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Brexit, Covid and Climate Colluding to Raise U.K. Food Prices

Supermarket prices in Britain could start increasing in coming months as food supplies get pummeled by a triple whammy of Brexit, Covid-19 and weather-struck harvests.

The U.K. is just 10 weeks from leaving the European Union’s single market, yet there’s still no trade deal between the two sides. If the status quo persists, import taxes averaging 18% will be slapped on meat, produce and beverages coming from the bloc starting Jan. 1. Both sides are aiming for zero tariffs, but there’s a chance they won’t succeed. Either way, logistical burdens will stack up as new checkpoint bureaucracies are created.

Portions of those extra costs likely will make their way to consumers, putting some foods out of reach and exacerbating existing inequalities. The looming sticker shock dovetails with grocers trying to ward off stockpiling in the face of more Covid-19 lockdowns and domestic wheat output dropping near a four-decade low after a year of weather extremes.

“We’re all very nervous,” said Simon Lane, owner of Fruco Plc, which imports about 100 truckloads of fruit and vegetables from the EU every month. “It’s a watch-this-space situation. One thing is for sure: no-deal will equal a bad deal for consumers.”

The U.K. relies on foreign fare for about half the meals consumed domestically, and the deadline for a Brexit trade deal approaches during winter, when little is harvested from local fields. Talks between the two sides resumed Thursday, and Irish Prime Minister Micheal Martin said “momentum” is building toward a deal.

The uncertainty leaves importers scouring tariff codes to calculate the potential hits to their business. Spanish-foods retailer Brindisa needs to decide whether to stockpile as much as 500,000 pounds ($645,000) of shelf-stable items, such as olives and tinned fish, to avoid disruptions for its customers. It also may start transporting goods by sea for the first time.

“The U.K. can’t feed itself,” said Heath Blackford, managing director for Brindisa’s wholesale division. “If we don’t get a deal, we should all be expecting to pay more for our food.”

Supply chains snarled by the down-to-the wire negotiations risk sparking food inflation at a time when job cuts are climbing by a record amount. With shops already operating on low margins, higher tariffs likely would ripple into higher consumer prices, said the Food and Drink Federation, with members ranging from cereal makers to soft-drink companies.

A season of floods and drought also hurt growers. The paltry wheat crop means imports may double from the prior season as domestic values climb. Porridge maker Pimhill Farm raised prices about 6%, the first increase in seven years, after a May dry spell hampered oats output, and the Shropshire-based company is unsure how Brexit will affect costs for the imported nuts and raisins used in its longstanding muesli recipe, manager Ian Anderson said.

“It’s the unknown that’s the worry,” he said.

Shoppers in Britain spend a relatively low proportion of their income on food, and prices have been subdued in recent months. Still, the number of people in need has climbed as the coronavirus upends the economy. The Trussell Trust, which supports 1,200 food banks nationally, expects food-parcel demand to increase 61% in the fourth quarter from a year earlier.

Nearly a third of children –- about 2.2 million – between the ages of 8 and 17 are enrolled in free school-meal programs this autumn, with 42% of them newly registered, as household income wanes, according to data from The Food Foundation charity.

“We are terrified about the predictions there are around the number of people who are going to be struggling,” said Lindsay Boswell, chief executive officer of FareShare, a charity that reroutes surpluses from restaurants and retailers to U.K. charities and community groups. “Demand for food is going to soar at a time when the supply chain is going to be massively disrupted because of Brexit.”

Even with a trade agreement, knock-on effects from logistical hangups or a declining currency could make it pricier to stock pantries. Extra paperwork, and animal and plant health certificates, required at the borders could lengthen transport times, and the chairman of Tesco Plc, Britain’s top supermarket chain, warned of fresh-food shortages if no deal is reached.

Lane, owner of Crowborough-based Fruco, said trucks of nectarines and peaches can’t afford to get held up at the border because their shelf life fades quickly. The U.K. previously said it would grant a six-month grace period for customs checks, but since the EU hasn’t agreed to the same, trucks still could get snarled on that side of the border. Leaving the single market means food-price inflation “under any eventuality,” said Dylan Bradley, an agribusiness director for London-based IHS Markit.

The uncertainty arrives at the same time Prime Minister Boris Johnson’s government struggles to curb the escalating number of coronavirus infections. Wales is in a two-week lockdown, and the Greater Manchester area is under strict restrictions. Quarantine rules also limited the number of foreign workers that often staff meat plants, risking Christmas turkey supplies.

While some have praised the food system’s resilience during the pandemic — with stores quickly restocking after shortages when lockdowns began — that was all during the U.K.’s time in the one market, said Tony Heron, professor of international political economy at the University of York. Removing that buffer just as Europe goes through another surge of infections will prove a tougher test.

“It’s a very visible, tangible effect if prices start to shift or if certain produce becomes unavailable,” he said.

Yet Harry Smit, a senior analyst at Rabobank in the Netherlands, said it’s unlikely the U.K. will levy tariffs on food imports because it’s so reliant on foreign fare, and tandem taxes imposed by the EU –- making British exports uncompetitive there – would create domestic surpluses of lamb, barley and other farm products.

Plus, increasing commodity prices for food manufacturers don’t always lead to higher costs for consumers, said Sarah Baker, senior strategic insight manager at the Agriculture & Horticulture Development Board. For example, wheat only accounts for about a 10th of the cost of a loaf of bread.

“If consumers are increasingly price conscious, you can see that everyone in the supply chain needs to take a bit of a knock,” she said.

The current upheaval from politics, coronavirus and the climate is prompting some growers to make long-term preparations. Julian Gold invested in new grains storage at the farm he manages in South Oxfordshire so he could diversify his plantings and keep them ready for market over longer periods.

The 750-hectare (1,853-acre) estate stopped raising sheep for the first time in his 28-year tenure in case a no-deal cuts off vital sales to the EU, and he plans to rent a small field to a fruit or vegetable grower as the pandemic fuels a buy-local boom.

“We’re in a more volatile world,” he said.

— With assistance by Agnieszka de Sousa

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Business

A Kimchi Disaster Is Brewing After Cabbage Fields Crippled

A series of typhoons in South Korea this summer has left the country blindsided by a kimchi catastrophe.

Fields of cabbages — which are usually seasoned with spices this time of year and left to ferment for months to make South Korea’s favorite pungent dish — were wiped out across the country due to the extreme weather, causing prices to surge more than 60%.

“Cabbage prices are going nuts,” said Jung Mi-ae, a mother of two who usually loads up on the vegetable in fall to make her own kimchi. “I had to rub my eyes to see the price tag again because it didn’t make any sense.”

In a normal year, South Korean households buy cabbages and other vegetables in bulk to make kimchi for the next year, a season called “gimjang” and a tradition passed down through the generations for over a century.

But this year, the longest-ever rainy season as well as three big typhoons caused flooding in August and September, damaging crops and disrupting supplies. The nation’s fresh food prices climbed 22% last month to the highest since early 2011, Korea Statistics said.

It’s not just households who are suffering. Daesang Corp., South Korea’s top kimchi producer, said it has temporarily suspended online sales because of the cabbage shortfall. CJ CheilJedang Corp., another major food company, said it’s looking for alternative supplies to meet demand that’s especially high this year as more people eat at home due to the coronavirus pandemic.

“Cabbage in particular is quite sensitive to climate change and any sort of extreme weather will be detrimental to its output,” said Kim Dajung, a research fellow at the Korea Rural Economic Institute. “While prices are starting to stabilize, uncertainties over price will continue to persist until the gimjang season begins in mid-November.”

There is some hope. The ready-made kimchi shortage should ease because recent favorable weather means cabbage prices will cool off, the agriculture ministry said.

That should provide some comfort for people like Lee Neung-hwa, a 64-year-old housewife whose kimchi fridge is starting to look bare. Most South Korean households own a fridge specifically for the condiment to store their kimchi at the ideal temperature.

“Gimjang must go on,” she said. “At this price though, that means less kimchi stew from now on.”

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Markets

China September Inflation Slows as Food Price Gains Moderate

China’s consumer inflation slowed in September, driven by a moderation in food price gains.

  • The consumer price index rose 1.7% last month from a year earlier, following a 2.4% gain in August, the National Bureau of Statistics said Thursday. The median forecast was for a 1.9% increase.
  • The producer price index registered a 2.1% decline, after a 2% drop in August.

Key Insights

  • Pork prices, a key element in the country’s CPI basket, rose 25.5% after gaining 52.6% the previous month. The moderation has some effect on lowering inflation for households, but base effects are also present — prices of the meat hit record levels during the peak of the African Swine Fever pandemic last year.
  • Core inflation, which removes the more volatile food and energy prices, remained steady at 0.5%. Sluggish core price gains may signal weak underlying activity in the economy.
  • “The deflation risk is still looming,” said Raymond Yeung, chief greater China economist at Australia and New Zealand Banking Group. “China is just regaining its growth momentum rather than overheating. The economy is still operating below the potential level.”
  • China’s economic recovery has stabilized recently thanks to robust export growth and improving domestic demand as coronavirus cases have largely been brought under control at home. The September activity data and third-quarter GDP to be released on Monday will provide some glimpse into how sustainable the rebound is.

What Bloomberg’s Economists Say…

“The demand side still has some distance to go to recover to pre-virus levels. For the People’s Bank of China, the data make the case for continued support. We think it will take a go-slow approach to easing, while keeping a close eye on how the recovery progresses.”

David Qu, Bloomberg Economics

See here for full report

Get More

  • Due to lagging rebound in household consumption “companies still refrained from raising prices, as reflected in the subdued core CPI and downstream PPI,” said Michelle Lam, Greater China economist at Societe Generale SA. “We are starting to see stronger momentum in consumer spending over the last two months, but a more widespread improvement in price pressure is going to take some time.”

— With assistance by James Mayger, Miao Han, and Tomoko Sato

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World News

Michelin says it sent food reviewers to Burger King after the fast-food chain begged for a chance to be awarded one of its coveted stars

  • Reviewers inspected Burger King restaurants in Luxembourg and Belgium to see whether its new Master Angus burger deserves a Michelin stars.
  • They treated the fast-food chain like any other restaurant they review, and remained anonymous during their visit.
  • Burger King has to wait until November 1 to hear the verdict.
  • Last month, Burger King Belgium launched a petition to get a Michelin star for the restaurant's new Master Angus burger, telling reviewers: "yes, you will be served on a tray."
  • Visit Business Insider's homepage for more stories.

Two Michelin reviewers visited two Burger King restaurants in Luxembourg and Belgium to see whether the fast-food chain deserves one of its coveted stars.

The inspectors both ordered a full meal, including Burger King's Master Angus burger, Michelin told Business Insider. The reviewers remained anonymous during their visit to ensure staff didn't give them preferential treatment.

The inspectors then drew up a report based on the five criteria of the Michelin Guide: product quality; mastery of cooking techniques; the personality of the chef in their cuisine; harmony of flavors; and consistency between visits.

See more: Here's how Burger King, Chipotle, Domino's, and Subway are adapting their marketing as customers move to a delivery-based future

The two inspectors will meet to discuss their visits and decide whether to award a star to Burger King.

But the chain will have to wait until November 1 to see whether Michelin has included it in its next guide for Belgium & Luxembourg.

"You will be served on a tray," says Burger King

The Michelin inspection comes after Burger King in Belgium and Luxembourg launched a Change.org petition last month to get a Michelin star for its new Master Angus burger.

"We know very well that 'Burger King' and 'Michelin star restaurant' don't mix," Burger King Belgium CEO Kevin Derycke wrote on the petition.

Rather than silver cutlery, satin tablecloths, and valet parking, reviewers will be faced with paper napkins, finger dining, and a drive-thru, Burger King Belgium CEO Kevin Derycke joked.

"And yes, you will be served on a tray," he told Michelin reviewers.

"Who said you needed silver service?" Michelin responded.

The Michelin Guide was launched to sell tires

The Michelin brothers, who were French car tire manufacturers, launched the Michelin Guide with maps, hotel and restaurant information, and tire repair advice in 1900. Their aim was to encourage more people to drive — and in turn, buy more tires — at a time when there were fewer than 3,000 cars in the country.

Over the decades this expanded to include a more comprehensive restaurant guide. The brothers also started to charge for the guide, and removed the paid-for advertisements previously included.

As the influence of the guide grew, the brothers recruited a team to visit and review restaurants anonymously.

The guide first awarded a single star to the highest-quality restaurants in 1926, but five years later it expanded this so that restaurants could be awarded up to three stars.

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