No let-up expected in ingredients price rises

By Jess Halliday

- Last updated on GMT

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Food ingredients prices rose at the fastest rate since 1998 in
August, says a new report released just as ministers warn that the
worst of the hikes is yet to come - a particularly for meat.

NTC Economics, a business research information provider, first started tracking prices in the ingredients market in 1998. The figures from its EU Manufacturing Purchasing Manufacturers Index for August show that the prices charges for raw materials rose at the fastest rate seen so far, to 79 points (where 50 represents no change on the previous month). The growth rate for general manufacturing input costs actually fell in August, to just over 60 points. This indicates that although energy costs have been impacting all industry, the food industry is a special case at the present time, with a unique set of conditions exerting pressure on margins. NTC gave a round-up of the reasons for the rapid growth in prices in the food and drink sector. Of course, agricultural commodities were widely implicated by purchasing managers, including cereals, fish, dairy products, vegetables and fruit. But population growth in China and India has also driven up global demand - at the same time as supply has diminished. Food shortages have been explained by factors including greater use of crops for biofuel production, the poor summer in Europe and UK floods, freezing conditions in the US in April, typhoons in Asia, and livestock diseases like BSE in the UK and blue ear in pigs in China. Speaking ahead of a meeting of EU agriculture ministers in Portugal today, agriculture minister Mariann Fischer Boel told The Financial Times​ that increases in meat products were likely to follow those already seen for staples like bread and milk, as a result of more expensive animal feed. Poultry, in particular, is the most cereal-heavy production method; wheat prices have risen to an all-time high of US$9 a bushel this month, and maize is up some 50 per cent. If there is no easing in the commodity prices, the EC expects pork process to climb 30 per cent and beef prices seven per cent by 2008. Interestingly, food manufacturers have been safety buying stocks of ingredients in order to protect themselves from the effects of poor harvests - an activity that throws the supply-demand balance even further off kilter. Growth of stocks has exceeded the current rate only one time in the past ten years in late 1999, when safety buying was driven by fears of the millennium bug. According to the NTC report, prices charged by manufacturers saw the largest monthly rise in August as producers sought to pass on costs - up to 60 points (where 50 indicates no change on the previous month). Several manufacturers have made statements on price increases, such as Hovis bread maker Premier Foods. Associated British Foods is expected to follow suit. At the ingredients level, there has been a spate of price increases communicated by ingredients firms in the last six weeks. These include Orafti, which is upping the price of its Beneo prebiotic fibre ingredients from October 1, to the tune of six per cent of liquid ingredients and eight per cent for powdered products. Yesterday National Starch issued early warning that the price of its starch would increase by the end of the year - although it is not yet in a position to say by how much.

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