Thanks Rob - I have one question. You state the government has little impact on global commodity and transportation prices, what impact did the Infaltion Reduction Act have on global commodities and transportation costs. With the US economy being the largest in the world I would suspect the infusion of money by the US into the market would have an impact on driving up global commodity prices and demand outside of the US, thus having an impact on the US supply chains. Some what of an indirect impact.
Thank you for the deep dive on this important topic. I agree with your conclusion and really enjoyed how you walked the reader through insight by insight to get there. Keep up the great work.
Rob, Thank you for the thorough exploration of this crucial subject. I concur with your conclusion and appreciated how you guided the reader through each insight to reach it. Excellent analysis.
Rob Handfield
This is a great write-up. Jason Miller is to be commended for his excellent work that extends well beyond magic with government statistics! I had the pleasure of speaking to Jason about this subject last week, so I've had time to reflect further.
His logic is correct and the politicians are well off the mark. No prima facie evidence exists for gouging by the stores and distributors.
On the other hand, consumers know prices of core items have increased and that is true. They attend to price increases and have reacted to protect themselves. Many have worked to lower grocery bills by shopping around, buying more in bulk or substituting cheaper items. One consequence is that spend relative to income has not increased in line with prices.
I had a discussion with a famous economist that it is the price level not the rate of change that people understand. Consumers don't why prices have gone up. Prices for wheat, corn and soybeans from the farmers are decreasing significantly this year as the result of bumper yields. Weather has been good and yields are higher.
Prices spiked after Ukraine was invaded, since it is a major exporter, as is the US. Geopolitics will play a larger role in commodity prices in the future, so we can probably expect spikes in prices for a variety of items.
A lot happens from the sale by the farmer until the food is on the shelves. Intermediaries for some food chains are few in number and have more pricing power.
Consumers have almost no notion of food supply chains and who has real market power. Will they be disappointed if bread prices or corn tortillas remain at current levels, because intermediaries are in a position to retain the benefit of lower costs?
The politicians obviously want to be seen to take action to protect consumers against higher prices. Neither the politicians nor apparently many of their staff understand what is really going on. The companies with names on the labels and storefronts are the obvious targets.
Certain intermediaries might be better targets for investigating price gouging. On the other hand, the volatility in commodity prices complicates any such assessment. They do better when commodity prices are higher and worse when prices are down. Consider that Cargill just had an internal memo released suggesting that margins are well down from 2022.
Truck freight spot prices rocketed when government fiscal stimulus was provided after Covid. Carriers and brokers were flush with cash and operating margins improved for most. That was not gouging. Shippers were bidding up spot rates to secure very scarce capacity. They had to ship and their demand was inelastic relative to prices. Surplus cash for carriers went to upgrading fleets and to create cash cushions which they are burning off as the industry now has excessive capacity. One could accuse them of poor management but not gouging.
The populists have grasped the wrong side of the stick once again.
#gouging#inflation#DNC#RNC
Rob Handfield and Jason Miller's work in the supply chain can teach us a great deal about what is really going on. This deep dive on the key drivers behind grocery prices is worth the read.
Founder of Near-By the local producer platform, helping consumers find the best local producers around the British Isles.
Why buy local? Buying local means you buy better. Better for you and better for your community.
A month today it’s the big day.
The one the giant grocers have been planning for all year long.
The next 4 weeks could make or break their annual sales.
December 25th means even more than that for our local producers.
For some, it will be make or break for their whole business, particularly this year with the increasing pressures on operational costs.
Last year, British consumers made 488 million trips to supermarkets over the four weeks to 24 December, spending a record £13.7bn. That’s £477 per household (Kantar).
Imagine if just an extra 1% of that spend this year for each household (less than £5) went directly to our local producers instead. That would mean £130 million staying with local farmers, bakers and makers.
10%: £1.3 billion.
Transformational for them (and it would really help our local economies too).
If this year your budget can stretch to diverting £50 to a local producer, here are my favourite local swaps to hit the £50 goal:
Turkey: Treway Farm (near St Austell in Cornwall) sells their small turkey breast joint for £49.50. Trust me, it tastes all the better coming from this family-run farm.
Hamper: Pump Street Bakery’s “Rare Batch Box” is a perfect £40 gift straight from the Heritage Coast in Suffolk.
Fizz: switch to UK-made as it really does hold its own against the toughest competition. Hampshire-based Hattingley Valley’s Classic Reserve (£36) is outstanding.
Who’s your favourite local producer?
Add their name in the comments below and, at NEAR-BY we'll help to spread the word about them this festive season.
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Director, Global Supply Chain Life Sciences Industry
2moThanks Rob - I have one question. You state the government has little impact on global commodity and transportation prices, what impact did the Infaltion Reduction Act have on global commodities and transportation costs. With the US economy being the largest in the world I would suspect the infusion of money by the US into the market would have an impact on driving up global commodity prices and demand outside of the US, thus having an impact on the US supply chains. Some what of an indirect impact.