Category Insights & Outlook 2023
Food & Agriculture
We have seen a steep rise in core food commodity prices over the past two years as a result of supply shortages.
This rise was caused primarily by the domino effect of COVID-19 pandemic disruptions, supply chain issues, the Russia-Ukraine conflict, and rising interest rates – all contributing to the cost of living crisis.
High inflation rates for food in 2022 are expected to continue and peak in Q1/Q2 of 2023, with inflation rates expected to stabilise in Q3/Q4 of 2023, according to Morgan Stanley.
Rising food costs are expected to significantly impact household budgets, with subsequent knock-on effects on consumer spending across all sectors, compounding the impacts of the recession.
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Macroeconomic trends
Supply shortages
Geopolitical tensions between Russia & Ukraine
Currencies weakening against strong USD
Supply chain pressures & high shipping costs
Rising interest rates constraining borrowing for producers
Climate change impacting key crops
Trends to date
Wheat
+7% YoY change (Nov 2021-Nov 2022)
Reduced supply due to:
- Drought in the Americas and excess rainfall in Oceania leading to poor crop conditions
- Conflict driving a drop in exports from the Black Sea region
- Severe supply chain backlogs
Price of Wheat
Source: AmplifiPro, selected food commodities for the period Nov 2020 through Nov 2022
corn
+20% YoY change (Nov 2021-Nov 2022)
Increased demand and limited supply due to:
- Geopolitical conflict reducing exports from the Black Sea region
- Adverse weather conditions affecting yield
Price of Corn
Source: AmplifiPro, selected food commodities for the period Nov 2020 through Nov 2022
BEEF
+23% YoY change (Nov 2021-Nov 2022)
Price increases due to:
- High feed costs resulting from droughts that reduce grassland
- Declining herd count due to disease and high slaughter rate
- Lower milk supply due to effects of droughts and diseases with cow herds
- Added pressure on livestock farming due to soaring energy and fertiliser prices
- Weakened consumer demand due to inflation expected to offset the price rise
Price of Beef
Source: AmplifiPro, selected food commodities for the period Nov 2020 through Nov 2022
Milk
+43% YoY change (Nov 2021-Nov 2022)
Milk has experienced similar inflationary pressures to beef:
- High feed costs resulting from droughts that reduce grassland
- Declining herd count due to disease and high slaughter rate
- Lower milk supply due to effects of droughts and diseases with cow herds
- Added pressure on livestock farming due to soaring energy and fertiliser prices
- Weakened consumer demand due to inflation expected to offset the price rise
Price of Milk
Source: AmplifiPro, selected food commodities for the period Nov 2020 through Nov 2022
Chicken
+42% YoY change (Nov 2021-Nov 2022)
The price of chicken has increased due to:
- Highly Pathogenic Avian Influenza (HPAI) outbreaks on egg farms affecting layer hens
- Continued tensions between Russia and Ukraine that are expected to keep energy and feed prices elevated
Price of Chicken
Source: AmplifiPro, selected food commodities for the period Nov 2020 through Nov 2022
EGGS
+35% YoY change (Nov 2021-Nov 2022)
Eggs have experienced similar inflationary pressures to chicken due to:
- Highly Pathogenic Avian Influenza (HPAI) outbreaks on egg farms affecting layer hens
- Continued tensions between Russia and Ukraine that are expected to keep energy and feed prices elevated
Price of Eggs
Source: AmplifiPro, selected food commodities for the period Nov 2020 through Nov 2022
Future outlook
In the short term, food prices will continue their upward trajectory, with inflation reaching 17-19% during Q1/Q2 of 2023 before beginning to subside over the next 12 months – inflation rates settling at 11% by Q4 – according to Morgan Stanley.
Short term outlook
High levels of food price inflation are expected due to:
- Rising interest rates and energy prices putting pressure on producer and distributor margins.
- Continued supply shortages due to geopolitical tensions, supply chain pressures, and adverse weather conditions.
Medium term outlook
Food price inflation is expected to stabilise in the second half of 2023 onwards:
- Interest rates are expected to stabilise, leading to higher confidence in both the supply and demand sides of markets.
- Tensions between Russia and Ukraine are expected to level off in 2023, reducing supply pressures from key raw materials.
- Nonetheless, we expect to see continued impact from climate change and supply chain pressures.
Recommended responses for procurement team
Immediate actions:
- Focus on optimising demand and reducing waste through better forecasting and analytics.
- Rationalise SKUs and leverage volumes across business operations.
- Consider strengthening purchasing power through buying consortia to negotiate better prices with suppliers.
- Take a creative approach to demand planning; rethink specifications to focus on key value adding requirements, and adjust specifications based on market conditions.
- Work collaboratively with suppliers to jointly optimise costs, or embed transparency in costings so that benefits from any cost decrease in the commodity are shared.
Best practices:
- Consider using financial instruments to hedge against risks in the supply market.
- Avoid long term contractual price commitments until price volatility subsides.
- Prioritise suppliers investing in sustainability to secure the long-term supply of key food products susceptible to the impacts of climate change.
Key takeaways
Immediate actions:
Focus on demand reduction and specification optimisation in the short term as high levels of inflation and economic downturn are placing pressure on consumers and increasing price sensitivity in demand markets.
Best practices
Adopt a holistic view on procurement tools. This may include financial instruments, sustainability and innovation networks, and joint partnership approaches with suppliers to ensure supply stability and continuity in the long term.
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How Efficio can help
If your business is or has been impacted by any of these trends, or you would like to dive deeper into the outlook and associated guidance for any of the above categories, our SMEs are available to help.
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