Global Food Prices are Rising
From commodity inflation to transportation and energy, increasing costs have become all too familiar in the post-COVID-19 era.
According to data released by the Food and Agriculture Organization, the FAO Food Price Index, which tracks monthly changes in the international prices of commonly traded food commodities, averaged 127.1 points in May. This is a staggering increase of 40% year-on-year.
This is the highest level in a decade, with prices of grains, vegetable oil, meat, dairy, and sugar all reaching new heights.
The demand for food and beverage products is also at an all-time high, with shoppers looking to replenish their supplies of groceries and essential items due to increasing fear of the new COVID-19 variants.
This latest blog article looks at the increasing costs facing food and beverage manufacturers and how technologies such as hygienic (sanitary) liquid product recovery, commonly known as “pigging”, can help.
Raw Material and Ingredients Prices are Soaring
As well increasing demand and concerns about commodity inflation, surges in raw material and ingredient prices are also causing major headaches for food and beverage manufacturers. In some areas there have been reports of 30 to 40 percent average increases in raw material costs.
Price increases have also extended to packaging too, with aluminium, plastic wrap, and cardboard significantly more expensive than they used to be. There’s also pressure from consumers to reduce the use of plastics in food and beverage packaging.
With significant cost increases in raw materials and ingredients, it’s becoming extremely challenging for food and beverage companies to remain competitive and ensure sustainable margins.
Labour and Transportation Costs
Labour costs are also squeezing profit margins with wages in food manufacturing around 3.4% higher Q3 2020 than in Q3 2019 (equating to an extra $900 million). This is due to employers offering higher wages, bonuses and incentive schemes, amid the COVID-19 pandemic.
Unemployment in the US is high; however, the food and beverage and other industries are struggling to find workers. It has been suggested by the Economic Policy Institute that this issue will only be resolved if employers raise wages, which may result in even higher price increases.
It’s a similar situation in the UK, where food manufacturers are having to spend extra money on incentives in order to entice new workers.
Transportation is also a major problem facing the industry with driver shortages, plus higher freight charges and rising fuel costs threatening to push up prices even higher.
The impact on the bottom line of the food and beverage industry is troubling. That’s why many large food and beverage brands have already looked to pass along these rising costs to consumers in the form of price increases.
Coca-Cola, Unilever, Nestlé and Mondelēz International are some of the established brands looking to offset the rising costs with price increases. Many of these brands have tried to absorb these price hikes for as long as possible. However, there is a limit to how much they can do this.
Therefore, many larger food and beverage brands are counting on their strong brands and innovative power in a bid to improve growth despite the higher prices.
However, for smaller food and beverage companies, managing margins by passing rising costs on to customers isn’t necessarily the best option for growth, especially with fierce competition among consumer-packaged goods (CPG) brands.
Impact on Consumers
It’s also important to consider that higher pricing may not necessarily equate to higher profitability. In fact, it may lower underlying sales growth as consumers are forced to tighten their purse strings.
Consumers are already concerned about the prospect of food price inflation. According to the latest IGB Shopper Confidence Index from the UK, rising inflation is a major concern. As a result, financial confidence has decreased considerably in September, with 31% of shoppers expecting to be worse off in the year ahead (a 9% rise from August 2021).
The continued rise in inflation concerns is likely to result in renewed risk-aversion and more value-seeking behaviour. This is especially likely among families who are hard-pressed financially and facing mounting living costs and reduced social security.
How Can Food and Beverage Manufacturers Reduce Costs?
So, what can food and beverage manufacturers do about the rising costs?
As well as increasing prices in a bid to offset costs, many food and beverage firms are protecting their margins by productivity and efficiency gains.
One of the technologies helping food and beverage manufacturers to improve efficiency, productivity and profitability is liquid product recovery (“pigging”).
From pastes, ready meals, meat emulsions, creams and nut butters, to juices, soft drinks, sodas, spirits and wine, the benefits of pigging systems for food and beverage processing and production are extensive.
Recover Product from Process Pipelines
Pigging recovers residual liquid product from process pipelines with a specialist, flexible projectile called a pig.
Because pigging recovers nearly all the product from the pipe, there’s a greater volume of product available for further processing, packaging or sale. So, not only does pigging increase yields, but it sends less product to waste which, in turn, reduces the associated disposal costs considerably.
HPS hygienic and sanitary pigging systems also streamline processing, reducing effort and resources required and speed up various operations. With a pigging process, some process stages may be eliminated altogether, for instance dismantling pipework or flush outs.
Reducing Production Costs by Pigging
Custom pigging systems by HPS can also lower production costs, improve the business bottom line and enhance the competitiveness of food and beverage manufacturing plants. This is by reducing the costs of water use and disposal, lowering energy use, reducing flushing and chemical washouts and lowering labour costs.
In addition, due to the high recovery rates of HPS pigging systems, changeovers are much faster and production downtime is far less. The chances of product contamination and cross-contamination are greatly reduced, which means better product quality and lower rework.
High Return on Investment with a Pigging Solution
The high recovery rates of HPS pigs also means the same pipeline can be used for more than one product, which reduces the need for dedicated pipelines and installation costs.
In this way, pigging increases the capacity and flexibility of food and beverage operations, enabling manufacturers to meet the demands of customers for greater product variety. Using flexible and agile technologies such as pigging also means there’s less downtime which ultimately means improved productivity, increased up-time and more revenue.
Importantly, pigging delivers high return on investment with fast payback. In most cases, pigging system payback is nearly always between 6 and 12 months.
Find Out More
Food and beverage manufactures are facing some serious challenges right now.
If you process food and beverages or other liquids and need to address yield, capacity, waste, contamination and other challenges around liquid processing, please get in touch today. Our knowledgeable and friendly will be more than happy to help.