica beans have decreased against last quarter by -2%. It’s expected that these trends will last, and this is being attributed to the large quantities of stock that are currently available.

Brazil and Honduras are able to cover for the drop in production that Columbia has seen and despite some adverse weather conditions it’s predicted that the total amount of coffee produced this year will exceed demand, thus keeping prices at a stable level. The general pricing has risen hence the large increases against last year’s prices, this is largely due to the increased costs for fertiliser and fuel for growing and harvesting but for now the pricing is being controlled by the market. It’s predicted that the demand for retail coffee will begin to tail off as we go through 2022 due to higher living costs and increased inflation, if this is the case then we should see further decreases in pricing as supply outstrips demand.

Packaging

A new Plastics Packaging Tax has been introduced from April 1st which aims to reduce the amount of new plastic packaging that companies use and import in the UK. It aims to encourage recycling and reusing.

The new legislation outlines that all plastic packaging should contain a minimum of 30% recycled content. If this new mandatory amount is not met, then the new tax must be charged at £200 per tonne.

This new policy applies to anyone who uses more than 10 tonnes of plastics packaging a year whether that be manufacturers, processors, or retailers and so it’s important to understand what your requirements and uses are and that you have followed all the correct procedures to ensure that you are not caught out by the new policies.

Market Report | Quarter 2 2022

In the Press

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Market Report | Quarter 2 2022

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In Season

o

Clams & mussels, trout & turbot (farmed), salmon, lamb,

o

Asparagus, lettuce, carrots, peppers, new potatoes radishes, rhubarb, mushrooms, spring onions

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