top of page

Food companies can take advantage of today’s inflation


Pick 100 random people, no matter what their connection to the food industry – farmer, processor, restaurateur or ordinary consumer – and ask them what the biggest issue with food is today. Probably at least 60 to 70 of them will say “inflation.”


There’s an objective basis for that, of course. Inflation has been one of the hottest ongoing general-interest news stories for a while now, and nowhere is it more manifest than in food. It’s a dire situation in many respects, especially for families struggling to pay the grocery bill. But as I’ve said before, the food industry’s overall situation is actually more positive than negative, and that includes inflation.


I can say that because I wasn’t born yesterday. Specifically, I came of age during the grinding, seemingly endless “stagflation” of the 1970s. That era cast a pall every bit as depressing as today’s inflation, if not more so, because of its duration – and, especially, because it was paired with high unemployment.


That last part, I think, is the key to the difference between the two situations.


Not to get into an entire economic history of the ’70s, but certain shocks to the industrial order led to economic stagnation and high unemployment. The Federal Reserve kept trying to prime the pump by expanding the money supply, setting the stage for inflation.


The inflation of today, just as in the ’70s, is caused by too much money chasing too few goods. But today’s inflation has very different roots, as a glance at the current unemployment rate, consistently under 5%, can show. The surplus of money isn’t coming from the Fed; it’s in the pockets and bank accounts of people who passed more than a year in lockdown with nothing to do.


That’s the “too much money” part of the equation. The “too few goods” comes about because of kinks in the supply chain. I won’t get into that subject here, except to say that the pandemic exposed the inadequacy of the just-in-time model. The good news is that, over the long term, these kinks will get straightened out, because a lot of smart people all along the supply chain are motivated to reap the rewards that will come with straightening them out.


There’s good news in the short term, too, at least for some companies. Among those thriving in the pandemic has been Tyson Foods (last quarter’s sales up 12% YOY), Kellogg Co. (up 5.6% – despite a strike!) and Hostess Brands (up 10.4%). The recent success of these and other companies is due at least partially to their ability, for the first time in a long time, to raise prices for their own products; so far, the winners have managed to keep their price increases against of their cost increases.


However, these increases have engendered some grumbling about how big corporations are using the resurgence of inflation as “an excuse to raise prices.”


I’ve always been skeptical of that “excuse” trope, feeling that it’s simplistic and ignores the reality of a competitive situation. When there is a competitive situation.


That’s under a lot of scrutiny, especially in the meat and poultry sector. The degree of concentration in the industry has been criticized for years, and that’s intensified, with some high-profile criminal and civil litigation related to collusion and price-fixing.


This situation calls for a certain amount of image consciousness. It would be a good time for companies that are doing well with inflation – especially big players in highly concentrated markets – to plow a good chunk of that cash back into the business: more automation, higher worker salaries, whatever. Massive C-suite bonuses and stock buybacks probably wouldn’t look too good right now.


Article original paru sous le titre : Inflation's Image Problem - Food companies can take advantage of today’s inflation – if they don’t overplay their hand.


Par : Pan Demetrakakes (28/12/2021)

Source : foodprocessing.com

Image : tirée de l'article original


bottom of page