•Food prices will continue to rise in 2023 and this is a serious concern for many consumers in Europe. What impact will this have on industry innovation and market demand in 2023?
Examining economic trends in the eurozone and Britain, analysts suggest, cautiously though, that inflation may moderate further and that Europe may leave price hikes in the past. According to Eurostat, inflation in the euro area fell for the second consecutive month in December 2022, reaching 9,2% compared to 10,1% in the previous month.
The drop is driven largely by lower fuel prices, with European economies, helped in part by a mild winter, showing unexpected resilience in the face of energy sanctions imposed on Russia following its invasion of Ukraine.
Gas prices are now back to where they were before Russia initiated military action against Ukraine. But for many households, the cost of living remains extremely high.
This is also reported by Bradley Post CEO of RIFT Tax Refunds, quoted by FoodNavigator: "While the inflation rate continues to decline from its first 41-year high reported in October 2022, this will do little to ease the financial burden many households are currently facing." it looks like we've reached the top and started the descent, but looking down, we still have a very long way to go."
Reduced purchasing power
Indeed, the latest data published by Eurostat shows that in December 2022, food, alcohol and tobacco prices rose at a rate of 13,8% annual rate. In the UK, figures released by the Office for National Statistics paint a similar picture of double-digit increases, with food price inflation in the year 2022 to December rising 16,8%.
Purchasing power is strongly affected: "We all feel it. The result, inevitably, is a more cost-conscious buyer", said Charlotte Commarmond, vice president at Ingredient, for FoodNavigator. "We saw this in 2022. To some extent, we saw it with the pandemic: consumers are cautious about spending money."
Declining purchasing power is a phenomenon that is expected to continue to impact the food and beverage market as a result of the bleak economic outlook for 2023.
"Everyone is going through a cost of living crisis right now", observed Vicky Davies, global marketing director for FrieslandCampina Ingredients. “And I think it's just the beginning... [2023] is going to be tougher. Consumer purchasing power has been dramatically affected. We all feel it."
The stability of the supply flow of raw materials will be important in 2023
Extreme weather events, along with limited supplies of raw materials from Ukraine since the Russian invasion, have disrupted global supply chains. The ingredient companies confirm this. "Sometimes sourcing is difficult and then we face other practical challenges, for example logistics or availability of drivers", explained Renee Boerefijn, director of development at Bunge.
Also the French manufacturer of ingredients Roquette anticipates that crop availability will be a challenge for the profile industry in 2023. "There are several challenges [in 2023], inflation is one, and the other is the availability of crops, as a consequence of The war in Ukraine but also the drought in Europe", explained Pascal Leroy, senior vice president of Roquette.
Delivering products efficiently to customers and proving that they are a reliable, expert partner in handling any obstacles that may arise will be essential for ingredient suppliers. "It's going to be a challenge, but we're here for it ... we have availability for 2023 and beyond", Leroy pointed out.
Nutrition and sustainability still important
If the outlook for balancing the economic balance is unlikely to materialize in the near term, what impact can we expect this to have on the availability for innovation this year? Will companies focus their efforts on cutting costs and replacing ingredients with less expensive alternatives?
Or can we expect food and beverage brands to reduce their investment in research and development as they strive to keep their own costs under control and offer consumers the lowest possible prices?
CEO ABF Ingredients, Saadane-Oaks, noted that while food brands are still innovating, their willingness to research and develop is slightly diminished by the global situation.
"We see the food industry continuing to invest and innovate. But manufacturers are more cautious than before. I wouldn't describe this as a slowdown, but more of an increased selectivity. Long-term high-risk investments are avoided", Oaks tells FoodNavigator.
Uncertain economic situation
This means that the areas where "the science isn't settled yet", meaning it will take longer to bring new products to market and generate profits, they have been "put on hold". However, Saadane-Oaks says it is still investing in research and development to bring innovation to categories such as high-nutrition and plant-based products.
Company Freisland Campina, as a major supplier of nutritional ingredients, hopes to be able to counter the difficulties facing the niche market. "Economies around the world are fluctuating. It is inevitable that it affects us. But our focus is on top nutrition and we will always strive to deliver that to customers.”, pointed out Vicky Davies.
Forecasts for the year 2023 show that, as far as the food sector is concerned, price will be of fundamental importance. Added to this are the other components such as nutrition, taste, durability and affordability.
Even if cost is important to the consumer, he still prioritizes the taste and sustainability of the purchased products, although he does not seem willing, for the foreseeable future, to pay a higher price to finance the sustainability work of brands.
Article written by Gabriela Dan, Editor of Arta Albă
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