Farmgate prices may fall further before rebound, analysts say

Food prices will start to turn a corner and move upwards in mid-2016, predict analysts.

But the current period of deflation, which has taken its toll on farmgate prices, may still push agricultural commodities lower for the next six months before changing direction.

Sion Roberts, senior partner at consultancy European Food and Farming Partnerships (EFFP), said: “We think the agri-food industry is at a turning point. We must be moving towards the bottom of the market.”

See also: Imports soar as fruit and veg growers face retailer ‘battlefield’

He forecast that deflation would continue for a period yet – including in dairy  – but that prices in general were searching for a bottom point and that by mid-2016 they would start to move upwards.

However, risks remained – including a slowdown in the global economy and possible weather shocks.

Other challenges

Farmgate prices also faced other challenges such as the impact of a strong pound, the heat coming out of the land market and the EU dairy industry still finding out how to cope post-quotas, said Mr Roberts.

However, demand for food commodities was likely to grow in the UK and globally and so long-term contracts between suppliers and retailers were needed to build trust over time.

Easing deflation 

Clive Black, director and head of research at analysts Shore Capital, said he agreed that deflation would ease around the middle of next year.

He said supermarkets were starting to “fight back” from food deflation and the pressure from the discounters and he expected the importance of superstores to come back.

But he said despite an improvement in consumer confidence, people’s shopping habits had not gone back to how they were before deflation – and this meant smaller basket sizes as people were wasting less.