Lower oil price to have ‘limited’ impact on food industry: Rabobank

By Caroline SCOTT-THOMAS contact

- Last updated on GMT

Sales of premium foods may benefit from lower prices, Rabobank said, although the effect was likely to be limited for most foods and drinks
Sales of premium foods may benefit from lower prices, Rabobank said, although the effect was likely to be limited for most foods and drinks

Related tags: Cost

Lower oil prices may affect retail food prices in the long run, but they are unlikely to have a large effect on the food industry, says a new analysis from Rabobank.

Rabobank predicts that oil prices will remain low throughout 2015 and estimates the price of Brent oil will average $66 a barrel this year, compared to $100 a barrel in 2014.

Energy is the third highest cost for the food and agribusiness (F&A) sector (after raw materials and labour) accounting for about 15% of total costs – and Rabobank estimates that oil accounts for about a third of this.

“For the global F&A industry, oil is not a major cost factor and lower prices will provide a limited upside to margins,”​ the report said. “Additionally, some of the upside will eventually be passed downstream in the value chain, initially to processors, then to retailers and finally – driven by competition – to the consumer.”

However, the lower oil price comes at a time when food commodity prices have also dipped, nearly as sharply as they did in 2008.

“Agri commodities make the largest contribution to total food costs and have the highest correlation with retail food prices,”​ Rabobank said.

Higher volumes for premium foods

It said that lower food prices were unlikely to drive up volumes for most foods and drinks, due to their relatively low cost and price inelasticity. Exceptions could include upmarket products like foodservices, wine and spirits, beef and pork, exotic fruits and fruit juices, and food and drink in developing regions, “where food is a bigger part of household spending”.

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