Foodservice prices and the Brexit effect

Mar 15th 2017
Foodservice Prices and the Brexit Effect

Foodservice prices are facing something of a perfect storm at the moment—and uncertainty over Brexit suggests more turbulence lies ahead.

The vote to leave the European Union has triggered volatility in the exchange rate of sterling, as well as confusion over future trade agreements between the UK and Europe. As the latest Foodservice Price Index from Prestige Purchasing and CGA Strategy shows, both of these impacts are being felt in wholesale foodservice prices, which were 2.9% higher in January 2017 than a year earlier. That comfortably outstrips inflation in the Consumer Price Index.

Of course, it is not just Brexit that is driving these price rises. Poor weather, problems with supply, heavy demand for some items and rising oil costs are among the many factors combining to stoke inflation at the moment. It is most clearly visible in the prices of vegetables, which the Index shows were on average up by 10.4% in January.

But there seems little doubt that Brexit is a significant cause of foodservice price inflation. The value of the pound against the euro and the dollar fell by as much as a quarter in the wake of the EU referendum, and that has caused substantial increases in the cost of importing items from Europe.

The Foodservice Price Index reveals how the exchange rate issue affects some food categories more than others. The price of vegetables is particularly vulnerable, since the UK relies on the EU for the supply of many types over the winter. Imported fruit and cheese are subject to inflation too. And because the pound is also so weak against the dollar, commodities that are traded in dollars, like sugar and coffee, are just as much at risk.

There is some respite in sight. The Index shows that price trends are partly seasonal, and the upward momentum in sectors like vegetables should ease when domestic production increases and there is less reliance on European imports. There has also been a little relief in the exchange rate lately, with the government’s updates on the Brexit process reassuring the markets and helping the pound to rally. Some commentators think the worst shocks to the value of sterling are behind us now.

But uncertainty about the full consequences of Brexit is going to continue until Article 50 is triggered and negotiations get underway. Until then, the cost of importing food items is likely to carry on challenging those in the foodservice supply chain.

 

About the Foodservice Price Index (FPI)

The FPI was independently developed by Prestige Purchasing and CGA Strategy to better understand fluctuations in foodservice and catering pricing.  It is built from data covering 15,000 individual SKUs and 7.8 million transactions every month, giving unprecedented depth.