Andrew OpieA food retail expert tried to offer some reassurance to hard-pressed egg producers and other farmers involved in the poultry sector when he was questioned at the Egg and Poultry Industry Conference (EPIC).
Andrew Opie, director of food and consumer policy at the British Retail Consortium, had some words of encouragement for the industry when he was asked by NFU chief poultry adviser Rob Newbery about the prospects for improved prices, given the "feed shock" that producers had suffered recently. Egg producers in particular, have been hit by big increases in the price of feed at the same time that the price they receive for their eggs has fallen.
Andrew Opie, who was previously head of policy services at the NFU, said retailers recognised that they needed to sustain the future of the industry despite increased pressure on consumer spending. "It’s very difficult." He said. "It’s unrealistic for retailers to try and put something on the shelves if nobody is going to be able afford to buy it, or if they are going to switch to other forms of proteins," although he said that one positive thing for the UK industry was the support for UK production.
"If you look on supermarket shelves, fresh meat, fresh eggs, even going into processed meals, it is basically all UK in the supermarkets and, therefore, they need a long-term sustainable industry. So they recognise they have to pay a price, but they also have the dilemma of perhaps not being able to pass all of those price increases on to the consumer because the consumer might react against that. It’s a really difficult position.
Perhaps the people in the middle might have to pay a bit more.
As we have seen with some of the promotions, retailers have been paying," said Andrew, who pointed to milk as one example where retailers had funded promotions.
He told those in the audience at EPIC that the market would be very difficult. He said consumer confidence had improved a little in August but it had fallen back again in September and could be hit still further when the measures in the Government’s comprehensive spending review took effect. "What it means when people are less confident is that they spend less, they are more discretionary about their purchases. They save more as well, which is another thing we have seen a lot of." He said the Asda Income Tracker was an interesting measure of people’s disposable income, and he said the latest figure from September showed that the average UK household had two per cent less income today than it had a year ago. It was the ninth consecutive monthly fall in discretionary income, he said.
He said that looking ahead a number of factors were likely to affect consumer confidence and create a tough market. They included the effects of the Government’s spending cuts, the increase in VAT in January and higher National Insurance contributions, as well as fears about food inflation. He said that rises in commodity prices had been feeding their way into food prices. The latest figures showed annual food inflation running at just over four per cent. He said there were also potential interest rate rises, restraint in wage growth, weakness in the housing market and faltering job security.
"If you look at the comprehensive spending review and the loss of half a million jobs, it is going to impact on people and could push the unemployment rate up and, again, that’s another indicator of how people feel about the economy," he said. "For us it means more competition, harder to get consumers through the door, more effort to make sure they spend in a particular retailer’s shop. That means a continued focus on value, it will certainly mean more in terms of promotions and deeper promotion in specific areas to target consumers - similar to the one we have seen recently in milk - and concentration on trying to insulate consumers from the worst effects of food inflation.
"It is going to be an extremely challenging time for retailers in the next year to 18 months. In the food sector we are, in some ways, luckier than non-food retailers where purchases are discretionary, but in your sector you will need to think about added value products as well as competition with other meat streams. All of these issues will come into play going forward."
Sion Roberts, a founding director and now chief executive of agrifood business consultancy English Farming and Food Partnerships, also responded to Rob Newbery’s question. He said, "There is a short term and long term answer, I suppose. In the short term a lot of people are trying to pass their cost increases on. We have seen some of it in the bread sector in the last month or two and we have seen the consequences of that. The same with milk, where it’s been quite tricky." He suspected that in the next few months there might be some increases in food inflation but he was not sure that would continue long term.
He said he did not expect to see a return to the food inflation levels of 12 per cent two to three years ago. "We are in a very different situation. When the last price hike occurred consumers were in a place where consumer spending had been growing like the clappers for 15 years. That’s not where we are today. The housing market is just turning down, the public sector is going to be retracting; we are in a very different situation."
He said that after 16 years of economic growth and 16 years when affordability was always improving, the coming period was likely to be a little bit tougher. It could also be a time when raw material costs, after having fallen in real terms for 100 years, were going to be heading up. "For some people caught between those two things, it could be quite an uncomfortable place to be."
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