Supply chain squeezed by higher grain commodity prices

By Caroline Scott-Thomas

- Last updated on GMT

Supply chain squeezed by higher grain commodity prices

Related tags: Consumer price index, Maize

Prices of key grain commodities have been climbing rapidly but so far food manufacturers have absorbed much of the cost, according to an analyst at the USDA’s Economic Research Service (ERS).

Flooding in the Midwest followed by the current high temperatures, poor weather in Argentina and Russia, and higher fuel costs have all contributed to higher grain prices – including for the three biggest US grain crops, corn, wheat and soybeans. US corn prices, for example, have surged about 70 percent since last August – and foods using corn as an ingredient make up about a quarter to a third of retail food spending, according to the USDA.

In a telephone interview with FoodNavigator-USA, ERS research scientist Richard Volpe said: “We are forecasting/seeing food price rises that are higher than historic norms.And by historic norms I’m talking about for the last couple of decades.”

He said while the precise effect on food manufacturers tends to remain somewhat opaque, the impact of current commodity spikes is unlikely to be felt by the consumer this year.

“Commodity prices are a huge factor in determining food prices,”​ Volpe said. “…Most of these prices are not likely to be seen in the current year, but we will certainly see them in 2012.”

He added that food retailers have been operating on very tight margins for the past few years, providing a clue that ingredient prices are squeezing manufacturers, and suggesting that those higher prices are likely to be passed on to consumers.

“The supply chain as a whole looks like they have been holding off passing on these price impacts as much as possible,”​ Volpe said.

According to USDA figures, the Consumer Price Index (CPI) for all food – that eaten at home and away from home – is projected to rise 3 to 4 percent during the 2011. And several major food manufacturers have said they intended to raise prices on the back of stronger commodity costs.

For 2012, the USDA has forecast the CPI to rise a further 2.5 to 3.5 percent on 2011 levels.

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