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Brexit Food Price Index (BFPI), December Update

Posted by minteclimited on Oct 28, 2019 9:48:39 AM

 

Brexit Food Price Index Methodology

The purpose of this Brexit food price index is to measure the changes in the price of selected food categories that are reportedly highly sensitive to the outcome of the Brexit process, particularly since the referendum in June 2016. The index will be updated and reported on a monthly basis.

Categories have been weighted based on the value of UK agri-food imports from the EU, with the fruit and vegetables category carrying the highest weighting, as the UK has a significant deficit in fruit and vegetable production.

The overall index (Chart 1) shows a spike after the referendum and has since been maintained at this high level. Various categories have driven the index at different points; however, the drivers have not been limited to Brexit, as discussed within the various categories below..


Chart 1: Overall Brexit Price Food Index

 

chart 1-4

Chart 2: Brexit Food Index by Category

chart 2-5

 

Analysis by Category

Fruit and Vegetables

The UK fruit and vegetable index increased by 8% in November compared to October, driving the overall Mintec Brexit food price index up. Pepper prices sourced from Spain are up 18% m-o-m in November due to an increase in export demand from other EU countries. An adequate supply of tomatoes from the Netherlands has resulted in weak tomato prices in the UK when compared on a m-o-m basis. Potato production in the UK is estimated to increase by approximately 12.5% y-o-y in 2019/20 weighing on the y-o-y prices. However, the m-o-m prices have strengthened as heavy rains over the last few weeks have resulted in extreme floodings. More potatoes have been abandoned in the ground in some parts of the UK, which is expected to strengthen prices further.

Meat

The UK meat index remained stable in November, despite an increase in UK beef and pork prices. UK pork prices remained strong in November on the back of booming shipments to China which rose 20% y-o-y in October, to reach 25,100 tonnes. China accelerated its position as the UK’s number one market for exports, achieving a 41% market share. Volumes to China increased by nearly 150% compared with a year earlier. Beef prices were mainly driven by an increase in exports by 27% y-o-y to reach 12,200 tonnes, supporting a price increase.

Dairy

The UK dairy index was unchanged m-o-m in November as prices for butter, cheddar and milk were relatively steady compared to October readings. The AHDB estimates that the milking herd will continue to shrink in 2020 but at a slower rate than previously, due to stable numbers of young stocks (cows under 2 years).

Butter prices saw a marginal increase in November and are now up 5% since August, after falling previously for an extended period. The prices have increased on the back of stronger export demand, benefiting from competitive price advantage against other major butter producers.

Grains

The UK grains price index has slightly increased by 3% m-o-m in November and still 19.5% higher compared to the beginning of the referendum in 2016. The recent increase was driven mainly by the rise in wheat prices, following wetter-than-expected weather conditions this autumn. Due to the heavy rains, plantings of winter wheat were delayed, supporting the price increase. According to the AHDB, the UK wheat planted area is expected to drop 9% y-o-y - the lowest planted area since 2013.

On the other hand, barley prices have remained relatively stable in November, only rising slightly. This is due to the market anticipating higher production for the 2019/20 season, with planting for spring barley forecast to rise 28% y-o-y.

Fish

The price of UK cod dropped significantly in November (-15%) compared to the previous month. This is the result of increased fishing activities during October and at the beginning of November. Therefore, cod availability rose due to higher landings adding pressure to prices. In addition, a reduced quota for 2020 has encouraged vessels to increase the days at the sea in order to build stocks until the new quota comes into place. As of November, UK cod prices are costing 19.5% more than they did in June 2016 (referendum date).

Oilseed


The oilseed index increased by 3% m-o-m in November, mainly driven by the strong demand for sunflower, depleting stocks in the EU at a fast pace. EU sunflowerseed production is still estimated to decline slightly y-o-y, which could be offset by the larger output from Russia. Additionally, the rally in palm oil prices in the last few weeks have driven vegetable oil prices in the EU and in the UK, and this trend is likely to continue in the next few months. The decline in rapeseed oil output in the EU is partly adding upward pressure on the other vegetable oils, including the sunflower oil. This has also supported the Brexit oilseed index in November as buyers are looking into the most competitive alternative to fulfil the EU demand.

Conclusion

The Mintec Brexit Food Price Index has increased a monthly increase, in line with most categories, except the dairy index, which has remained fairly stable and the fish index which has dropped.

The commodities within the Brexit index continue to be primarily driven by market fundamentals but in the short-term, the currency is expected to remain a critical Brexit-related factor that will have an impact on commodity prices. 

 

 

Topics: commodities, Brexit, price data, commodity prices, price series, analysis, spend analysis