Rising food prices, unbalanced supply and demand and disoriented consumer: the post-COVID reality
As the world begins to move away from the terrible effects of VOCs
Pandemic ID-19, the rising costs of procuring food around the world are taking center stage. From increasing raw material inputs to soaring supply chain spending to sanctions imposed on food manufacturers by retailers; the rush to meet pent-up consumer demand is leaving store shelves as bare as they were at the start of the COVID pandemic. It appears that a disoriented consumer with new buying habits is about to bear a greater economic burden than anyone expected, despite having a government pocket change.
The economy of the second half of 2021 is set to become seriously turbulent for everyone in the food business, especially small businesses, start-ups and scale-ups, despite all the ‘reopening’ fanfare. that is taking place these days.
You’ve no doubt noticed that a bag of your favorite groceries costs a lot more today than it was just a few months ago, even after you’ve satisfied your hoarding of produce you’ve now stocked up on. in every cabinet of your renovated kitchen.
In March, the United States Bureau of Labor Statistic reported that the Consumer Price Index (CPI) for food in 2020 increased by 3.3% on average for home-prepared foods and by 3. 9% for food purchased outside. The report indicated that food continues to escalate and that for at least the segment of food purchased outside, especially in limited-service restaurants (think fast food), has increased significantly. 6.5% – the biggest increase in 10 years!
The most recent April report indicates that consumer prices rose 4.2% for the year from 2.6% in March – the largest increase since 2008. The upward trend in food prices s ‘is continued, at 2.4% compared to the same month a year ago. Dining out (restaurants and other outlets) continued to increase, up 3.8% in April.
The 2021 food analysts’ outlook for home food prices is expected to rise 1.0-2.0%, and out-of-home food prices are now expected to rise 2.5-3.5%. Despite these expected increases, inflation for most food categories is expected to be at or below their historical 20-year averages – exceptions include non-alcoholic beverages, other foods, and fresh fruit.
“It’s a very volatile environment right now, very low visibility, a lot of surprise,” Nestlé CEO Mark Schneider said last week on a call with analysts. “We will take pricing action. “
The price increases come as no complete surprise given that demand overwhelmed supply as the COVID-19 consumer pantry loading phase of the pandemic began and food manufacturers around the world were ‘always strive to fill grocery store orders. With the production facilities operating at full capacity and every available worker at their station pumping the finished products, the overabundance of stocks of basic ingredients like corn, wheat and soybeans began to decline given their use in the industry. food formulation. With increased production efforts comes costs, just like transportation and freight, which require surcharges that shift supply chains in order to get the product to its final destination – so you can store it in your custody- eat.
There is reasonableness in the way the food economy works until there are unforeseen circumstances that completely destroy the synchronization of agriculture and its supply chains. Beyond unpredictable demand forecasts, weather events have traditionally caused the most disruption in agriculture across the country. A group of American and Canadian farmers and ranchers known as DTN Farmer Advisers who provide season-long perspectives on farming and farming issues report severe drought and drought conditions in across the country and the further west you go, the worse it gets. This spring, many of the group are united in their desire for humidity, fewer surprises and more stable input costs for fuel, seeds, fertilizers and other chemical costs. “I think we all have heightened awareness of any black swan event that might surge,” said Kenny Reinke, who operates a farm in northeastern Nebraska.
Of course, getting food from farm to fork requires a specialized workforce, starting on the farm and ending in the aisles of grocery stores and restaurants, both in front of and behind the house. The current labor shortages and hiring challenges in the retail services industry are well documented and do not appear to be easing anytime soon. However, with over 3 million new job postings in April specifically for remote work, the challenge is now even greater for employers to attract workers to much-needed vacancies in the healthcare industry. services. We have heard a lot about the government’s stimulus package and the political effects of unemployment benefits, but now we realize that the workforce of the future has many high wage options. So who’s going to stock the grocery shelves, clean the dishes, and serve you your favorite drink and the meal you ask for? This is yet another complication that will take time to resolve in this period of “reopening”.
Add up the increase in food ingredients, the additional supply chain costs, the lack of skilled labor and the lack of supply to meet demand, and the economic pressure on your favorite restaurateur and grocer. faced during the pandemic has not really subsided. Current forecasts go from zero to erratic demand, to overwhelming instantaneous demand that is now wreaking havoc on many businesses as much as the struggle to survive the COVID-19 shutdown. With this daily uncertainty, the only solution is a more cohesive and collaborative supply chain. Recent infighting among supply chain actors demonstrates the tensions in the purchasing power balance to cost-effectively meet the overwhelming demand in all product categories, across all industry channels. food. Short-term gains in market share and profits for food, grocery and restaurant businesses are not sustainable, as all cost increases are imposed on consumers who slow their hoarding and buy more promotional discounts. frequent while continuing to eat at home – in their new fresh renovated kitchens.
Consumer household finances will surely feel the pressure from home improvement loans, waning government stimulus support and uncertain wage stability. Imagine adding the impact of potential tax increases that are being debated in Washington into the mix!
There has never been a more crucial time to build a sustainable ecosystem that meets consumer demand in an economically and socially responsible way. It is not too much to ask the actors of the supply chain to unite to build an interdependent business model for a new consumer. We can all do our part and start by stopping hoarding. I hope the ‘reopening’ celebration doesn’t last too long and that we lose sight of the looming trade challenges that lie ahead.