A food company executive has warned that people must get used to paying more for their food as prices of raw materials used for different products reach new highs. But he also notes that consumers do not need to shoulder the higher costs of raw food ingredients.
Miguel Patricio, the CEO of Kraft Heinz, lays down the argument during a BBC interview. He warns that people in the U.S. and other parts of the world will have to get used to higher food prices. Patricio cites inflation "across the board" as the main reason for the price hikes.
"We are raising prices, where necessary, around the world – specifically in the U.K., with the lack of truck drivers," the CEO says. He continues that "in the U.S., [logistics] costs also increased substantially, and there's a shortage of labor in certain areas of the economy." These problems have contributed to Kraft Heinz's decision to increase prices on more than half of its products sold in the United States.
Another food manufacturer, PepsiCo, faces rising costs on different aspects of its production line. "Many of the commodities used in the production and transportation of our products are purchased on the open market. The prices we pay for such items are subject to fluctuation," the company writes in a quarterly report to the U.S. Securities and Exchange Commission.
"A number of external factors have impacted and may continue to impact transportation and commodity costs. When prices increase, we may or may not pass on such increases to our customers without suffering reduced volume, revenue, margins and operating results," the report adds.
Patricio notes, however, that not all costs should be passed on to customers. He says: "I think it's up to us, the industry and the other companies to try to minimize the price increases. There's a lot to come in technology to improve the effectiveness of farmers."
Food prices are projected to go higher
According to Kona Haque, research head at agricultural commodities company ED&F Man, food manufacturers such as Kraft Heinz and PepsiCo "will most likely have to pass that cost on to consumers." She adds that the practice is "so widespread that everyone will do it, meaning they probably won't lose customers."
Haque also acknowledges the rising prices of food commodities and attributes these to several factors. "Whether it's corn, sugar, coffee, soybeans, palm oil, you name it – all of these basic food commodities have been rising. Poor harvests in Brazil, which is one of the world's biggest agricultural exporters, drought in Russia, reduced planting in the U.S. and stockpiling in China have combined with more expensive fertilizer, energy and shipping costs to push prices up."
Figures from the United Nations Food and Agriculture Organization (FAO) appear to back up Haque's assertion. The FAO reports that price increases for cereals and oils have caused food prices worldwide to hit a 10-year high. "The latest rise was largely driven by higher prices of most cereals and vegetable oils. Dairy and sugar prices were also firmer, while the meat price remained stable," it says. (Related: Oat prices hit record high as fiat currency Ponzi scheme drives food inflation.)
Meanwhile, Michigan State University food economist David Ortega says several factors will affect food prices in the short term. He says: "Consumer behavior is changing and demand is increasing as consumers are starting to re-emerge from this latest surge of [COVID-19] cases."
Ortega also acknowledges the supply chain issues and labor shortages, and their role in pushing food prices up. "There are some serious supply chain [logistics] issues which are affecting shipping and transportation times that are adding to rising costs. Labor shortages and rising wages are also partly to blame," the food economist says. (Related: Global prices for food commodities continue to rise.)
FoodSupply.news has more articles about rising food prices caused by a number of factors.
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