Updated: June 11, 2021
Food Industry Faces Rising Costs
JUNE 15TH, 2021
Global food prices have surged by the biggest margin in a decade, reports the Financial Times, saying that one closely watched index jumped 40% in May (up from 92.0 in May 2020, during lockdowns). Widespread materials shortages, production snags, transportation capacity crunches and delivery delays are driving prices on everyday items, including food, up.
Prices, however, are not rising in a uniform way. Apples and oranges are up more than 7 percent over the past year. Cereal prices have increased 36.6% since last May and sugar prices are up 57% since last year. Canned fruit and vegetables have risen by more than the overall average, and the price of pork soared 2.6 percent in the month of April and 4.8 percent from a year ago, adjusting for seasonality. Meat prices have increased 10% since May 2020 and dairy products have become 28% more expensive over the last year.
“The structure of the economy has changed. We recognize the new economic reality and market challenges we face, specifically the inflationary pressure we are facing on all fronts which is forcing us to increase our prices,” says Mohammad Abu-Ghazaleh, chief executive of Fresh Del Monte Produce.
Suppliers and logistics providers say distributors are facing shortages of everyday products like chicken parts, as well as difficulty in finding workers and surging transportation costs as companies effectively try to reverse the big changes in food services that came as coronavirus lockdowns spread across the U.S. last year.
“Over the last six weeks, we have seen the market come roaring back faster than anybody would have anticipated,” said Mark Allen, chief executive of the International Foodservice Distributors Association. “The start up has been, in many ways, as difficult as the shutdown…Everybody is trying to turn it on immediately and the capacity might not be there.”
Broader supply-chain upheaval is also hitting food distributors, delaying shipments of overseas products to the US like tuna and olives and holding up delivery of corrugated cardboard and other packaging materials. The disruptions and changes in delivery patterns are driving up transportation costs because the specialized refrigerated truck trailers needed to transport food are in such high demand or out of position.
Container shipping rates are also being driven to new heights by unrelenting consumer demand and company restocking from Europe to the US that are exhausting the world economy’s capacity to move goods across oceans.
Euro-area manufacturers are battling unprecedented delays in securing raw materials and parts, leading to a record build-up of uncompleted orders and rising prices as the global economy starts to recover. Separately, researchers at the European Central Bank said all the chain difficulties will delay but not derail the global recovery. “As lockdowns are lifted and consumers rebalance their spending toward services, some easing of the current supply bottlenecks should be expected, with knock-on effects on shipping costs,” they wrote in a note published late May.
The US Federal Reserve’s confidence that supply-chain bottlenecks and labor shortages will pass is endorsed by most economists. But the pandemic’s aftermath is unlike any previous period, meaning that all forecasts are clouded by uncertainty.
The price picture also is expected to change this summer across North American and European markets as consumers redirect money they are now spending on goods into services such as restaurant meals and movie tickets. How quickly that change will occur — and how it will affect various prices — is a matter of debate.
Still, most economists anticipate that current production and labor bottlenecks will sort themselves out by the end of the year. Even those who anticipate higher-than-consensus inflation do not expect a full-scale inflationary breakout and expect to see prices level out by the winter.
“The Procurement & Logistics Team at Foster’s is working around the clock to monitor market trends and prices. Production, shipping, and manufacturer cost increases are greatly affecting the industry as a result of increased demand, and we are working to keep our retail prices as low as possible by finding efficiencies in our category management and logistics, sourcing product from alternate suppliers. However, with the rise is costs across industries, retail price increases are inevitable. We’ve continued to see prices increase across the board since late last year as the world dealt with the effects of the pandemic. As best possible, we worked to keep cost increases to the consumer at a minimum, but as prices continue to rise to their highest points, retail prices in supermarkets will inevitably rise. So far, we’ve seen increases range from .5% to as much as 50%. But as soon as we’re able to lower retail prices again, we will, and when we’re able to secure deals from vendors, we’ll pass the savings on to our customers in the form of sales and temporary price reductions across all of our locations.
With customer satisfaction our top priority, we ask that should you see any price discrepancies, or if something seems off with pricing, quality, etc., please speak with your local Foster’s Store Manager or email [email protected] with details.” – Julian Foster, Marketing & Customer Relations Senior Manager