Prairie Industry Perspective – Food & Beverage Industry June 2022

The significant disruption the COVID-19 pandemic wrought on global supply chains, along with rising inflation, has resulted in higher costs for a multitude of food and beverage (“F&B”) products. As a result, according to a recent forecast from the U.S. Department of Agriculture, during 2022, prices paid by consumers for food-at-home (grocery store or supermarket food purchases) will increase between 7.0% and 8.0% while food-away-from-home (restaurant purchases) prices will grow by 6.0% to 7.0%. The Farm Journal says this represents the highest expected increase in grocery store prices since 1980 and the largest anticipated rise in restaurant prices since 1981.

Bloomberg suggests that, while consumers may find the thought of additional price increases unimaginable, in some cases, consumers have been shielded from the full impact of the escalating expenses that are facing producers, distributors and other businesses in the F&B industry including some restaurants. According to Bloomberg, the difference between prices received by producers for their goods and those paid by everyday consumers can be determined by comparing the producer price index (“PPI”) and the consumer price index (“CPI”). For instance, the CPI for food rose 9.4% in April 2022 compared with a year earlier, according to data released by the U.S. government. As a result, during April, consumers faced record increases in the cost of products such as chicken, fresh seafood and baby food. However, many of the food costs measured by the PPI have been accelerating at a rate that is faster than the CPI. In April 2022, for example, the PPI’s average wholesale food prices jumped 18.0% from one year prior; this was the largest 12-month increase in nearly five decades. The wholesale price of eggs surged 220.0%, butter rose 51.0% and flour was up 40.0%. Bloomberg concludes that that “pent-up inflation in the production and distribution pipeline will continue to filter through to consumer prices,” as producers and distributors will not be able to continue to absorb the brunt of rising costs.

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