This document is written as a supportive brief
for Catering budget holders, in an effort to
give appropriate evidence when planning for
the recent food cost pressures in the NHS
Contents
Market Overview
An overview of recent events and a flavour
of what to expect in Q1 of 2017.
In the news…
Details of the impacts that are widely covered
i n the news.
Dairy
An overview of key movers in the Dairy category
Fish and Seafood
An overview of key movers in the Fish and
Seafood category
Meat and Poultry
An overview of key movers in the Meat and
Poultry category
Summary
How this will affect the Catering Budget
Excluding the effects of currency, global markets have benefitted from relative stability within food prices over the past 12 months. However, underlying commodity
inflation is the key cause for concern within Q1, and also the remainder of 2017.
Areas such as Dairy, Fish & Seafood and Meat & Poultry will be particular areas of interest. The low dairy prices had previously forced the farmers to start reducing
their herds. This resulted in a correction of the overall supply of cream which has been particularly impacted as there is a shortage across Europe.
Following the EU Referendum global markets have been increasingly volatile, with Sterling weakening sharply against the major global currencies. The Pound has
continued to drop in value against USD and increased volatility against the Euro.
We have seen widespread media coverage of this issue, from the Tesco and Unilever battle, to Birdseye and Walkers warning of increases as a direct result of the
currency movement. This had been forewarned in the immediate aftermath of the EU Referendum, with the British Retail Consortium, along with several
well respected analysts, warning of the inevitable rises in the cost of groceries.
Currency Update and Commodity Inflation
We’ve enjoyed a prolonged period of relative stability in the commodity market; however, we’re beginning to see the return of commodity inflation along with
continuing volatility in the currency markets.
Commodity
We now find ourselves at the beginning of anticipated underlying food inflation. Increased levels of rain have impacted crop harvests. Overall, the poor weather has
resulted in a late season across the continent. Broadly speaking, we’ve seen reductions in predicted crop yields which impacted the overall supply, with demand
remaining constant.
Falling milk production and increased demand has increased dairy prices in Q4 2016. As a result, production of cheese and Butter is down y-o-y, further impacting prices
in the dairy category.
Thai frozen chicken prices rose m-o-m in September due to the depreciation of the GBP causing chicken imports from Thailand to become more expensive. The
weakening of the GBP has also kept canned tuna imports from Thailand expensive. In addition, raw Thai tuna prices rose in September due to the Fish Aggregating
Device ban.
Currency
Key to why food inflation has stayed at relatively low levels toward the end of 2015 and beginning of 2016 has been the strength of Sterling. The UK is currently
experiencing heavy inflationary pressure which is expected to continue into Q1 of 2017 and further.
We’ve seen Sterling vs US Dollar depreciate 17% year on year, whilst Sterling vs Euro is nearer a 14% decrease year on year. Over 40% of our mainline supplier’s food is
directly impacted by changes in these two currencies. Therefore, the impact of the sudden change in currency value has immediate and severe implications for the
Catering Department.
In the news…
Coverage of both currency impacts and underlying commodity inflation continues to make headlines across many news sources.
Dairy
International prices of dairy products have continually increased
since May 2016, underpinned by constrained output of milk.
Cheddar - EU
Latest Mintec Commodity Charts:
Market Facts
UK Milk Production down 380 million litres YTD
More farmers are exiting the business (1,000 fewer than
3 years ago)
Wholesale unsalted butter prices have doubled in price
Spot prices of milk increased from 14p to 41p per litre
Spot prices of cream increased from 85p to £2.10 per
litre
Butter UK
Fish and Seafood
Significant inflation expected in Q1 2017 across the Fish and Seafood category.
Prices in Fish and Seafood have risen dramatically over the past 6 months with the overriding factor being
the adverse currency movements. However, underlying commodity factors are also impacting price across a
number of products. Haddock and Cod prices are firming fast amid poor catching for Russian and Norwegian
vessels and are likely to continue to increase.
Warmer than normal water in the North Atlantic means that cod is not yet appearing in its normal fishing
grounds. Above combined with poor weather in the North Sea at the end of September and into October has
meant a shortage in both fresh cod and haddock.
Canned Tuna prices have increased against last year largely due to currency effect (20% decline in GBP v USD),
however, shortages of raw material caused by bad weather, colder water temperatures and increased fishing
by Korean vessels are also impacting supply.
Latest Mintec Commodity Charts:
Salmon - EU
7
Cod
Meat and Poultry
Considerable increases seen across pork products, with Bacon and Sausages most affected.
Pork, Bacon & Sausages
- Pig prices have continued to rise since the summer, with EU prices now higher than they have been for the last 3 years, and
UK pig prices following suit.
- Whilst the increases impacting sliced bacon & loins and legs (gammons & ham) has mainly been currency driven, there have
been significant market inflation on bellies (impacting streaky bacon) of between 35-40% YOY and shoulders (impacting
sausages) of 15-20% which are driving the EU pig prices upwards.
Beef
-
Lamb
-
The UK steer price has continued to increase steadily during the latter half of 2016, and remains above the 5 year average.
Irish beef prices are under pressure due to the deflation of Sterling against the Euro. Price increases are expected to be
realised in cheaper cuts of beef such as mince and dice as other cheaper meats such as pork increase in price.
Lamb prices have remained relatively stable over the last few months, but still remain higher than the 5 year average
Poultry
- Imported Frozen Chicken (Thai / Brazil) – expected to be inflationary in 2017 due to currency impact
- Imported Fresh Chicken (EU) – we are expecting the usual winter / summer market moves along with the impact of a
devaluing currency.
- UK Fresh Chicken - Market is inflationary, this is due to an increase in demand coupled with supply shortages.
Latest Mintec Commodity Charts:
Bacon - EU
8
Chicken Breast- UK
Sausages - UK
Category Overview
Summary
There has been a consistent message since November 2016 from all of the suppliers that are
providing food, non-food and equipment; not just to Musgrove Park Hospital but to the NHS
across the country. The weakening of sterling against the dollar and euro as well as
harvesting issues will see a rise in costs across the board from between 5 to 15%.
Strong contracts and positive relationships between catering, procurement and suppliers
have stood caterers in good stead but the pressure on suppliers to maintain quality at a
competitive price is now at breaking point.
This will have an effect on all Trust catering budgets and it is vital that there is a strong
element of control with immediate effect. It is also important that budgets are set
appropriately, giving managers an opportunity to make savings rather than setting budgets
too low, which will have a negative effect on the bottom line as well as on the mindset
of the individuals.
It is a slightly different situation for any retail outlets; although the provisions costs will rise;
income levels can be set accordingly with an agreed GP having a positive balancing effect.
Minimising choice on your menus is not the “quick fix” solution. “Good food is medicine” and
as all of us continue to work closely with dietitians and clinical teams we must ensure that our
patients receive the nutrition that they need which speeds the recovery process and therefore
vacating beds at a speedier rate.
Providing the correct nutrition is key to a successful hospital as staff and visitors
an awareness of “healthy eating” and patients are encouraged to “eat for good health”.
As an Association, Communication is an important part of what we do.
It is vital that we keep our members up to date on key NHS developments, government
legislation and policies, news, information and other issues and concerns facing the NHS
and hospital catering sector.
It also acts as a good reference point, providing advice and guidance to support its
members in driving their services forward, while meeting the changing demands of the
industry.
Looking outward, the Hospital Caterers Association aims to develop a more positive
and professional profile for health care catering through improved communication,
which ensures that the informed views of HCA members and hospital caterers on current
and key issues are heard
Philip Shelley
National Chair