Pelican Procurement Services Market Report Q4 2023

Market Report Quarter 4 2023

Included in this report:

 Cost of Living Update  Weather Conditions

 Key Commodity Updates

 What’s in Season

Market Report | Quarter 4 2023

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, provide recommendations on ways to mitigate price increases, and deliver insight into what produce is in season, guiding you to what’s best right now. We hope you find this report helpful.

Alex Gess Business Supply Chain Analyst Pelican Procurement We’re here to help you. hello@pelicanprocurement.co.uk

Market Conditions Cost of Living

The latest financial announcements present positive news as recent figures show a further drop in the inflation rate from 7.9% in July to 6.7% in August. As a result, the Bank of England has opted not to raise the interest rate above 5.25%.

This news is a welcomed development following a year of increases that saw inflation reach highs of 11.1%, drastically impacting food, fuel and personal finances.

The ongoing decline in inflation can be attributed mainly to decreasing prices in the hospitality sector, as the UK summer holiday season concluded, and hotel and airfares started to fall. This decline happened even as the cost of oil increased, leading to higher prices at the gas pump. While a lower inflation rate doesn't necessarily imply lower prices, it does signify that prices are rising at the slowest pace in a year, which directly and positively influences our food prices.

The elevated food inflation rate, which had been at 17.4%, posed challenges for consumers and food service providers. It's important to note that the current rate has fallen to 13.6% in August, primarily due to reductions in supermarket prices.

This development should be particularly beneficial to restaurants, which have recently grappled with the dilemma of either raising menu prices or absorbing these rising costs whilst trying to entice customers with competitive pricing.

The fuel and energy markets are experiencing some volatility as we approach the winter season.

Fortunately, there's some positive news as the energy price cap has been lowered again. In August, Ofgem announced a reduction for the October to December period, bringing the cap down from £2,074 to £1,923, resulting in a £151 saving for consumers.

This marks the second consecutive reduction this year and will directly impact household and business energy bills for the next three months. If the broader economy maintains its positive performance, we can anticipate further reductions in the New Year.

As mentioned, a recent concern has been the surge in fuel costs.

Both petrol and diesel prices have

surged in the past two months, primarily driven by policy decisions from OPEC to limit oil extraction and barrel sales aimed at bolstering the oil market.

These actions have led to a 2% increase in the costs of raw materials, subsequently affecting drivers and consumers.

Climate Change

The effects of climate change are increasingly apparent, with shifts in UK weather patterns and the occurrence of more extreme weather events globally. In a single calendar year, we have witnessed record-breaking instances of the wettest, hottest, and driest weather patterns ever recorded, both at home and abroad.

INFLATION

6.7% 13.6% GENERAL

FOOD

In March of this year, the UK experienced its wettest month on record, and the immediate repercussions were evident with the announcement of this year's potato crop yields. The prolonged wet planting and growing periods significantly affected the crop.

Market Report | Quarter 4 2023

Following this, we witnessed the hottest September on record, accompanied by the latest-ever recorded heatwave extending into October, ushering in a delightful start to autumn. To illustrate the stark contrasts in these extreme weather patterns, whilst the southern UK was in a heatwave, the Scotland region endured a month's worth of rain in just 36 hours.

It's not feasible to adjust planting and growing seasons to align with the evolving seasonal weather. As a result, agricultural cycles have been globally disrupted, with significant impacts observed in regions such as Egypt, India, and the Mediterranean, which we will delve into in this report.

In the past three months, the US has experienced tropical storms on its east and west coasts.

Hurricane Hilary marked the first tropical storm to land in California in 84 years. In Europe, widespread flooding occurred after Storm Daniel originated in the Mediterranean and extended across southern and eastern European regions. Meanwhile, Northern Africa, including Libya and Morocco, faced a series of devastating disasters, including earthquakes and additional flooding. These events have profoundly impacted local communities, disrupting businesses and food producers in the affected regions.

The impacts of extreme weather changes aren't limited to raw material-producing regions; they also affect manufacturing and service industries. This year, two major tourist destinations, Rhodes in Greece and Tenerife, UK favourites, were evacuated due to rampant wildfires. These islands heavily depend on

5.25%

I nt eres t Ra t e af t er Bo E

h eld du ring Sep t ember

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tourism, and with rising temperatures and an increasing frequency of wildfires, the future of these beloved destinations remains uncertain.

Prominent exporting nations in Asia, including China, India, and Indonesia, have grappled with severe heatwaves, untimely rainy seasons, and widespread flooding. These events have devastated crop production, hampered manufacturing processes, and disrupted conventional export channels.

The disruption to global trade and exports resulting from these climate-related challenges proved to be one of the more unpredictable impacts of climate change. A tangible example of this disruption unfolded in March when we encountered difficulties exporting Mediterranean-grown vegetables like cucumbers and peppers, leading to shortages and subsequent price hikes.

With a third El Niño event expected to occur before the year's end, there is little anticipation that the current weather trends and patterns will shift or reverse. The most recent El Niño event took place in 2016, a year that still holds the record as the hottest on record. With global temperatures surpassing those of 2016, we will likely continue to experience more extreme weather throughout the remainder of the year.

Global Conflicts

Since our last report, there appears to have been a global surge in violence, conflict, and destabilisation. The ongoing war in Ukraine is of particular concern from the UK's standpoint, which continues without any clear resolution in sight. The repercussions of this conflict on trade, freedom of movement and the resulting refugee crisis are well documented. The most significant development this year was the closure of the Black Sea Grain deal, which had substantial

implications for the grain and cooking oils markets. It appears that the markets have, to some extent, adapted to this significant change.

For a brief period, Europe was on the verge of potentially facing two concurrent destabilising conflicts, with Serbia showing intentions of encroaching on Kosovan territory. However, after extensive deliberation and some intervention from the US, it appears that Serbia has stepped back, and any future disagreements will hopefully be resolved through peaceful means.

More concerning are the recent developments in Israel and its neighbouring regions.

Fortunately, our exports from this area are limited, with Turkey being the primary exporter of manufactured and electrical goods and Egypt handling oil and sugar exports. It is anticipated that these export routes will remain free from significant disruptions.

The conflict, which has rapidly and violently escalated into a fullblown regional war, is reminiscent of previous instances where extensive negotiations followed a substantial loss of life and prolonged periods of conflict.

While the Middle East is primarily impacted, its consequences will reverberate far and wide. This will include the displacement of more people and, given its religious and historical dimensions, could cause further disruption and unrest. Protests and violence may erupt hundreds of miles from the conflict's epicentre, leading to localised disturbances, as evidenced in Egypt, Sweden, and the UK.

Market Report | Quarter 4 2023

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Key commodity tracking Food & Beverage

Q-o-Q Change

Y-o-Y Change

Chicken

-0.8%

+9.1%

Lamb

-14.9%

+5.2%

Cod

-6.7%

Beef

Pork

Haddock

-3.5% -1.1%

+10.6%

-21.4%

-75.4%

Salmon

+10.5%

Milk

+5.6%

Cheddar Mild

-6.7%

Tuna

Butter

Apples Eggs

Potato

Tomato Sugar

Coffee Arabica

Coffee Robusta Sunflower Oil

+9.8%

-15.2% +1.4%

-7.1%

-10.3%

-7.5%

-38.5%

-3.9% -5.6%

-28.3% -32.7% +3.3% -0.4%

-16.4%

+69.1%

+13.1%

+25.7%

-3.5%

-4.1%

+50.6% -3.6%

-25.1% -35.9%

-4.6%

-37.9%

Paper

-3.4%

-3.8%

Aluminium

-8.5%

Rapeseed Oil

Non-Food Cardboard

PET – Plastic

-3.4%

-1.7%

-22.8%

-0.1%

-30.8%

LDPE – Plastic

+2.62%

PLA – Plastic

-1.4%

HDPE – Plastic

+2.1%

Polystyrene

+10.5%

Gas

-19.4%

Electricity

Shipping; China – UK

-12.9% -8.7%

Shipping; Brazil – UK

-2.86%

Shipping; Vietnam – UK

-1.9%

Shipping; US – UK

Source: Mintec Analytics @09/10/23

-30.1%

-6.2%

-13.7% -18.3% -18.7% -18.7% -10.5% -52.6% -46.5% -84.1% -67.5% -28.4% -75.2%

Market Report | Quarter 4 2023

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Key commodity updates Meat The Beef market has faced persistent challenges in the midst of a cost-of-living crisis.

Many consumers are opting for a cheaper alternative, often moving to chicken, lamb or fish.

Despite these difficulties, we did witness some price improvements during the summer months. This was partly due to increased demand and the broader availability of more economical beef cuts, mainly burgers, which were popular during the summer BBQ season.

Consequently, beef prices experienced a temporary decline, currently at -3.5% compared to the previous quarter. However, it's important to note that this downward trend is expected to be short-lived. Prices are anticipated to rise again soon.

The expected price increase is evident in the animal processing industry, where beef production and slaughter rates have declined by 4% compared to last year. These rates are currently at their lowest point for 2023, primarily due to a decreased level of demand compared to 12 months ago. This decrease is also reflected in Europe, with UK beef exports reducing by 17% as the increased cost of living is felt internationally.

We have a positive update about the UK Pork market for the first time in a year. We've witnessed several weeks of price stability, bolstered by the highest slaughter and production figures recorded this year. Minimal weekly reductions of 0.3% and a monthly decrease of 0.6%

suggest that, while we won't see any dramatic shifts in pork prices, it's a sign that the consistent upward price trajectory may begin to slow.

Global demand stabilisation helps support the UK and European markets as alternative regions look to supply more product to a growing Asian market. Brazil has emerged as the fourthlargest pork exporter, surpassing last year's figures by 11%. Additionally, countries like Hong Kong and the Philippines are taking advantage of the elevated prices in Europe and are becoming suppliers to the Chinese market.

Throughout the summer, the Lamb market experienced sustained price decreases due to declining demand.

However, slaughter numbers remained elevated, with an impressive 11% increase from July to August. This surge in slaughter rates was primarily aimed at supporting the anticipated exports to the European market. In comparison to the same period last year, there was a notable growth of 4,500 tonnes in lamb exports.

This has resulted in a quarterly decrease of 14% in the cost of lamb. This decrease in lamb prices occurred even as input costs, such as fuel and fertiliser, experienced increases during the month of August.

-1.2%

Lamb vs. last month

The recent surge has influenced all three protein

+10%

Pork

vs. previous Year

markets we've discussed in the prices of three crucial inputs for animal farming: Feed, Fuel, and Fertiliser. We've previously addressed how these fundamental components are interconnected and how changes in one can affect the others. However, recent developments related to the Ukraine conflict, weather patterns in critical growing areas, and import disputes have amplified these challenges.

Cancelling the Black Sea Grain Agreement caused immediate disruptions in the market, raising concerns about the direct impact on feed availability. This, coupled with adverse weather conditions in key growing regions, resulted in a stop-and-start harvest period, ultimately leading to decreased yields year on year.

In the poultry market, there is some additional positive news as indications suggest that the HPAI (Avian Flu) virus, which has devastated poultry farms in Europe and various parts of the world, has nearly disappeared from commercial poultry farms. However, there are still reports of the virus found in wild flocks. While vigilant monitoring continues, and trials for a flock vaccine against the disease are ongoing, there is hope that the worst of the outbreak is behind us and the chicken market can recover.

Establishing a tariff-free poultry trade with Ukraine has greatly benefited both parties.

Chicken exports from Ukraine

Market Report | Quarter 4 2023

have increased 273% in the last year, which should help alleviate some of the increased demand. Additionally, there has been an uptick in trade with Brazil. This support from these expanded trade avenues has contributed to a monthly reduction of 1.6% in poultry prices.

Fortunately, the primary factor driving up the cost of eggs has largely subsided. The mandate to confine chickens to barns due to the HPAI virus has been reversed, allowing chickens to return outdoors and enabling flocks to regenerate and produce more eggs. As a result, we have observed continued decreases in egg prices, with a quarterly decline of 5% since the peak prices during the Easter period.

The recent negative development concerning eggs is related to the import of products following the completion of the Trans-Pacific deal. This agreement has created an avenue for battery cage hen eggs to enter UK supermarkets, raising concerns about the health and welfare of the chickens involved in this production process.

Fish The White fish markets have seen drastic volatility since the invasion of Ukraine. This is because a vast quantity of Cod, Haddock and Pollock all come from Russian waters.

Despite the recent sanctions, about 9% of fish consumed in the UK is of Russian origin.

Recent trends in white fish have been encouraging, with solid catch rates reported during the summer months, contributing to an ample supply. This has translated into a quarterly decrease of 18% in

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the price of Haddock and a yearly decrease of 15% in the price of Cod. Another favourable factor has been the significant reduction in the cost of fuel used by fishing boats over the past year. This has enabled more fishing fleets to complete their catches and provide the market with a robust supply.

Despite the subsequent increase in fuel costs, enough fish has been caught and processed to meet market demand.

The UK is in the top 10 countries in the world for imported Tuna. This popularity has been shown in the reported 100% increase in the sales of canned tuna over the last 5 years. Since most of the UK's tuna is imported, its pricing is influenced by shipping and fuel costs.

Following negotiations between fishermen and canners, we are witnessing further price reductions, building on the positive pricing trends since March of this year. In particular, prices of Skipjack Tuna sourced from Asian waters have consistently decreased monthly, with a reduction of 7%, resulting in costs over 10% lower than last year.

-15%

Cod

vs. previous Year

Sustainability is a crucial consideration in the fish market, and catch rates play a significant role in making responsible choices. This has led many in the industry to explore alternatives to the primary fish species commonly used in menus. For instance, a high-quality flatfish like Halibut can serve as a great substitute for Haddock. In dishes such as fish pies,

Pollock or Mackerel can be used to control costs without compromising on quality or flavour.

Dairy

While there have been consistent month-to-month reductions in Milk prices, there are now some modest increases, primarily driven by heightened demand when milk supplies are relatively low. The farmgate price of milk had steadily declined throughout the year, leading to reduced production. However, with the start of the school year in September, demand has risen again, resulting in a quarterly increase of 5%. This upward trend may slow down as production levels increase again.

Butter prices had remained relatively stable over the past three months, with a slight decrease in July, followed by an increase of 5.7% in the last month. Despite the recent fluctuations, butter prices are still 7.5% lower than the previous quarter. However, prices are expected to continue to rise as demand increases, which is linked to the trends in milk prices mentioned earlier.

Cheddar cheese prices have consistently decreased, with a 6% reduction over the last quarter alone. However, as we enter the final part of the year, it's anticipated that market demand will increase, and supermarkets will commence their seasonal purchasing.

Therefore, it's reasonable to

Market Report | Quarter 4 2023

expect some price increases in the upcoming months for Cheddar cheese.

Fruit & Vegetables The most significant concern in the fresh vegetable market has been the substantial price increases for UK Potatoes this season. Prices surged well over 80% throughout 2023, and the current value remains 69% higher than last year. However, with news of the recent harvest across the EU, we have observed a notable decrease of 27% in the previous month and a drop of 16% in the last quarter, which indicates a recent trend of price reduction.

UK potato prices reached their highest levels ever in 2023 due to a market shortage, which has only recently started to subside. Consequently, prices remain high, but all indicators suggest a downward trend.

Reports on the recent harvest reveal that it's only 1% higher than last year. Most of the issues are attributed to a season characterised by excessively wet planting conditions followed by drierthan-usual weather during the typical growing period, which impacted the overall crop yield.

The rest of the fresh produce market has experienced significant volatility, with some products becoming cheaper and others more expensive,

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primarily determined by the region of origin. Surprisingly, the shifts in fruit and vegetable prices are not mainly due to high fuel and transport costs but are greatly influenced by the weather changes discussed earlier. Wet planting seasons, dry growing periods, and a diminished labour force in the UK have all contributed to reduced product availability and rising prices.

In the UK, even typically reliable root vegetables have faced growth challenges this year due to cold weather, flooding, and a late heatwave a shared experience across the EU. Presently, Carrots, Onions, and Beetroots prices have increased by 3%, 45%, and 30%, respectively. Market prices will recede as the harvest proceeds and final yields are determined.

The most severely affected by the extreme weather conditions are crops traditionally grown in the Mediterranean and North African regions. Two notable examples are Oranges and Broccoli, which have increased by 16% and 77% due to poor yields this year. Tomatoes have also seen price increases throughout the year for similar reasons, despite more favourable growing conditions in the UK as temperatures rise on average.

The challenge with many of these commodities is that they cannot be grown year-round in the UK or require extensive greenhouse cultivation, significantly increasing production costs. Thus, they must be imported, and while shipping costs have decreased from last year's highs, the rising prices of transportation and fuel, coupled with supply limitations, are often passed on to consumers.

Edible Oils Cooking oil prices have remained stable and are now at a level similar to those seen in 2021, before the war in Ukraine. A minor price increase was recorded after the collapse of the Black Sea Grain Deal earlier this year, amid concerns that Ukrainian exports would be impacted.

However, these concerns did not materialise for cooking oil, and the downward pressure on cooking oil prices resumed.

As a result, we can report a quarterly decrease of 6.4% for Sunflower Oil and 3.4% for Rapeseed Oil, with no significant indications of a reversal in the next period.

There is some concern that an increased demand for biodiesel in response to rising oil and fuel costs could impact the pricing of Rapeseed Oil, particularly over the winter period. However, the outlook is positive for now until we observe buying patterns reflecting this.

VEGETABLE OILS

-3% -6% RAPESEED

SUNFLOWER

Unfortunately, the same good news cannot be said for Olive Oil. The challenges faced by this year's olive crop have been widely reported, including in our previous market report, and the shortages persist due to the low-yield harvest. There is an expected substantial reduction in Olive Oil production this year, primarily driven by persistent droughts across Greece, Spain, and Italy, along with the recent export ban from Turkey.

Market Report | Quarter 4 2023

This situation has led to a quarterly price increase of 24% for Olive Oil from Spain and Greece. Fortunately, the impact on other cooking oils has been relatively minimal.

Dry Stores The dry goods market, much like the cooking oils market, has been directly affected by the war in Ukraine, with Wheat being the most notable example. We've previously discussed how the onset of the war led to a significant price increase, which later began creeping up again after the collapse of the Black Sea Grain Agreement.

However, there has been some relief in this area, with continued decreases in the pricing of Wheat and other cereals and staples, such as Oats and Corn. Ukraine is a major exporter of wheat and corn used worldwide, mainly for animal feed, making any price increases in these commodities directly impactful on farms.

As a result, we can report a quarterly decrease of 2.3% to the price of Wheat with hopes this trend will continue through the winter months as trade routes have been established.

Coffee prices, despite some concerns about yields in South America, are staying relatively low as we head into the winter period. Poor weather conditions in the region have disrupted growing and harvest seasons, but with Honduras looking to harvest and export in the coming weeks, the hope is that any shortfalls in stocks will be resolved. As a result, we can share the good news of weekly price reductions: 1.5%

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for Robusta and 1.4% for Arabica.

Unfortunately, the same cannot be said for Sugar. It has been a challenging year for sugar, reaching an all-time high price in May and surpassing that with another record-high price last month.

These price increases have been driven by ongoing poor crop yields, with news from India, one of the world's leading sugar exporters,

+10%

I n c reas e in th e p ric e o f S uga r in on e Q ua rt er

stating that they would not look to export any sugar next year.

This continuous bad news has caused the sugar price to increase by 29% compared to last year's pricing, with a 10% increase in the previous quarter alone on top of already high prices. The primary reasons for the export shortage in sugar are weather conditions in the main growing regions. Due to the El Nino weather event, India and Thailand suffer from unseasonably dry monsoon periods, leading to stricter export regulations.

There is some positive news coming out of Ukraine and Brazil. Ukraine anticipates a good crop of sugar beet, and as long as the export routes put in place remain open, we should expect some relief from the market shortage.

The real test will be the sugar crop coming out of Brazil.

While weather conditions have raised concerns, more related to transport and shipping than

the quality of the crop, it is currently being harvested and packed and showing promising signs in both quality and quantity.

This positive news has had a short-term impact on sugar pricing, with a monthly decrease of 1%, but there's still a long way to go before prices return to levels similar to last year or before.

Packaging The UK plastic packaging ban is now in effect as of October 1st. This means businesses can no longer sell or supply singleuse plastic cutlery, polystyrene containers, or cups, with the risk of fines for anyone breaching this new legislation.

Some exemptions are in place, primarily for takeaway businesses. Still, the impact of these new laws is expected to be far-reaching, with suppliers looking to provide paper and wooden alternatives to the market.

While this is undoubtedly a positive move for the environment and one that should be commended, it's also a decision that will likely increase costs and pose initial challenges for many foodfocused businesses.

Procuring the new biodegradable items is expected to be more expensive than the current plastic ones, primarily due to differences in production scale.

Therefore, until stocks of biodegradable products become more readily available, this transition will likely add additional costs for businesses.

Market Report | Quarter 4 2023

In the Press

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Market Report | Quarter 4 2023

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What’s In Season Aubergine, Beetroot, Broccoli, Brussels Sprouts, Butternut Squash, Carrots, Cauliflower, Chillies, Courgette, Goose, Kale, Leeks, Lettuce, Marrow, Onions, Parsnips, Pears, Peas, Potatoes, Pumpkin, Runner Beans, Spring Greens, Spring Onions, Sweetcorn, Sweetheart Cabbage, Turnips, Watercress, Wild Mushrooms, Winter Squash, White Cabbage, Venison.

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