Rising costs pile pressure on margins

By Aidan Fortune

- Last updated on GMT

Rising commodity costs are putting the squeeze on already under pressure producers
Rising commodity costs are putting the squeeze on already under pressure producers
Rising commodity costs due to a drop in supplies is placing a squeeze on already under-pressure UK food and drink manufacturers

Earlier this summer, the International Grains Council’s (IGC) recent report downgraded expectations for global grains by 2% year-on-year, marking a three-year low for the sector. Wheat production in particular is expected to fall 37m tons this year, causing the IGC to anticipate “upwards pricing pressure on food”.

This trend has already been seen, with Nick Allen of the British Meat Processors Association confirming members had reported rising commodity costs, which were having an effect on their margins.

Knock-on effect

Shore Capital’s Clive Black said that while different food manufacturers faced varying degrees of cost pressure, the knock-on effect might not be avoidable.

“Cost recovery is mostly achievable, and so margins are most robust, where there is a tight supply or capacity situation in categories where there is overcapacity such as plant bread,” ​said Black.

“Where there is a tidal move in input costs, as witnessed with sterling’s devaluation in 2016, there was a relatively high level of cost recovery, it could not really be avoided.”

Black added it could lead to a rise in domestic food production, particularly in categories, which are widely imported.

“Looking ahead, a lot will rest on sterling’s valuation and the nature of trading relations with the EU, from where we import most of our food, and the wider world. Over time, we could also see a step-up in domestic food production.”

Related topics: Fresh produce

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