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Emerging market demand to drive up UK food prices – but also create opportunities for producers

10 November 2012

  • 64% of food industry executives believe emerging market countries will become major food importers;
  • 52% see new opportunities for UK producers in these markets;
  • 24% predict greater collaboration between manufacturers to sell products to consumers directly.

The emerging middle classes in Asia, Latin America and Africa will transform the global food economy over the coming decade, according to new research from business advisory firm, Deloitte.  64% of food industry executives surveyed for UK Food and Beverage 2020 believe that emerging markets will become major food importers in their own right, with the greater competition for supply resulting in higher food prices globally and in the UK.  Whilst this creates concern over food security for the UK, 52% of respondents also believe there will be increased export opportunities for British producers.

Mark Hill, partner in the consumer business industry group at Deloitte, said: “Although the world is richer and better fed than it was 50 years ago, some of those gains are now under threat.  Greater competition for agricultural resources from increasing demand for food, the encouragement of biofuels expansion by certain governments and the increased frequency of extreme climatic events all point to heightened food security concerns for at least the next ten years.

“British consumers face food price increases of up to double the rate of inflation over this period, with significant volatility.  We will also see variability by product category, with high energy and high protein products like meat likely to increase most sharply.  The UK will need to improve self-sufficiency through securing domestic supply, mitigating the pressure on producer profit margins and supporting local producers and manufacturers.  Furthermore, along with other developed economies we will need to deal with the end of cheap sources of supply while increasing productivity in a sustainable way.  There will be no quick fix.”

However, these volatile conditions do present food manufacturers with opportunities.  62% of respondents see access to new markets as vital in ensuring growth for their business, with British companies well placed to trade off Brand UK and their reputation for innovation, product quality, food safety and traceability.

Hill added: “There is no time to waste for UK producers.  Other countries are already increasing their share of global agricultural trade and British companies will need to invest now in building an export business if they are to take a piece of the pie.  British companies should also be looking to export the skills, technology and standards for which Britain is regarded to support the development of production facilities in overseas markets.”

In the short term, 63% of respondents anticipate further volatility in input costs over the coming 12 months, with 64% predicting problems in passing on higher costs to their customers.  59% expect that a combination of these factors will result in pressure on their profit margins.  These figures are echoed by Deloitte’s latest Consumer Tracker which found that 78% of consumers expect food prices to increase in 2013.

Between now and 2020, food companies anticipate strategic and structural change in the industry, with 42% expecting to see greater integration between retailers and manufacturers to drive production efficiency and insulate companies from economic volatility.  In addition, around a quarter of companies predict there will be an increase in collaboration between manufacturers through the creation of new online grocery market places to service the consumer more directly.

Lawrence Hutter, partner in the consumer business industry group at Deloitte, said: “Consolidation in the food and beverage sector is inevitable and will take place at the primary production level, in food processing and in manufacturing.  We would also expect to see brand ownership consolidation with many mid and lower tier brands disappearing due to lack of differentiation.  At the same time, there will be new business opportunities arising from the expansion of private label ranges for those manufacturers who can meet retailers’ requirements for rapid innovation, high levels of service and cost-effective manufacturing with low overheads.”

Ends

Notes to Editors:
About Deloitte
In this press release references to Deloitte are references to Deloitte LLP, which is among the country's leading professional services firms.

Deloitte LLP is the United Kingdom member firm of Deloitte Touche Tohmatsu Limited (“DTTL”), a UK private company limited by guarantee, whose member firms are legally separate and independent entities. Please see www.deloitte.co.uk/about for a detailed description of the legal structure of DTTL and its member firms.

The information contained in this press release is correct at the time of going to press.

Member of Deloitte Touche Tohmatsu Limited.

 

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