Companies have been facing several serious challenges for a long time. It is about more expensive raw materials and materials, rising labor costs and ever higher costs of debt. Credit Agricole (CA) economists decided to check how much of the higher operating costs of agri-food companies they are able to pass on to customers. It turns out that it is quite a common practice. This bodes badly for inflation in the coming months.
“As a point of reference, we used the average financial data of the analyzed industries in 2015-2019, so as to avoid the distorting impact of the COVID-19 pandemic on the results of our analysis. The interpretation of the results obtained is as follows: if the share of total costs in revenues remains unchanged or decreases, it means the fact that companies are able to pass the rising costs down the supply chain, including consumers at the end, “the study reads.
The data shows that up In six out of ten analyzed individual industries, it was possible to reduce the share of total costs in revenues. This means that they have more than shifted the rising costs to subsequent parts of the supply chain, thus increasing their margins.
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The best situation is in the “sugar production” industries, “manufacture of dairy products” and “processing and preserving of meat, and production of meat products”.
In turn, the strongest increase in the share of total costs in revenues was recorded in the sectors “processing and preserving of fish, crustaceans and molluscs”, “coffee and tea processing” and “production of bakery and flour products”, which means that in these categories the cost shock forces companies margin cuts.
At the same time, the analysis of the cost structure shows that The biggest problem that companies are currently struggling with is the rising cost of materials, and to a lesser extent of energy, in the first place. It is worth noting that labor costs and interest generally grow slower than revenues, and consequently their share in revenues decreases.
Data analysis at a higher level of detail shows that Bakeries and confectioneries faced the biggest problem in shifting the rising costs onto subsequent sections of the supply chainwhile pasta producers significantly lowered the share of total costs in revenues.
What it comes from? CA economists explain that the bakery and confectionery market is characterized by a much lower level of concentration than the pasta market. The lower the market concentration and, consequently, the higher competition and weaker negotiating position of the entities operating in it, the more difficult it is for companies to raise the prices of their products.
Experts predict that high cost pressure will persist in the coming quarters. As a consequence, the following months will bring a further increase in the prices of food and non-alcoholic beverages. The dynamics of increases will reach its maximum in October, exceeding 20%. Every year. Inflation is to slow down further.