Agriculture & Food

Recently, senior executives of global food giant Kraft Heinz said that they are increasing commodity prices in necessary areas around the world and remind consumers to get used to higher food prices. Driven by various factors such as rising prices of food raw materials, hindered supply chains, high labor costs, and soaring energy prices, global food companies have to raise the prices of their products to resist inflationary pressures.

Before Kraft Heinz, many well-known multinational food companies have announced price increases. Nestlé, Unilever, Coca-Cola, Pepsi, etc. have all announced plans to increase commodity prices. Nestlé said it expects input costs to rise by about 4% this year, so the company needs to raise prices as soon as possible. Unilever said that the company is facing the biggest cost increase pressure in 10 years and will increase prices in multiple markets and categories.

It is not difficult to see from these price increase announcements that rising costs of raw materials are the direct cause of product price increases. The monthly food price index released by the Food and Agriculture Organization of the United Nations shows that global food prices have risen to a 10-year high. In September, global food prices rose by 32.8% year-on-year. The “high fever” price of food has increased the cost pressure on food production enterprises.

However, mere fluctuations in food prices are not enough to make these companies touch the sensitive nerve of consumers, which is "price increase". Pepsi said that in addition to the shortage of raw materials, factors such as labor shortages, reduced availability of air or other commercial transportation, port closures or border restrictions have also adversely affected the supply chain, which may further affect Pepsi's ability to produce and sell products.

At present, the cost pressure faced by food companies does not only come from rising food prices, but the deeper reason lies in the supply chain crisis. Port delays, hard to find a box, transportation delays and insufficient supply caused by global supply chain crises, as well as the resulting shortage of packaging, logistics, energy, etc., and price increases are superimposed with the increase in commodity prices and the shortage of food supply. It has pushed up the production and operating costs of food production companies at all levels, eroding their profit margins, and forced them to offset rising costs through price increases.

In addition, with rising prices and people's expectations of continued inflation for a period of time in the future, labor shortages may further intensify. In European and American countries, labor shortages have exacerbated the supply chain crisis. As prices rise, people's expectations for wages increase, and the difficulty in recruiting and shortage of labor has become more severe, increasing the operating costs of enterprises.

Affected by the epidemic, it will take time for the global supply chain to recover. International logistics difficulties and energy supply problems may not be alleviated in a short time. The International Monetary Fund warned in the latest World Economic Outlook Report that the upside risk of global inflation has intensified and there are huge uncertainties in the outlook for inflation. The headline inflation rate in the United States and some emerging markets and developing economies has risen rapidly. Under inflationary pressures, more food companies will be unable to support them and announce price increases. If food manufacturers want to stabilize product prices, they have to make a fuss about restoring the supply chain and controlling inflation.