That meat processor Vion is deciding to exit the UK came as a surprise to Shore Capital. The Dutch group is to focus on food ingredients, Germany and the Netherlands. Time will tell who runs the British operations. Some will close, some will be bought by management perhaps, and some may be acquired by competitors.

Vion’s announcement came in the same week that Premier Foods announced the closure of two bakeries and several distribution depots, and follows on from other rationalisation moves across the industry, including the closure of the Dairy Crest spreads facility at Crudgington.

Off-setting this capacity reduction has been limited new factories in the food industry we think of Arla’s Buckinghamshire dairy and Samworth’s proposal of a new Leicestershire plant.

Overall, however, focus and concentration is tightening up capacity. New capacity is not coming on-stream because, in many cases, returns do not justify what is often considerable capital expenditure, reflecting the challenging conditions of the supermarkets and demonstrably subdued consumer demand.

“It’s easy to see how the mults have had their margin growth reversed”

Increasingly, we sense that balanced markets will encourage more of the supermarket industry to be more strategic in their sourcing policies. In fresh foods in particular, capacity reduction may mean that securing adequate product of the appropriate specification will be a higher priority than has perhaps been the case in recent years.

Quite whether this re-balancing of priorities leads to improved margins and returns remains to be seen, but we certainly see emerging balances providing for a potentially better context.

And with power in the food chain shifting towards the agricultural producer and trader on the one hand, combining with the empowerment of the consumer through the internet on the other, it is easy to understand how supermarkets have seen their long-standing margin expansion reversed and their equity de-rated by stock markets.

Correspondingly, investments in agriculture and consumer staples companies, particularly branded, have been re-rated. Recent and ongoing developments represent a remarkable supermarket squeeze.