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Pelican Procurement: Economic Insights: Navigating the Latest Market Conditions

Published: 20th February 2024

Understanding the factors influencing product supply and availability is vital for hospitality and catering operators to make informed purchasing decisions, adjust menus and keep your GP margin healthy.

Alex Gess, our European Supply Chain Analyst, offers the latest on market conditions: supply chain disruptions, price shifts, as well as updates on energy pricing and living costs – to help with timely issue mitigation.

Cost of Living

Throughout the winter period, overall inflation has held steady, experiencing a marginal uptick of 0.1 percent in January, reaching a total of 4 percent.

The retail and hospitality sectors have shown signs of improvement, with a projected growth of 0.5 percent for 2023 (compared to an earlier predicted shrinkage of 1 percent) and expectations of a 1.8 percent growth for 2024.

Workers can look forward to a minimum wage increase taking effect in April, along with ongoing reductions in food prices and energy costs.

Climate Change Effect

The impacts of climate change have become increasingly evident, with the UK witnessing extreme weather patterns domestically and globally. Storms Gerrit and Henk caused disruptions, flooding, and damage in the Midlands and South of the UK.

Changing weather affected global crop yields, particularly in the Mediterranean, where record-breaking temperatures disrupted planting seasons. The result has been lower crop yields for vital products like Citrus fruits, Tomatoes, and Olives, leading to price increases.

Many Asian countries grapple with reduced crop yields for staple foods like rice and palm oil. Thailand and India are predicting shortfalls in yield for the 2023 harvest and the 2024 planting season. India’s struggles result from heavy and unpredictable monsoon seasons, while Thailand faces unseasonably dry conditions due to low rainfall. Because of these conditions, India are reducing exports to secure domestic supplies of rice and sugar.

Energy Pricing

Fortunately, energy costs haven’t surged as in previous winters. The energy price cap increased by 5 percent for the January to March period compared to the last three months. Despite this increase, there has yet to be government assistance this winter to offset these bill increases; however, costs remain below last year’s Energy Price Guarantee. April’s Energy Price cap is expected to decrease as wholesale costs for gas and electricity drop.

A positive development in the UK energy sector is the reduced reliance on gas and coal for electricity generation. In 2023, the country experienced the lowest consumption of fossil fuels since 1957, with domestic renewable energy accounting for 42 percent of power. This shift towards cleaner and more reliable energy sources results from increased renewable energy generation, driven by consistently decreasing costs and simplified processes.

Moreover, there has been an increase in nuclear and hydroelectric energy imported from France and Norway. This transition to clean, reliable energy sources is one of the reasons we anticipate a drop in the price of electricity from April onwards.

Global Supply Chain Impact for UK

Recent months brought significant disruptions to the global supply chain due to weather patterns and political unrest, expected to persist into early 2024.

The Panama Canal faces limitations due to poor weather conditions in South America, allowing only 18 crossings per day, down from the usual 35 or more. This reduction has particularly impacted grain ships transporting wheat and corn throughout the Americas, increasing transit costs and potential repercussions for other continents.

Shipping route challenges in the Red Sea are linked to the Israel-Gaza conflict, causing rerouting and delays. This rerouting adds 2-4 weeks to the travel time for goods, increasing fuel prices.

These issues directly impact the UK, causing delays in container transfers and substantial backlogs at ports, with up to 20 percent of the global shipping fleet operating on a delayed schedule. In the coming months, the UK will likely experience shipping delays linked to these incidents.

Read our full Commodity Market Report Q1 2024

Pelican’s complete Commodity Market Report provides key price trends and recommendations for mitigating price increases. We also look at product availability and what produce is in season to help inform your purchasing.

Click here to view the latest report.

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