Why Is This Happening?
Understanding What Is Driving Price Increases
Since 2020, “inflation” has become a more commonly used term in the food industry and in daily conversations of consumers. At its core, inflation decreases purchasing power due to a rise in prices. Rapid inflation in the last couple of years has challenged both businesses and consumers to adapt their purchasing behaviour and strategies to mitigate the financial impact of inflation. Although the rise in inflation can be attributed to a long list of reasons, there are three key drivers that are critical to call-out.
Supply Chain Challenges
The onset of COVID brought forth panic buying and “pantry loading” which resulted in significant demand fluctuations for retailers and manufacturers. This created unpredictability and a ripple effect throughout the supply chain in terms of forecast accuracy, inventory planning, and operational pressure. In addition, availability of labour, transportation costs, and the price of raw materials and packaging, contributed to a lack of stability within the supply chain. These factors created challenges in managing operational costs and a high percentage was passed down to consumers. Although food categories have been impacted primarily, non-food categories such as cleaning supplies also felt the impact of supply chain challenges.
Environment & Weather
Various extreme environment and weather events globally have hindered production and supply availability, and there are multiple instances that stand out. The Avian flu outbreak limited the supply of eggs and poultry, and just recently prices have started to rebound. Florida is one of the largest global producers of oranges and was hit with a combination of hurricanes and citrus greening that damaged orange crops. As a result, orange juice experienced roughly a 250% price increase since the pandemic. Additionally, drought conditions in Mediterranean locations such as Spain and Greece have resulted in production challenges for key products such as olive oil which have driven prices higher.
Russia-Ukraine War
Ukraine is a major global exporter of multiple key commodities, including wheat and vegetable oil. A significant implication was termination of the Black Sea Grain Corridor Deal. As a main shipping route for Ukrainian exports, Russia’s stance to terminate the deal heavily restricts the supply and availability of wheat transported to other countries. Delayed food inspections and persistent attacks on port terminals and production facilities have also reduced exports significantly. The above factors have combined to yield significant price increases, disrupting the entire global wheat market.
‘COMPLETE’ Solutions to Manage the Impact of Inflation
If you are looking to stay informed on what is impacting the supply chain, let Complete Purchasing Services (CPS) help. With quarterly price forecasts, annual budget guidelines, and a monthly newsletter, they can help to provide more insights on what is driving price fluctuations currently and in the future. In addition, CPS members can also take advantage of high quality “Best Value” contracted pricing on a wide array of essential products, services, and solutions for your business to help mitigate the impacts of inflation. If you need assistance, CPS members also have a dedicated and locally based Account Manager who can help you maximize your program benefits.
About the Author:
Andrew Polo is a Supply Chain Manager focused on Procurement Analytics at Complete Purchasing Services Inc., a leading supply chain solutions provider for hospitality and non-commercial clients in Canada. Andrew has 7 years of experience across the beverage, produce, and foodservice industry, with expertise in sales forecasting, production planning, and inventory replenishment. Learn more about Complete Purchasing Services by visiting eCPS.ca.
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