DENVER – The economic impact on US food companies since the onset of the COVID-19 pandemic, which saw a spike in retail sales, is showing signs of lingering well into 2022, according to a new report published by CoBank’s Knowledge Exchange. Two years into the pandemic and the subsequent rise in input costs, including labor, raw material and freight, profitability in the food industry has surprisingly not suffered as price increases and continued elevated spending at grocery stores have combined to financially benefit the food manufacturing sector.
Optimism about the returning to normal in the foodservice and retail food sectors were blunted by market headwinds, such as longer-than-expected supply chain challenges, the impact of worldwide drought on crop yields, the inability of COVID-19 vaccinations to remedy the labor shortage and an overwhelmed trucking sector that hasn’t kept pace with demand. These factors are all contributing to delays in the food industry returning to normal and the balance of consumer purchasing between the foodservice sector and grocery stores getting back to pre-pandemic conditions.
“We believe that consumer food spending habits, which have become firmly entrenched after two years of the pandemic, will persist for a good while even if COVID fades into the background by mid-year,” said Rob Fox, director of CoBank’s Knowledge Exchange. “The combination of tailwinds from the pricing actions now taking full effect with the continuing strong consumer demand means retail food manufacturers will continue to enjoy strong profits in 2022.”
According to the CoBank report, the elevated Consumer Price Index for food at home will persist throughout 2022 and continued increases into the first half of the year are likely.
Fox said, “The simple average of operating profit margins from 66 publicly traded food manufacturers and processors shows that profit margins remained strong and even widened in calendar Q3 of 2021. Recent earnings guidance from food manufacturers suggests strong profit margins will persist when Q4 results are unveiled in the coming weeks. In fact, strong unit sales on top of pricing actions likely drove many food companies to record incomes in 2021.”
A video outlining Fox’s CoBank report is available here.