The heat in Britain has broken records in the last two weeks. France has had the hottest summer since 1949, while temperatures in Germany have approached 40 degrees Celsius. Sales of ice-cream have shot up. But the effect on food consumption is more complicated than that. Chris Lyddon looks at how the food industry prepares for a long hot summer.
Go deeper with GlobalData
The big British supermarkets use weather forecasting to predict demand. “We have a person who ensures that all of the various buying categories know what is going to happen with the weather,” Tesco’s Steve Gracey told just-food.com. “We get to know about one to two weeks in advance.”
One industry which is particularly sensitive to the weather is ice-cream. Manufacturers in the sector rely on experience, Lisa Green of the Ice Cream Alliance told just-food.com. “It’s not an entirely exact science,” she said. And the weather had become less predictable. “It’s based on a tradition of experience and their being very responsive,” she said. “They build up stocks and then when the weather is hot they work like billyo.”
Weather forecasts too short term
Weather forecasts were not accurate or long term enough to help ice-cream makers plan. “If you’re in June you can’t buy a forecast that will tell you whether the season’s going to end at the end of August or carry on for another month,” she said.
How well do you really know your competitors?
Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.
Thank you!
Your download email will arrive shortly
Not ready to buy yet? Download a free sample
We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form
By GlobalDataBritish ice-cream makers have had a very good year so far, Green said, although final results would not be available until after the end of the season, and the effect of the weather had been patchy. “In the main they just hope the sun will shine,” she said.
Fresh produce packers do use weather forecasts, Doug Henderson, chief executive of the Fresh Produce Consortium told just-food.com. The option of building up stocks in advance was not open to them, he said. “All you can do is market the crop you’ve got.” But there was “a degree of self-rectifying,” in the process. “Hot weather brings increased demand for certain products, but it also brings those products to maturity much faster,” he said, referring in particular to berry fruits. “The supply goes up as the demand goes up.”
Hot weather creates extra problems with deteriorating produce, he said, but the highly efficient UK supply chain could take the strain. “The efficiency of the supply chain is very important. You need to get the produce onto supermarket shelves as soon as possible.”
For the fresh produce industry, shortages have to be covered by importing. “People start searching for supplies from overseas,” he said.
Meat sales down overall
The overall volume of meat sales tends to be lower during the summer, but the big changes are in the pattern of consumption, Meat and Livestock Commission marketing director Richard Lowe told just-food.com. “There are more roasts sold in October to March than April to September, but steaks benefit from barbecues so they don’t lose out in hot weather,” he said. The MLC has detailed statistics on seasonality of meat purchases, the latest based on 2000 to 2002. Taking full year sales as 100, they give an index which shows steak at, for example, 104 in the four weeks ended 20 July, bacon steaks at 111 and pork chops at 105. The starkest contrast is with stewing beef at 66 in the same period and pork leg roasts at 73.
The meat sector’s ordering system can respond very quickly to shifts in demand. “The retailers are so much more slick than they used to be in passing information back to suppliers,” Lowe said. “Their ordering patterns are pretty responsive to what’s happening in the shops.”
Massive jumps in some sectors
The sales figures from the supermarkets have been impressive, to say the least. As the heat wave started, Safeway said it had seen an 800% increase in burger sales. Iceberg lettuce sales were up 700%. Last week Sainsburys reported a week-on-week rise of 60% in beer sales, with a 60% rise in prepared salad sales.
Tesco’s Steve Gracey told just-food.com that his company had seen unprecedented demand for barbecue food, sun cream, ice-cream and so on. “It’s been a record week for us on a number of fronts,” he said. “We couldn’t have dealt with it without being prepared and working closely with our suppliers.”
Britain’s Meteorological Office supplies Safeway, for example, with a daily weather service, retail account manager Richard Bennett told just-food.com. “Safeway have forecasts ten days ahead for fresh produce planning, which means they are looking at dispatch from suppliers three, four or five days in advance,” he said.
Weather forecasts 30 days out were available for those further down the supply chain, from growers through processors and distributors. “The main thing is to react accordingly,” he said. “Under certain conditions, with glasshouses, they force things, bring them on.”
But the industry’s use of weather information remained patchy, he said. “We’re trying to raise the profile. What people really need is longer range information, like ten to 30 day forecasts,” he said. “If they get it right there’s a huge opportunity.”
Future lies in derivatives
A more sophisticated future for dealing with weather risk lay in hedging, using, in effect futures contracts in the weather. “It’s big in the States and it’s starting to take off here,” Bennett said. It could benefit a wide range of industries, not just food. “If you’re an umbrella manufacturer the last two weeks have been a pretty sad time.”
The Met Office was already working on this area, tailoring contracts for a company’s needs. “We do analysis on the product a company sells and then basically provide a temperature-based derivative,” he said. “You get a payment back from the weather-based derivative.” A soup manufacturer, for example, might get money back if the weather exceeds a certain temperature, based on a range of sites around the country. “Ideally that’s the way we’d like people to do it in the future,” he said.
The benefits for the food industry of making the right decisions about the weather were huge. “For a company like Safeway the level of reward they can achieve by having the right thing in the right place at the right time is amazing,” he said. But most of the industry was still relying on being able to respond quickly. “There are food manufacturers as we speak running 24 hour shifts and desperately trying to keep up.”
Other industries have looked long and hard at ways of handling weather risk. The Euronext futures and options exchange came up with weather futures contracts after studies done by energy companies. “In theory they could be used by people selling winter coats, ice-cream or cool drinks,” Malcolm Wall-Morris of Euronext told just-food.com. “It allows you to buy or sell temperature.” But in contrast to the Met Office idea of tailored derivatives which fit each case, the idea of the Euronext contract was to provide a general weather hedge. “It’s very much up to the end user to work out the correlation between the weather and their risk profile.”
For the UK contract, one degree Celsius change in the weather is worth £3,000, with the value worth £30 for each 0.01 degree. It is quoted for twelve “delivery” months. Launched late in 2001, the contract has been slow to take off, with use limited to energy companies. Wall-Morris concedes that an education job is necessary. “The challenge in listing a regulated weather futures contract was that our traditional users who understand how to trade derivatives know very little about the weather and those who know about the weather know little about derivatives”.
