Autumn 2008

A new era

It is possible to distinguish two eras for the post war UK food chain: the first which lasted until the early 1980’s was one of expansion for home grown food; and the second which lasted throughout the 1990’s and into this decade saw the emphasis switch to value added and quality. The food chain is now entering its third post-war era, one in which food has become a truly globalised industry.

Increased sensitivity and volatility

Over the past 18 months we have experienced the impact of the structural changes associated with this new era. Most notably there has been a tightening in the global balance of supply and demand for key commodities and a step-change to a new higher priced plateau for agricultural products. The tightened global balance has brought with it greater volatility in agricultural prices graphically demonstrated by the doubling of cereal prices between 2006 and 2008. The trigger appeared to be a reduction in the stock-to-use ratio caused largely by the effects of adverse weather but it demonstrated the increased sensitivity of the world’s agricultural markets to relatively small changes in the balance of demand and supply.

New drivers of change

Cereal prices have now fallen back from their peaks earlier this year but the current turmoil in the world’s financial markets and the possible onset of a UK, if not global, recession have added new uncertainties to agricultural and food markets. Our purpose here is to better understand the genesis and strategic implications for food businesses of this ‘third era’. In particular how the factors that are driving change are likely to shape food markets and the behaviours of food businesses and their farming suppliers.

Table 1: Historic trends
Figure 1: Historic strategic focus
Table 2: Future trends
Figure 2: Future strategic focus

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