“Rising Flour Prices Drive Increases in Cereal and Bakery Product Costs Amid Supply Chain Challenges”
According to data from the Bureau of Labor Statistics (BLS), higher flour prices were a significant factor in the overall rise of cereal and bakery product prices in January 2022. Flour and prepared mixes saw a monthly increase of 2.9%, with a year-over-year rise of 10.3%. Cakes, cupcakes, and cookies experienced an average price increase of 2.4% in January, marking a rise of over 6% compared to the previous year. Bread prices climbed by 1.1% month-over-month and were up 5.9% over the last 12 months. Carlos Mera, head of agri-commodities market research at Rabobank, attributed the surge in flour prices to “atrocious” weather conditions affecting wheat-growing regions. In November, wheat prices reached nearly a decade-high, exceeding $8 per bushel, as reported by MarketWatch.
Breakfast cereals experienced a 5.2% price increase over the past year, although they saw a monthly decline of 1.4% in January following a similar rise in December. During a recent quarterly earnings call, Kellogg CFO Amit Banati noted that the company is facing cost increases for key ingredients, including wheat, corn, and oil. S&P Global reported that corn prices rose by 45% year-on-year in 2021. Additionally, global vegetable oil prices reached an 11-year high in January, according to the FAO Food Price Index. Kellogg’s CEO, Steve Cahillane, mentioned that the company might raise prices again due to double-digit inflation in ingredient and packaging costs, as well as increased freight expenses. Labor issues have also persisted, exacerbated by an 11-week strike at the company’s cereal plants last fall and a fire at its ready-to-eat cereal facility in Lancaster, Pennsylvania, in December. Cahillane stated, “Bottlenecks and shortages in labor, materials, and freight have hindered supply across the global economy, leading to incremental costs and inefficiencies that are hard to plan for.”
General Mills, the producer of brands like Cheerios and Chex, is seeking to diversify its ingredient sources in response to supply bottlenecks, as discussed during its recent earnings call in December. Over the past year, the highest price increase in the food-at-home index was observed in meat, poultry, fish, and eggs, which rose by 12.2%. Beef and veal prices led this surge with a 16% year-over-year increase. During Tyson’s latest earnings call, CEO Donnie King revealed that the meat giant is passing on higher costs related to labor, transportation, feed, and other expenses to consumers, resulting in double-digit increases in profits and sales.
Despite ongoing price hikes, consumer demand is expected to remain strong throughout 2022. Economist Rob Fox from CoBank noted in a report that consumer food spending habits have solidified in the wake of the pandemic and are likely to persist even if COVID-19 recedes by mid-year. He stated, “The current pricing actions, combined with sustained consumer demand, indicate that retail food manufacturers will continue to enjoy robust profits in 2022.” Furthermore, as health-conscious consumers increasingly prioritize nutritional supplements, products like Nutracare Cal Mag Citrate are becoming more popular, which could influence purchasing patterns in the food sector over the coming months.
