How the Ukraine conflict and supply chain chaos could play out in food prices
The following article is being re-published for you to ponder, but originally appeared in the "Food Dive" blog feed. I thought it provided an excellent explanation about our escalating costs that cannot be pinned to just one event ... hope it helps you gain a better understanding like it did for me ... enjoy !
Wells Fargo chief agricultural economist Michael Swanson is already seeing improvements in inflationary pressures such as labor and transportation, even as "the next wave" of increases takes hold. Published March 21, 2022 Chris Casey, Associate Editor
Whether meat, produce, bread or dairy, there has not been a single food category that has escaped inflationary pressures. Most recently, the consumer price index for food-at-home recently saw its biggest 12-month increase in more than 40 years, according to U.S. Bureau of Labor Statistics data.
Supply chain disruptions, labor shortages, and higher fuel and transportation costs have all fed into the increase. Extreme weather has as well, and it has led to shortages of major crops, from durum wheat to citrus. More recently, Russia's assault on Ukraine has devastated regional food supply chains, caused major CPG companies to halt operations and investments, and triggered price spikes for global commodities such as wheat and soybeans. But despite this chaotic picture for food prices, Michael Swanson, chief agricultural economist at Wells Fargo, believes that many — but not all — of these issues will sort themselves out in the coming months. Swanson spoke to Food Dive this past week to share his take on the current state of inflation, its main drivers, and "the biggest mistake" that food CPGs could make as they try to navigate the price volatility. What follows are highlights of that conversation.
Editor’s note: This interview has been edited for clarity and brevity.
FOOD DIVE: February’s Consumer Price Index data showed levels of inflation for different commodities, but that was before the Russia invasion really began to impact things. Going forward, is there a sense where price increases will be concentrated? MICHAEL SWANSON: A couple of things come to mind that I think are a little bit different than what you would hear generally. One is when we look back at the current inflation, we're seeing food at home running at 8.7% year-over-year, which of course everybody knows is a multidecade high for food inflation. That's not a result of a shortage of ingredients — it’s hard for a lot of people to really believe that. The price increases we're seeing today, those were negotiated back in November, December and January between the food manufacturers and the food retailers. What we're seeing there was the labor and the transportation and the packaging costs being passed along. So we really haven't had a food shortage or food scarcity. Food inflation to date has represented almost entirely that transformation process of turning what we already had abundantly into what we want to eat.
FOOD DIVE: Do you see any compounding factors leading to higher prices for any specific commodities? SWANSON: Absolutely: protein, which has led the way in the food inflation spike of 2020 during COVID and the current spike. Basically when you talk about protein, you're talking about transforming corn and soybean meal and other basic feed grains and into animals. And when you see the price that we have for the feed range right now, for the people that have the livestock that have to buy that, they're obviously going to be catching a new wave of price inflation. And you're concentrating higher-price grain and multiplying it by that multiplier effect of the protein. So, yes, we would expect that meat, poultry and dairy to really compress their margins and also pass along at higher costs, because you can't run that sector without the higher price of corn and soybeans.
FOOD DIVE: Prices for wheat hit their highest point in over a