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Tough time for consumers
The past year has been a particularly difficult one for consumers and consumer expenditure looks likely to have fallen by over 1% in real terms in 2011. The UK recently experienced its deepest recession since the Second World War, during which GDP fell by over 6 per cent between the first quarter of 2008 and the third quarter of 2009. While household incomes remained resilient in the early stages of the recession higher-than-expected inflation has squeezed household incomes over the past twelve months and as a consequence, consumer spending. Consumers remain very cautious and after allowing for inflation the value of consumers’ expenditure remains well below pre-recession levels. The consensus forecast is for a small increase in consumer expenditure in real terms in 2012 – the first half of the year not being much better than in 2011 but improving thereafter. Hopefully the summer and the Olympics will be a turning point for both the economy and consumer confidence. Retail Food Inflation to fall sharply Retail food inflation in the UK peaked in the summer of 2011 at a little over 7% - around half the level seen in the last cycle of 2007/8. It started to fall through the autumn and the latest official figures – released in mid-December - are for November and showed food inflation still running at just a shade under 5% year on year. We believe that it will fall sharply from its current levels in the months ahead. First, because general inflation in the economy as measured by the CPI appears to have peaked in the late autumn of 2011 and is now falling back.
Second, because after rising strongly in 2010, an improved global grain harvest in 2011 and continued global economic weakness is being reflected in lower agricultural commodity prices. Meat remains the main sector where prices are yet to start weakening.
As a consequence we are forecasting that retail food inflation will continue falling dropping from its current level falling below 2% by the second half of the year. With great uncertainty in the economic environment as events in Europe unfold there remains a significant further downside risk if the UK were to suffer a double dip recession.
Difficult to predict is the relative effect on the retail versus the food service sector. If the downturn in 2008/9 is any sort of guide then retail will benefit over food service as people choose to stay at home rather than eating out.
Insights from senior farming and food leaders and surveys conducted by EFFP.
Nick Vermont, Regional CEO, McCain Foods presentation from EFFP'S 2011 Annual Conference - demonstrating the clear success of how supply chain partnerships can work in practice.
