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Food prices to fall? Not necessarily, say food firms

By Graham Holter , 10-Oct-2011

Food producers have sounded a cautious note following speculation that food prices are set to fall.

Will supermarket trolley wars wound food suppliers' margins?

Will supermarket trolley wars wound food suppliers' margins?

Bigger cereal harvests in Europe and Asia have led to predictions that input costs for many food manufacturers could go down, with some savings passed on through the distribution chain to consumers.

The UN’s Food and Agriculture Organisation (FAO) said: “World cereal production will total 2,310Mt this marketing season, 3% or 68Mt higher than in 2010-11.

“This is 3Mt more than FAO forecast last month, largely because of improved expectations for wheat and rice crops.”

Recovery

The report said the expected recovery in global cereal production along with lower than predicted demand, are adding to downward pressures on pricing.

In September, it said, “international prices of all cereals with the exception of rice fell sharply, driven by large export supplies from the Black Sea region and prospects for a weakening of demand”.

The FAO added that “world cereal markets are likely to remain fairly tight in 2011-12”. But agrifood consultancy European Food & Farming Partnerships predicted that food inflation would “fall sharply to 2% by late 2012”.

Food and Drink Federation director of sustainability and competitiveness, Andrew Kuyk, said: “It isn’t advisable to read too much into short-term variations in commodity prices.

“Though UK wheat prices have fallen by around 17% between May and August, they still remain significantly higher than the long-term average.

“Manufacturers do their best to mitigate the worst effects of rising costs through forward buying and hedging arrangements as well as by reducing their use of energy, water and packaging and reformulating recipes. They are also seeking to be as efficient as possible in their use of raw materials in order to deliver best value to consumers at all times.”

The Federation of Bakers added: “We can’t really make an accurate prediction about prices. Obviously the UK harvest has been fairly good but we’d be silly to be making specific predictions about how that will affect pricing.”

Cut prices

Meanwhile, Sainsbury has pledged to match the prices of certain products at rivals Tesco and Asda in a bid to attract new customers. The supermarket’s announcement follows an initiative by Tesco to cut prices by £500M launched two weeks ago.

The move comes after Tesco launched its own price drop promotion.

Asda also operates a price match promotion.

Last week, Julian Wild, food group director at analysts Rollits, told FoodManufacture.co.uk that supermarket price wars are likely to spell bad news for their food manufacturer suppliers. “They [supermarkets] will look to fight back and it’s absolutely certain that their suppliers will be at the end of that.”

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