Food manufacturers to increase prices in response to rising raw material costs

The Campbell’s Soup Company, an American food and snack company, has said that it is looking to increase its prices as it deals with rising ingredient and freight costs. The move is expected to affect not only Campbell’s but also all manufacturers of packaged foods throughout the year.

Cape Cod Potato Chips, which the company acquired in 2018, has already increased its prices for some items. It has since earned two percent and has recently announced a repurchase scheme of $500 million.

The past months have been hard for packaged food manufacturers. Aside from having to increase their products’ prices, they also had to deal with labor shortages and increased costs for wheat, corn and edible oils.

Despite these challenges, Campbell’s is still optimistic that it will see mid-single-digit price growth for the next fiscal year. To deal with the potential jumps in material costs, it’s looking to selectively push prices up for some products.

“Part of the composition of the year is going to be a little bit of a tale of two halves,” said Campbell’s Soup CEO Mark Clouse during an investor meeting, noting that the company is expected to improve sales during the latter part of the year.

Supply chain woes plague manufacturers

Aside from being a global health burden, the Wuhan coronavirus (COVID-19) pandemic is also proving to be a global economic burden.

Manufacturers of steel, which is used in the food packaging industry, have reported significant losses following difficulties with the market and workforce. In a recent conference, the OECD Steel Committee has expressed “grave concern” over what it calls a deterioration in steel market conditions due to COVID-19, even as steel production and inventories have continued to increase in China.

Based on the latest data by the OECD, the gap between global capacity and production has widened further with the COVID-19 pandemic. Currently, global steelmaking capacity is expected to increase to nearly 2.5 billion metric tonnes. However, the gap between capacity and production has widened by as much as 700 million metric tonnes. To note, new steelmaking facilities in the Gulf Region and Africa are still unable to relieve pressure brought on by increased capacity.

For its part, Campbell’s says that the company’s short-term profits will rely heavily on consumer dynamics that have supported demand. According to Clouse, the company expects modest profits in its organic net sale. In addition, experts have forecasted earnings of between $2.75 and $2.85 per share, well below initial estimates at $2.87. Meanwhile, net sales have fallen by 11 percent in the most recent quarter.

Analysts remain boorish on Campbell’s performance for the next quarter, given the problems that are plaguing the company at the moment.

“Question will remain on margin progression through the year given creeping costs and uncertainty around price vs. volume dynamic,” they noted.

Some industries report growth

Even as COVID-19 continues to rage across the U.S., the manufacturing industry has reported growth. According to trade the group Institute for Supply Management (ISM), the index of manufacturing activity rose to 59.9 percent last month. For the index, any percentage above 50 indicates growth in the sector.

This also means that American manufacturers have continued to meet demand, even as they are challenged by numerous supply chain disruptions. (Related: Covid supply chain woes worsen as prices soar, shelves run bare.)

“All segments of the manufacturing economy are impacted by record-long raw materials lead times, continued shortages of critical basic materials, rising commodities prices and difficulties transporting products,” said Tom Fiore, the head of the ISM survey committee.

Learn more about how the Wuhan coronavirus (COVID-19) is devastating the economy at Pandemic.news.

Sources include:

NTD.com

PotatoPro.com

OECD.org

APNews.com