Credit and Suretyship forecasts that global food and beverage production will increase by 2.8% in 2024, followed by a 3.1% rise in 2025, while investment will grow by 2.3% and 3.9%, respectively.
According to its latest report, in 2023, “tightening credit conditions and high inflation weighed on real household incomes in most parts of the world. Although demand for food and beverages is more inelastic than for other consumer goods, it still decreased.”
The credit insurer highlights the high level of uncertainty in forecasts regarding food prices, which largely depend on changing weather conditions and geopolitical tensions. The main scenario anticipates a slight global decrease in food prices. However, an escalation of wars in Ukraine or the Middle East could trigger a new surge in food inflation. Another key risk concerns the impact of El Niño, which could disrupt global food supplies, pushing prices upward.
“In Western Europe, agricultural commodity inflation sharply increased in 2022 and 2023 due to supply chain disruptions, the war in Ukraine, and rising logistics and fertilizer expenses. Energy prices significantly affected the costs of cooling, processing, and transportation in the sector,” it explains, adding that, “however, the relative wealth of its countries, along with the essential need for food, helped mitigate any significant impact on sales caused by declining household incomes.”
Thus, it foresees that the current deflation process of food in Europe will continue in 2024. However, despite its recent decline, prices still remain above pre-pandemic levels. Factors currently pressuring costs in the sector include energy prices, transportation, labor, and interest rates. In this context, food production in Europe is expected to grow by 1.4% in 2024 and 1.5% in 2025. Adverse weather conditions, such as heatwaves that affected southern Europe in 2023, pose a significant risk to production and price evolution.
“The essential nature of food and its inelastic demand are among the main strengths of the sector, which has growth levers such as the boom in emerging markets, where increased disposable income translates into growth in higher value-added goods, changes in consumer tastes, demanding healthier foods, and the application of new technologies to big data solutions that enhance efficiency or the creation of new products resulting from scientific engineering,” notes Credit and Suretyship.
Among its weaknesses are structurally narrow profit margins under pressure, the impact of pests and adverse weather on price volatility, consumer pressures to increase product traceability, and pending investments in energy consumption, supply chains, packaging, and waste management to meet sustainability requirements, it concludes.
Source: Financial Food