The Mangelwurzel

The humble mangelwurzel, despite its versatility and high nutrient content, is unfortunately one of the more overlooked vegetables in Britain’s fields. With its roots as deep in the earth as they are in German diction, wurzel, meaning root in Deutsch, the unassuming Beta vulgaris has had a significant impact on domestic culture over the years, nowhere more so than in the South West.

With the nation basking in temperatures more akin to growing pineapples than beets, many have compared this summer to the great heatwave of 1976. Registering a total of 31 days of temperatures over 30°C with five days exceeding 35°C, the UK faced prolonged droughts and even a chronic ladybird infestation during that now infamous summer. It was with some irony however that during what was one of the hottest Junes on record, popular Somerset based folk band, The Wurzels, topped the charts with their timeless classic “The Combine Harvester”.

It could be argued that harvesting and the wider agricultural sector are the most susceptible parts of the domestic economy to the sun’s searing rays. Back in 1976, a mixture of devastating forest fires and parched soil led to £500 million worth of crops failing, subsequently pushing up food prices by 12%. Although parallels can’t be drawn with the nation’s music taste, the impact the weather has had on farmers during this recent hot spell has remained constant. Whilst there has been no Minister for Drought appointed this time round, the big difference with 1976 is the particularly cold winter we have just endured. Even though March’s snow may now seem like a distant memory, its legacy has meant that planting was seriously delayed, leaving limited time for crops to establish themselves.

Getting produce out of the ground is also anticipated to be more of a challenge this year as the heat has caused staple fruits such as apples and pears to ripen at a much faster pace. Fruit that should normally be picked later in the summer ripening at the same time as other maturing crops will no doubt put added pressure on a dwindling amount of pickers from eastern Europe. The UK is now reaping what it has sewn, or not as the case may be, since workers from countries such as Bulgaria and Romania think twice about seasonal work in the UK. After 2016’s Brexit referendum, and with sterling’s fall in value, the UK is a less attractive destination than it might have been for EU workers sending money back home. With such low yields being harvested, prices for what little has been produced have increased dramatically. For example, wholesale prices of cauliflowers have jumped 81% with carrots and onions rising 49% and 55% respectively in just a month, a potential iceberg for supermarkets who are already absorbing higher input costs on their margins.

The intertwined nature of the weather and the economy is not just restricted to the countryside, with the high street also feeling the proverbial heat. Although food sales have been at their highest for five years this summer, the retail climate is far from sunny, forcing the British Retail Consortium to admit that “autumn could not come sooner” for many retailers. With consumers continuously tightening their belts, the recent heatwave has failed to halt a prolonged decline in spending. Whilst you may expect the sun to draw out shoppers desperately hunting for BBQs and air conditioning units, the feel-good factor and the confidence warm weather brings is usually somewhat economically ambiguous.

It seems that the mercury’s rise has little correlation on a rise in spending. Although the sun obviously boosts demand for BBQ friendly food and drink as well as for summer clothing, sunglasses and sun tan lotion etc, there is little evidence of an additional net spend. For example, pubs have taken share away from restaurants, whilst spending on beef burgers for outdoor parties has replaced roast beef for Sunday lunches. It is clear that the weather acts as a double edged sword, raising demand for items that keep us cool whilst dismissing the need for consumables that will keep us warm. As the sales of ice cold beers rise in the summer, so the allure of a toasty hot chocolate tumbles; its one or the other regardless of the weather. The effect therefore of a heatwave is not to increase spending amongst consumers; the warm weather merely diverts it.

Interestingly, it is not just the product but the quantity that is also affected by the sunshine. The Office for National Statistics has reported that for every 1% increase above the average temperature during the summer months, there is a 1.2% rise in ice cream sales and a staggering 2.4% for cold alcoholic drinks. Of course economic factors also have to be brought into consideration but it seems as the heat rises, so can profits.

As any Brit will tell you, it is always worth keeping an eye on the weather and for economists it is no different. Weather and economic forecasting require the same amount of approximation as each other, but we can be sure that, as with any situation, there will be winners and losers. The economic effects of a heatwave are subtle at best. But in a weather-sensitive economy, understanding how the weather impacts consumer trends is vital. Not going against the grain it seems, is the best way to harvest consistent returns.

 

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This article is for information only and does not constitute an offer or solicitation of an order to buy or sell any securities or other financial instruments, or to provide investment advice or services. The mention of any specific shares or bonds should not be taken as a recommendation to deal. Any opinions expressed in the Investment newsletter are made as at the date of publication but are subject to change without notice and should not be seen as investment advice. Information obtained from external sources is believed to be reliable but its accuracy or completeness cannot be guaranteed.

 

Tags: Analysis, Economy, Investment, Market, Newsletter

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