Vegetable inflation rate over 5% as food and drink inflation rates heads towards 2008 peak

OPERATORS ARE being warned that they will need to take steps to mitigate the impact of a continued surge in food inflation, which is expected to rise further in 2013 and beyond.


An annual Food Inflation Report published by Prestige Purchasing shows that the rate of inflation for vegetables, including potatoes, has hit 5.5% in 2012 and is expected to rise further. The findings are part of a wider analysis which predicts that, across all categories of food and drink, the inflation rate will increase by over third, from 3.3% in 2012 to 4.5% in 2013.


David Read, Chief Executive of Prestige Purchasing said, “What we’re seeing is a surge in food inflation which will continue into 2013. We may even in due course be heading back towards 2008 levels where food inflation peaked at over 8%. This would obviously have quite an impact on the catering and hospitality trade.


“Per tonne production costs for agriculture are increasing significantly, due to low yields and a dramatic increase in feed costs. Oil costs and a rise in chemical costs will also put pressure on food and drink inflation.


“In the longer term, broader trends like climate change, population growth and the increasing sophistication of commodity markets will continue to impact food and drink prices. As such, we expect food inflation to continue to rise above current levels next year.


“Smart catering and hospitality operators need to explore mitigating options to manage the impact of food inflation. Single site operators can enhance their buying by utilising tools like Benchmarking and Market Reports to ensure they are managing their business to meet these changes. In addition, multi-site operators can focus on more sophisticated techniques like Distribution and Sourcing Optimisation”.

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Report highlights:


Poor potato harvest drives inflation for vegetable category. 


A poor harvest, in terms of yield and quality, has pushed up the price of potatoes. This has contributed to the inflation rate increase within the vegetable category, as chip manufacturers compete for the highest quality potatoes to supply to the catering trade.


Pork prices expected to rise steadily and push up meat category


A hike in feed prices, along with costly EU reforms on pig farming, has pushed up the price of pork and even lead to some producers leaving the industry. The price of pork is expected to rise steadily over the coming year and possibly beyond.


Alcohol and soft drink categories reach unusually high inflation rates


While historically the rate of inflation for drinks categories has been 1-3%, in 2012 it reached anywhere between 3 to 4% across these different areas. This was due partly to increases in prices of commodities such as energy, grains and some sugars, used in drinks production, being impacted by volatile commodity markets and climate change.


Breads and cereal inflation is lower than expected but will shoot up


The figures for 2012 show a 1.3% inflation rate for breads and cereals, which is lower than expected. However, this is set to increase as the full impact of the poor 2012 grain harvest is felt across markets.


Oils and fats negative inflation expected to continue


Oils, in particular rape seed oil, palm oil and soya oil sit at -1.1% and are expected to continue to fall. This is because stocks (particularly of palm oil) are high, in part due to the high price of grain feed driving producers to use soya for feed, a by-product of which is soya oil.


Milk prices expected to inflate as value chain becomes more balanced


Several mergers in the dairy industry have led to a shift in the value chain of milk. The cost burden of production and distribution has moved downstream from farmers and the impact may well be felt at its greatest by catering and hospitality operators.