Inflation clouds gather: Few Black Friday deals on offer for ingredient buyers

636785672923417509inflation time and coins.jpg

23 Nov 2018 --- As the world wakes up to the Black Friday rush, hoards of consumers will likely line up outside retailers looking for a bargain, while online shoppers trawl the internet searching for a deal. Food ingredients buyers may be less lucky right now, as a spate of inflation pushes up prices on key items like raw materials, wages, transportation and logistics.

Several other factors are at play. Brexit is looming, the US is involved in several trade spats around the globe and a European drought caused a decreased output in agricultural commodities and sparked further concerns that climate change will impact the food production far more regularly. All these factors are prompting concerns from many quarters that food price spikes are on the horizon. FoodIngredientsFirst examines how food prices may be on the verge of creeping up. 

Rising costs in the ingredients sector are a challenge, particularly because of the growing cost of raw materials, a jump in commodity prices, energy costs and salary spikes. These are all factors reported by a number of key industry players that are citing higher inflation as impacting business. This could mean that European consumers could face price hikes.

Who is increasing what?

Several recent price hikes have been reported in the industry, but you sense that it is just the beginning of a raft of announcements. 

Tate & Lyle’s North American Food & Beverage Solutions business has implemented price increases of between 3 and 11 percent on a range of food and beverage offerings. These adjustments are required following significant cost increases over the past 12 months in areas such as materials and logistics and transportation due to substantial truck shortages, the company reports. Restricted to the North American market, the price increases concern its specialty starches, oat products, fibers, specialty and high-intensity sweeteners, and stabilization and functional systems. A company spokesperson told FoodIngredientsFirst: “The price increase is down to higher input costs in materials and transportation in North America, which are being seen across the sector.” 

Earlier this month, chemical company Solvay said it was to set to increase its vanillin and ethyl-vanillin prices by 15 percent across North America, as soon as pending contracts allow. It said that price increases are driven by continued and significant increases in raw materials and energy costs involved in producing Solvay’s vanillin and ethyl-vanillin. Environmental Protection Agency (EPA) restrictions in China and US-Chinese trade tensions are also affecting raw materials prices and availability, according to the company.

Fellow Belgium-headquartered company, Cosucra is to increase the prices of its pea protein isolate ingredient, Pisane, starting next January. This price increase, according to Cosucra, will enable the company to continue its technological, sustainability and farm-to-fork traceability leadership positions and meet its customers’ increasing demand for pea protein globally, while supporting the pea fiber and pea starch business. Other pea-based ingredients in the company’s portfolio remain unaffected.

In an interview with FoodIngredientsFirst during the summer, Ingredion CEO, Jim Zallie revealed the notion behind the company’s cost-cutting program. The company introduced this cost savings initiative, in its First Quarter 2018 Earnings Call on May 3, to further streamline its global business. The company is setting forth targets to include an anticipated US$75 million cost of sales savings, including global network optimization and US$50 million in anticipated SG&A savings by year-end 2021. The company expects restructuring costs to be incurred earlier in the program and expects savings to be realized in this year and building momentum toward the targets through 2021.

“All players within our industry, whether CPG companies, who are our customers, or the small and medium-sized companies, and ingredient suppliers are facing inflationary headwinds,” says Zallie. “Everybody realizes that the benign environment that we have lived in for the last decade is beginning a reversal, with interest rates increasing around the world, the unwinding of stimulus and inflation as it relates to energy in terms of packaging and freight. You must have cost as a strategic priority, or you are going to be left behind.” 

Inflationary issues are already impacting performances on the manufacturer front

At the end of August, Campbell Soup Company reported its fourth-quarter and full-year results for fiscal 2018. At the same time, Campbell’s also announced plans to sell its international businesses and fresh refrigerated-foods unit, following a several month-long strategic review.

The company’s financial statement shows that gross margin decreased from 35.9 percent to 29.2 percent. Excluding items impacting comparability, adjusted gross margin decreased 5.6 percentage points to 30.6 percent including a 3-point negative impact from the recent acquisitions. 

“The remaining decline in adjusted gross margin was driven primarily by cost inflation and higher supply chain costs, costs associated with the voluntary recall of flavor-blasted Goldfish crackers on July 23, 2018, unfavorable mix and higher promotional spending, partly offset by productivity improvements and the benefits from cost savings initiatives,” it says. 

In General Mills’ Asia and Latin America segments, operating profit decreased to US$12 million from US$16 million a year ago, driven by input cost inflation and higher SG&A expenses, partially offset by higher net sales, according to the company’s fiscal 2019 first-quarter results. In the Europe and Australia segments, first-quarter net sales increased 2 percent to US$501 million, driven primarily by benefits from net price realization and mix. However, the company says: “Segment operating profit of US$34 million was up 13 percent as reported and up 12 percent in constant currency, primarily reflecting benefits from net price realization and mix and lower SG&A expenses, partially offset by higher input costs, including currency-driven inflation on imported products.”

Brexit inflationary concerns

Inflationary pressures are a particular concern in the UK where uncertainty about Brexit grows by the day. Jan-Willem Thoen, Senior Director at PwC NL Brexit office, tells FoodIngredientsFirst of the difficulties of assessing the impact of Brexit on inflation, noting how the overall numbers are not looking good in the UK, with relatively high inflation. 

“The UK is a net importer of food, so at the same time you see a significant drop in the pound sterling going back to the time of the referendum. So I think the procedures and formalities mean that the whole supply chain will become more expensive,” he says. “If things are more expensive and you are importing it will give a push on food prices and on inflation.”

According to the latest data from the Office of National Statistics, the Consumer Prices Index, including owner occupiers’ housing costs (CPIH) 12-month inflation rate, was 2.2 percent in October, unchanged from September this year. The large downward contributions to the change in the 12-month rate from food and non-alcoholic beverages, clothing and footwear, and some transport elements were offset by upward contributions from rising petrol, diesel and domestic gas prices.

The UK Food and Drink Federation (FDF) conducted the second of its new quarterly business confidence surveys between 29 June and 17 July 2018, to gauge confidence levels across the food and drink manufacturing sector in the second quarter of 2018. It received responses from businesses with a combined UK turnover of approximately £12 billion (US$15.5 billion) with more than half of the responses coming from small and medium-sized enterprises (SMEs). According to the FDF, official economic indicators for the food and drink sector over the first two quarters of 2018 have shown a mixed picture, with output, Gross Value Added (GVA) and inflation weakening while exports continued to perform well.

The federation’s latest survey shows that the majority of UK(?) food and drink manufacturers felt general business conditions have remained the same over the last two quarters, with increased packaging, ingredient and energy costs weighing on budgets. However, businesses also reported increased domestic volume sales, launches in new products and average wages.

The FDF second quarterly business confidence surveys reveal that more than three-quarters of manufacturers expected input prices to rise in the remainder of 2018. More than half of those polled had seen increased ingredient costs (62 percent), increased packaging costs (61 percent) and increased energy costs (51 percent) having the most significant impact on their businesses in the second quarter of the year. On the bright side, 54 percent of businesses had also seen an increase in sales in the UK, while 42 percent reported an increase in new product launches.

In September, a report from Barclays calculated widespread disruption and price hikes with the “Hard Brexit” model forecast to create an average tariff of 27 percent for food and drink supply chains which is significantly more than the 3-4 percent levy that would hit non-food products.

Generally, these are widespread calls for clarity coming from the food and beverage industry in relation to the UK leaving the EU as many aspects, including rising business costs and ultimately food inflation, hang in the balance. Much of this depends on precisely the deal to be backed by UK Parliament and counterparts in Europe. 

Meanwhile, increased packaging costs also weigh in with some companies believing this is one of the key impacts for food and drink businesses. 

Brexit concerns alone will be just one of the factors facing a complex food and beverage market in 2019 and beyond, as inflationary clouds gather. 

By Gaynor Selby

To contact our editorial team please email us at


“Switch to natural”: Solvay eyes growing potential for natural vanillin solutions

18 Feb 2019 Driven by concerns around food safety and the ...


Coca-Cola HBC buys Serbian confectionery firm Bambi in US$294m deal

18 Feb 2019 Soft drink bottler Coca-Cola HBC is to buy ...


Are Chilean food regulations changing food perceptions, norms and behaviors?

18 Feb 2019 A study conducted jointly by researchers at the ...