Inflation in food prices is coming.
Kansas City Can food price inflation follow? With major grain, oilseed, and edible oil prices at or around eight-year highs, crude oil prices six times higher than a year ago, freight rates skyrocketing, and prices for materials (such aluminum and cardboard) and other input costs rising? Neither the US Department of Agriculture nor a large number of food manufacturing corporations say so. Prices could rise more in the latter part of this year and into 2022 if the anticipated post-pandemic demand surge materializes as many anticipate.
The USDA predicted in late April that food prices would increase by 2% to 3% in 2021 compared to 2020, when prices had increased by 3.4% from 2019. In actuality, prices rose 3.5% in March 2021 compared to March 2020. It was predicted that the cost of eating out will increase by 2.5% to 3.5% annually, with a 3.7% increase in March alone. The predicted annual increase in food-at-home costs was 1% to 2%, with a 3.3% increase in March. According to the USDA, 55% of food sales occur at home, and 45% occur away from the house.
It’s challenging to compare last year’s events to those of the previous year since it was so unexpected. There was notable fluctuation in the prices of numerous commodities and ingredients, and demand shifted from foodservice to retail as travel significantly decreased and a large portion of the nation and world hunkered down at home. However, just as last year was exceptional, most anticipate a spike in demand this year as the nation and the globe attempt to return to some semblance of normalcy. Many anticipate that this shift will include the return of travel, which will raise the need for foodservice. However, as long as a sizable portion of the population continues to work from home, it is projected that the demand for food consumed at home will remain higher than it was before the epidemic.
“We are still seeing indications that North America is recovering from the crises more strongly,” Unilever’s chief financial officer, Graeme David Pitkethly, stated in late April. The need for meals consumed at home is still great, and our business outside the home is rebounding more quickly than we anticipated.
There were “warnings” from a number of significant food and beverage firms that price rises were imminent.Regarding price hikes for inputs including commodities, packaging, and transportation, Francois-Xavier Roger, CFO of Nestle SA, recently stated, “We are hedging and forward-buying to cover some of this exposure, but it only delays the impact for a few months.”
Kraft Heinz Co.’s net income for the first quarter, which ended on March 27, increased 49% compared to the same period last year. Executives stated on a recent earnings call that the business faces increasing input prices for the remainder of the fiscal year, which could result in price increases for its goods.
With sales growth predicted to be at least 3% for the entire year, Mondelez International reported first-quarter revenues that ended on March 31 to be up 4.3% over the same period last year. In a conference call with investment analysts, Mondelez’s CFO, Luca Zaramella, stated that the company’s growth projections may have been higher if not for the unstable cost environment, which includes rising ingredient prices.Producers of food are trying to lessen the negative effects of increased input costs on their profits.
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“Over the coming quarters, we anticipate that the rate of inflation will continue to rise,” Conagra Brands Inc. CFO David S. Marberger stated. Thankfully, there are other levers at our disposal to counteract this pressure, such as pricing. Our inflation-justified strategies have already been put into action, with some of the measures currently available on the market, some shared with customers, and some still to come. Price adjustments are more likely to be accepted by the market when there is widespread and industry-wide inflation in input costs, which is the situation we are in right now.
Prices for a number of products, including Jennie-O Turkey Store, Skippy peanut butter, and Spam, have increased by Hormel Foods Corp.
According to Hormel’s CFO, James N. Sheehan, the business changed their turkey feeding formula to include more soybean meal and less corn during the first quarter due to a 40% increase in corn feed prices and a 15% increase in soybean meal prices.A lot of producers of food and drink have plans to increase prices.In an April CNBC interview, Coca-Cola Co. CEO James Quincey made a suggestion about price rises in 2022.
Meanwhile, as a result of travel restrictions brought on by the global increase in coronavirus infections, fuel consumption fell and crude oil prices briefly fell below $10 per barrel in late April 2020, marking a multi-decade low. The price of a barrel has been above $60 recently. Last week, the average on-highway price of diesel gasoline in the US increased by 31% over the previous year. The food supply chain is impacted at every stage by rising energy costs.