Kraft Heinz, Conagra may raise some product prices as grains, edible oil costs surge
Comment of the Day

February 17 2021

Commentary by Eoin Treacy

Kraft Heinz, Conagra may raise some product prices as grains, edible oil costs surge

This article from Reuters may be of interest to subscribers. Here is a section:

Conagra CEO Sean Connolly said the company, which makes Duncan Hines cake mixes and Marie Callender’s pulled pork mac and cheese bowls, will need to implement inflation-justified price increases this year so it can also continue to fuel sales growth through innovation.

Ingredient and packaging costs represent 60% to 65% of Conagra’s total cost basket, Finance Chief Dave Marberger said on the sidelines of the Consumer Analyst Group of New York virtual conference.

With people on lockdown cooking more at home – and still stockpiling in some parts of the world – prices for commodities like sugar, wheat and soy are surging, forcing food companies to absorb higher costs.

U.S. consumers on average paid 3.7% more for food consumed at home in January than they did a year earlier, according to the Bureau of Labor Statistics Consumer Price Index. Year-over-year increases in food prices have topped 3.5% each month since last April, the longest such stretch in nearly a decade.

“We have inflation, we are seeing inflation, we are concerned about inflation. We have to mitigate that inflation, or at least part of it, with hedges and with efficiencies in the factories,” Kraft Heinz Chief Executive Miguel Patricio told Reuters in a recent interview. “Will we have price increases in food this year? Maybe in some categories that are very exposed to specific commodities.”

“Where we are seeing (inflation) is in grains and everything related to grains ... It’s across the board. Sugar has big inflation; mac & cheese because it has wheat; mayo because it has oil; salad dressing because it has oil; all sweet products like desserts,” Patricio said.

Eoin Treacy's view

Agriculture prices are rising for a confluence of reasons. Supply chains have been disrupted by weather, shipping issues resulting from the pandemic, swine flu (which is resurfacing again) and plagues of locusts. On the demand side, consumers have been panicking at these interruptions so they are buying on a precautionary basis. That is also being funded with higher savings rates and a safety-first mindset. That will be difficult to shift.

Precautionary buying for fear of higher prices in future, demands for higher wages to offset these kinds of pressures and the perception of easy money policies into infinity are fuelling the perception inflation is rising. With inflation perception is at least as important as reality because of its effect on behaviour.

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