CBA: Market Volatility Is CPG’s ‘New Normal’

Turbulent markets, chaotic supply chains and both new and old challenges are expected to continue impacting the CPG industry this year, according to a report released this month from the Consumer Brands Association (CBA).

After two years of pandemic-related disruptions, the industry had hoped for stability in 2022; however, based on the report, the CBA believes ongoing market volatility will be the only constant, stating “in 2022, optimism is cautious, pessimism is informed.” Inflation, the remote work revolution and environmental sustainability will be the key areas impacting the CPG industry over the course of this year, said the CBA.

Inflationary Pressures Are The New Normal

While regional lockdowns brought supply chains to a screeching halt at the onset of the pandemic, other factors – including the war in Ukraine, Omicron variants, the global destruction of crops due to extreme weather and a less-than stellar labor force – mean that stagnation has lingered and inventory levels have struggled to keep up with higher-than-average product demand, the report found.

Although inflation rates have increased slightly less for food (8%) than the consumer average (8.5%), 90% of consumers said they have noticed inflation specifically at the grocery store and many overestimate how much prices have actually risen, according to survey results. Initially, brands did their best to absorb increased costs, said Geoff Freeman, CBA President and CEO, though he believes the industry has reached a breaking point at which price increases on the consumer end “are now an unavoidable outcome.”

Increased input costs are driving this outcome, according to the report. Ingredient price increases have now outpaced wholesale: commodities like wheat (39%), oats (+98%), edible oils (+46%) and aluminum (+44%) have all seen significant hikes over the past year. This has also contributed to an elevated producer price index (PPI) which is expected to decline throughout the year, but remain far above its pre-pandemic average.

Prior to COVID-19, the global supply chain could handle “individual hits,” the report notes, but now the industry needs to look for solutions that can help mitigate more frequent and unanticipated blows instead of looking for temporary solutions and alternatives.

“The volatility of today’s inflationary environment emphasizes the need to focus on meaningful solutions in our control,” said Tom Madrecki, CBA VP of Supply Chain and Logistics, in the report. “Limiting the impact of the next supply chain crisis starts with being able to spot it before it happens, but we have too many blind spots today. Reliable data could change all that, helping supply chains manage risk, unlock efficiency and enhance resiliency.”

Some agricultural companies are developing new systems to reduce those ‘blind spots.’ Missouri-based soybean processor Benson Hill, for example, expanded its CropOS technology in August to enable “real-time” information from producers at the farm level and through all stages of the value chain.

Interest in traceability within supply chains has increased both on the consumer and institutional ends as well, boosted by the Biden administration announcing the Freight Logistics Optimization Works (FLOW) plan earlier this year. According to the report this plan would establish a “ground traffic control” system to track freight shipments across the country, generating a significant amount of insight into the U.S. supply chain which presently offers “alarmingly little visibility.”

Less Workers Present Increased Manufacturing Challenges

The pandemic also spurred a work revolution with record numbers of Americans quitting their jobs, or looking to new opportunities that offer, above anything else, flexibility. This hit the manufacturing industry especially hard with the report stating that despite wage increases, the industry has not been able to stimulate a recovery of its workforce.

“There isn’t a company out there that isn’t thinking about how to recruit and retain its workforce,” said Joseph Aquilina, CBA Senior Director and Associate General Counsel. “Make no mistake, this is a big jump for manufacturing that would upend long-held production models, but this is an industry that jumps for the consumers it serves and asks, ‘How high?’”

That jump would mean a new model for the industry as a whole, one that offers more flexible working hours and upward mobility within organizations, the report suggests. Some companies like Amazon have responded to these demands, creating a culture of “uberization” within the manufacturing sector with its ‘Amazon Anytime Shifts’ program for workers in its grocery and fulfillment center warehouses.

Sustainability Initiatives Necessary To Sustain Business

Regardless of whether it is a new, entrepreneurial brand or well-established corporate food conglomerate, commitments to sustainability are necessary to garner both investor and continued consumer support, according to the CBA. Among the 50 top CPG businesses, each one has outlined a commitment to “address climate change, improve packaging sustainability and reduce water usage.”

At least one route to sustainability remains largely blocked, however. While 84% of consumers report a specific concern about plastic and packaging waste, recycling rates have declined 3% since 2017 and currently, only 8% of plastic packaging is recycled. The report states that 70% of plastic packaging would need to be recycled to keep up with the current rPET demand.

In order to satisfy that demand, the CBA suggests that nationwide recycling rules are necessary. Currently, states and individual municipalities set their own recycling standards, leading to consumer confusion and a patchwork of inefficient regional systems. According to a report from the The Tellus Institute, increasing recycling rates ​​could add 2.3 million jobs and reduce carbon emissions by nearly 515 million metric tons; however, establishing a uniform system would require a significant amount of funding to enable infrastructure changes.

“Throwing money at the problem doesn’t solve it, it only raises the cost of failure,” said John Hewitt, CBA VP of Packaging Sustainability. “We need to develop uniform standards for recycling that allow us to make smart, data-driven decisions that direct smart investments and secure the system’s future.”