Supermarkets stocking up on food in anticipation of supply chain disruptions, price inflation

Supermarkets all over the country are stocking up on many of their food items in anticipation of a surge in food prices. Many supermarket executives are warning that the upcoming inflation might lead to some of the highest price increases in recent memory.

Many supermarkets are purchasing additional supplies to keep up with stronger demand. Grocery sales in the United States for the week that ended on June 19 rose by 15 percent compared to two years ago and 0.5 percent from one year ago.

Other supermarkets are keeping additional food supplies in storage, driving shortages of some staples. Many executives in the grocery industry have criticized this practice, saying that it is increasing the challenges felt by the American food supply chain.

The country’s supply chain is already under pressure from increased transportation and labor costs and ingredient constraints. Retailers have countered that their actions are necessary to keep costs down for consumers and protect their profit margins.

“We’re buying a lot of everything,” said David Smith, chief executive officer of Associated Wholesale Grocers, one of the nation’s largest wholesalers. “Our inventories are up significantly over the same period last year.”

Associated Wholesale Grocers purchased up to 15 to 20 percent more inventory for its more than 3,000 grocery stores. Most of the goods they purchased are packaged foods with longer shelf lives.

The higher stock of food items helps Associated Wholesale Grocers fight off shortages of items and the rise in costs associated with it. Some supermarkets have been forced to raise food prices. Many others are keeping their prices relatively the same to better compete against groceries that offer discounted or low prices.

“When you have a unique inflationary period like now, it’s a feeding frenzy,” said Tony Sarsam, chief executive officer of the Michigan-based retail and food distribution company SpartanNash. His company is stockpiling up to 20 to 25 percent more of certain items like frozen meat and boxed foods. Sarsam explained the company started doing this after more than 100 of his suppliers said they are raising their prices.

Food prices may not ease until next year

Food prices have been rising all year, affecting the costs of everything from meats to coffee and vegetables. This could push many consumers to hunger. Furthermore, the threat of even faster inflation could prompt banks to tighten stimulus measures for economies still recovering from the Wuhan coronavirus (COVID-19) pandemic.

Consumers are in for a rough latter half of 2021, as both the Organization for Economic Cooperation and Development (OECD) and the United Nations said they may not start feeling respite from surging food prices until next year.

Global food prices have jumped to a nine-year high, spurred on by huge demand for food in China, concerns regarding freak weather patterns and consumer budgets squeezed by coronavirus lockdowns. (Related: Food prices skyrocketing on soaring agriculture futures as prices for lumber, gas and other commodities climb amid lingering pandemic.)

But both the OECD and the UN said in a report that inflation-adjusted prices may start easing next year and become relatively flat by 2030. This is because demand growth for items for fish and grains slows and the number of farming supplies rises.

“The fundamentals don’t say to us that we’re moving to a super-cycle of commodity prices,” said Maximo Torero, chief economist of the Food and Agriculture Organization of the UN. “Demand growth is going to decrease.”

The OECD and the UN added that many farmers will begin returning to work in the coming months as countries exit lockdowns and travel restrictions start easing up. This will help alleviate the labor shortages many industries are experiencing. This in turn will boost farm output, increase the supply of food products and slow down inflation.

In the longer term, the OECD and the UN predict that emerging economies and low-income nations will drive food output as these countries invest in infrastructure and research and more efficient allocations of resources.

Learn more about the food supply situation in the United States by reading the latest articles at FoodSupply.news.

Sources include:

WSJ.com

BusinessInsider.com

Bloomberg.com