2021 Year in Review — Inflation

(Photo by Alison Fulton)

Inflation roared in 2021, hitting growers, distributors, restaurants, retailers and consumers, and creating concern about the course of the economic recovery. While government and Federal Reserve officials initially described inflation as "transitory, " that outlook was beginning to change in late in the year. With consumer inflation running at 6% at the end of the year, there is a strong possibility that inflation could be a big story in 2022.

Higher costs challenge growers

Oct. 8
Tom Karst

For the California citrus industry, COVID-19 and the severe Western drought have resulted in staggering increases in farming and production costs for growers and minimal price correction in the market, according to California Citrus Mutual (CCM).

An internal industry survey of California citrus growers conducted by California Citrus Mutual, published in September, found that, on average, farming costs for the 2020-21 season increased by nearly $1,000 per acre. This represents a 19% increase since the start of the pandemic.

According to the survey, the two largest cost drivers for growers are water and shipping. The survey found that the spot market for surface water has increased 400% and, in many cases, surface water is not available at all. Shipping costs are up as much as 380%, CCM said, compared with the start of the pandemic due to the limited supply of containers and delays at ports around the world.

Meanwhile, the survey found fertilizer costs are up 49% compared with March 2020 and diesel fuel costs are up 38%, leading to additional costs throughout the supply chain.

“You name it, everything is in short supply,” said Casey Creamer, president and CEO of California Citrus Mutual.

Given the fact that the crop size will be smaller, and costs are going up, Creamer said there is no choice but for growers to pass on higher prices to consumers and the marketplace.

Food Inflation Heats Up to Highest Level in More Than 10 Years

Dec. 10
Tom Karst

Inflation is making itself at home in the American economy.

Consumer prices through November are up 6.8% compared with a year ago, according to the U.S. Bureau of Labor Statistics (BLS). The Consumer Price Index (CPI) for urban consumers rose 0.8% in November after rising 0.9% in October.

Price increases were reported with most component indexes, according to the report, with prices for gasoline, shelter, food, used cars and trucks, and new vehicles among the larger contributors to rising prices.

The energy index rose 3.5% in November as the gasoline index increased 6.1% and the other major energy component indexes also rose. The food index increased 0.7% as the index for food at home rose 0.8%, according to the report.

Food hikes

The food index rose 0.7% in November after climbing 0.9% in both September and October.

The food- at- home index increased 0.8 in November, fueled by increases in all six major grocery store food group indexes. November was the third consecutive month that all six increased, according to the report.

The indexes for other food at home and for fruits and vegetables both increased 1% in November, while the index for meats, poultry, fish, and eggs rose 0.9 percent in November.

Within that group, the index for pork rose sharply, increasing 2.2%, while the index for eggs declined in November, falling 2.7%.

The food- at- home index rose 6.4% over the past 12 months, the largest 12-month increase since the period ending December 2008, according to the BLS.

All of the six major grocery store food group indexes increased over the period. The index for meats, poultry, fish, and eggs increased 12.8%, with the index for beef rising 20.9%, according to the report.

The index for dairy and related products posted the smallest increase, rising 1.6% over the last 12 months. The remaining major grocery store food group indexes posted increases ranging from 4% (fruits and vegetables) to 5.7% (other food at home).

The index for food away from home rose 5.8% over the last year, the largest 12-month increase since the period ending January 1982. The index for limited-service meals rose 7.9% over the last 12 months, and the index for full-service meals rose 6%.

Retail and consumer response

Though retailers push back against produce suppliers asking for higher prices, retail food prices are increasing based on escalating input and freight costs, said Craig Carlson, president of Chicago-based Carlson Produce Consulting. Grower costs could be up 20% to 30% compared with a year ago, he said.

“I think the buyers are much more educated on this and understand, that, compared to other times, they are probably apt to go ahead and take on price increases,” he said. “But that doesn’t mean they are going to automatically take the whole thing.”

Within the fresh produce category, Carlson said consumers may not be able to notice price increases from week to week or month to month, as retailers can hide higher prices with fewer promotions or modest per- pound price increases.

The best way for consumers to understand inflation, Carlson said, is when they realize that their grocery spend is now Y instead of X.
Consumers will notice if their food shopping trip that used to cost $65 is now $70 or $75.

If a consumer must limit histheir grocery expenses because of fixed income, he they may choose to buy less  expensive commodities or trade down to frozen or canned versions, Carlson said.

Inflation, labor concerns top produce poll

July 1
Tom Karst

 

A poll of international produce industry operators at the LinkedIn Fresh Produce Industry Discussion Group indicates top concerns about the business now include higher costs, a tight labor market and drought conditions in the West.

The poll included the question, “What worries you the most about the produce business right now?”

The results, with 173 voting as of July 1, were:

  • State of economy: 18%
  • Higher costs: 46%
  • Drought/water shortage: 21%
  • Other - explain: 15%

Labor and staffing needs were mentioned by several U.S. and international produce operators.

Some comments from the discussion thread:

"Drought and water shortages. If it continues, it will drive prices up. Some farms very likely will cut back on planting, or shut down, which will affect the work force, which in turn will affect the economy." (Chicago)

"Different pressure points in different parts of the world. Here, it’s climate threat, increased prices, shortages, lack of access to growing supplies."(Trinidad and Tobago)

"We have another rollercoaster year coming with the additional COVID strain affecting business globally and intermittent, shortage of labor, transportation via road or water, environmental issues, inflation, shortages and price gouging. I think we will have a year where prices are equal to dribbling a basketball. Complacent buyers will be overpriced, contract prices are going to change with transportation issues, or acts of God. Labor shortage is going to hurt great companies and everyone else. Smart shopping and focused sales will prevail.” (Oregon)

“There is a shortage of people willing to work in fruit farms to pick the fruit.” (Chile)

“Retail price being more important than quality, size and flavor in many retail venues will erode consumption.” (Washington)

“I believe the continued issues with freight will continue to make produce (along with many other commodities) more difficult to source and at higher costs.” (Chicago)

“Lumber, freight, external factors at ports, consumer pricing, transparency and more. Lots happening right now.” (Florida)

“If consumers will not pay more at the grocery store, growers and retail will suffer.” (California)

 

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