KANSAS CITY, MISSOURI, USA – With prices of major grains, oilseeds and edible oils at or near eight-year highs, crude oil prices six times higher than a year ago, rates of Rising freight and material prices (eg cardboard and aluminum) and other rising input costs, can food price inflation be far behind? Not according to the US Department of Agriculture or many food manufacturing companies. If the expected surge in post-pandemic demand develops, as many expect, price increases could be larger later this year and into 2022.
At the end of April, the USDA predicted that the prices of all foods in 2021 would increase by 2% to 3% from 2020, while prices were up by 3.4% from 2019. Prices in March 2021 were actually up 3.5% from March 2020. Food prices are moving away. The household price is expected to rise 2.5% to 3.5% for the year, with the March figure up 3.7%. Home food prices are forecast to rise 1% to 2% for the year, with a 3.3% increase in March. The USDA ranks 45% of all food sales as out and 55% as home.
Comparisons with a year ago are difficult as it was such an unusual year, with significant price volatility for many commodities and ingredients and demand shifts to foodservice retail so that travel has slowed down considerably and much of the country and the world has taken refuge here. But just as last year was unprecedented, most expect demand to increase this year as the country and the world seek to return to some level of normalcy. The resumption of travel, which means an increase in demand for food services, should be part of such a transition for many. Nonetheless, home food demand is expected to remain above pre-pandemic levels as significant numbers continue to work from home.
“We continue to see signs that North America is emerging stronger from crises,” said Graeme David Pitkethly, chief financial officer of Unilever, at the end of April. “Demand for food at home remains high and our out-of-home business is recovering faster than expected. “
Several major food and beverage manufacturers issued “warnings” that price increases were underway.
“We are hedging and buying forward to cover part of this exposure, but this only delays the impact for a few months,” François-Xavier Roger, Chief Financial Officer of Nestlé SA, recently said of the input price increases. such as raw materials, packaging materials. and transport.
First quarter net profit (ended March 27) jumped 49% from the same period a year earlier at Kraft Heinz Co., and the company faces rising input costs for the remainder of the l ‘exercise, which could lead to an increase in the prices of its products, executives said during a recent earnings call.
Mondelez International reported revenue for the first quarter (ended March 31) up 4.3% year-over-year, with sales growth for the year expected of 3% or more. Luca Zaramella, chief financial officer of Mondelez, on a call with investment analysts, said his growth forecasts might be higher without the volatile cost environment that includes soaring ingredient prices.
Food manufacturers are working to mitigate the impact of rising input costs on their bottom line.
“We expect the inflation rate to continue to accelerate over the next few quarters,” said David S. Marberger, CFO of Conagra Brands Inc. “Fortunately, we have a variety of levers that can be used to compensate for this pressure, including pricing. We have already mobilized our inflation justified plans with some actions already in the market, others communicated to customers and some to come. History shows that price adjustments are more likely to be accepted in the market when industry-wide input cost inflation occurs, and that is the environment we see today.
Hormel Foods Corp. increased the prices of Skippy peanut butter, spam, and the Jennie-O Turkey Store line, among others.
James N. Sheehan, chief financial officer of Hormel, said the price of corn-based foods increased 40% in the first quarter and soybean meal increased by around 15%, resulting in a change in the company’s turkey formula to more soybean meal and less corn.
Many food and beverage manufacturers plan to raise prices.
James Quincey, CEO of Coca-Cola Co., recently alluded to price increases in 2022 in an April interview on CNBC.
Meanwhile, in late April 2020, crude oil prices briefly fell to decades-long lows below $ 10 a barrel as demand for fuel collapsed amid restricted travel due to the growing number of cases. of coronavirus in the world. Recently, prices have traded above $ 60 a barrel. Last week, the average on-highway diesel price in the United States was up 31% from the previous year. Rising energy prices affect all levels of the food supply chain.