Potential exists for a great 2014
December 17, 2013
Even a quick glance at the ingredient indexes on Page 57 of this issue, especially when accompanied by an in-depth look at the charts, tables and comment in the Ingredient Markets section, will leave no doubt that 2013 saw mostly a downward move in prices of major food ingredients. With the exception of strength in pork and poultry, the year unfolded dramatic change from several years of exceptional gains in the cost of ingredients. While this year alone does not necessarily signal the end of what some experts had defined as a powerful commodity upward price cycle, the weakness has been broad and deep enough to encourage food processors to understand the many consequences of a totally different ingredient marketplace.
For the most part, this year’s declining course of major ingredient prices ought to be welcomed with great enthusiasm by food manufacturers. After several years in which sharply rising costs cut into margins of food makers to a degree that frequently caused great financial pain, it is clearly refreshing to recognize that product innovations, which are still the main driving force of the industry, may be launched without encountering unexpected interference from sharply higher costs for one or another component.
Hardly anything made rising costs more of a problem than that this period of ingredient strength coincided with a period when consumer demand was restrained by a far from effervescent, if not dismal, economy. That those conditions are turning slightly more favorable at the same time that ingredient costs are weakening points to all sorts of possibilities, such as being able to maintain stable prices. That is far better than having to face retail grocery and food service customers constantly pressing for lower prices and other concessions as their answer to what was a less than bright retail marketplace. One of the horrors of the period of sharply rising costs was finding little or no understanding from retailers inclined to press for pricing favors even while being fully aware of and sometimes sympathetic with the pressures facing food manufacturers.
If there are any negatives for food processors in a declining ingredient market, two stand out. One is the all too familiar environment such price moves create for price concessions and other incentives, by food makers to gain shelf space by cutting prices or from retail and food service customers. While acknowledging that steep advances in major component costs served as an effective brake on the sort of disastrous competition that all too frequently in the past has plagued food manufacturing, having the opposite happen as cost pressures lessen borders on self-destruction.
Not to be overlooked in any positive thinking about food price weakness is the way in which such markets sow the seeds for a subsequent price reversal. Yes, farmers may have benefited greatly from several years of sharp advances, but the more recent downturns have made planting decisions difficult in reaction to revenue shortfalls. It has become increasingly obvious in recent years that acreage sown to crops like wheat is especially vulnerable to disappointing market returns, which is the way current prices are viewed by many farmers. Not much more than a single disappointing crop can cause a dramatic price reversal.
By recognizing the varying pitfalls created by the present market, the food industry ends 2013 and moves into 2014 with an environment with greater potential than it perhaps has seen in a long time. The past year has not been anything like a boom that is often followed by bust. 2013 was a year of slow but steady improvement. Sure, there are huge issues ahead with employment lagging and the steadiness of the economy questioned, but the principal forces over which the food industry has little control appear positive. What needs doing to make the year ahead a great one is totally in the hands of the industry, leaving no question as to where responsibility lies.