Food Inflation and Rising Production Costs Drive Industry Challenges; Matt Mandel Comments
UNITED STATES - The reports of price inflation in 2022 are everywhere, and more than that, our industry is feeling the impact. Even before the rising cost of consumer food prices was substantial, our suppliers had been feeling the pinch of increasing operating and production costs for years. With reports from The Wall Street Journal (WSJ) and CNN delving into the categories that will see such flux and noting that produce will see a rise in prices in 2022—my question is whether that price relationship will impact the price conversation at the retailer and supplier negotiating table.
As the WSJ report notes, “Coming price increases in 2022 range from as low as 2 percent to 20 percent, hitting all sections of the grocery store including produce and packaged goods. Potatoes, celery, and other heavier vegetables will have higher price tags...in part because of higher freight costs, supermarket executives said.”
While we have all perceived the price inflation to produce was coming, I wanted to get to know what the growers themselves were up against in this ever-changing dynamic between the cost of goods for consumers and the cost of goods for the producers. As Matt Mandel, Vice President of Finance and Legal, SunFed, tells me, it is more complicated than most can imagine.
“All of the products we deal with have a very short lifecycle and are incredibly perishable. We can’t leave them on the plant to be harvested later, and once they have been harvested they need to be sold and transported ASAP,” Matt shares with me. “Depending upon who you are doing business with, this can put the producer at a significant disadvantage to the purchaser.”
Like any negotiation, it is a matter of leverage.
“Our foods aren’t produced in a factory that can ramp up or slow down production as needed based on supply/demand curves," Matt adds. “Our foods are planted usually with a very long-term forecast that cannot change quickly because these decisions are often made three to eight months in advance of harvest.”
So, what are we talking about here? Growers tell me that the bottom line is that inflation is affecting producers’ ability to keep their costs in line on crops they’ve already planted and invested in. At the same time, they need to keep pushing forward—at the very minimum to recoup as much of that invested cost as possible. For many, this is all happening while not receiving any of the benefits of increased prices on the sales side.
Other producers tell me, there wasn’t a single line item on their cost of production that didn’t go up last year.
As we get our bearings in 2022, we will keep watchful eye on the state of inflation and the issues that matter most to the health of the fresh produce industry.