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Prices Remain Above Pre-Pandemic Levels As Rail Strike Looms

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The Consumer Brands Association cautioned that the wholesale prices in the Bureau of Labor Statistics readout show ongoing production cost pressures for consumer packaged goods manufacturers. The October Producer Price Index rose 8 percent over last year and 0.2 percent since September.

The CPG industry still faces steep prices for commodities that remain above overall wholesale prices, and while there has been some easing since the sharper increases seen over the summer, the food manufacturing PPI is up 10.4 percent year-over-year and 25.9 percent above pre-pandemic levels seen in February 2020.

“There are countless factors impacting production costs right now as ongoing supply chain disruptions are constantly at play,” said Tom Madrecki, VP of supply chain.

“As CPG manufacturers adjust their inventory strategies, staffing and recruitment models and shipping decisions to account for the supply chain challenges, the federal government must take action to boost supply chain resiliency.”

Key commodities continue to show wholesale prices well above last year and higher than pre-pandemic norms. Year-over-year, eggs spiked 158 percent, grains increased 29 percent and pasta is up 37 percent. While there was some decline in wholesale meat prices, turkeys are up 40 percent over last year. Diesel fuel has risen 62 percent year-over-year, making an impact on the CPG industry, which accounts for one-fifth of all freight transportation.

Ongoing supply chain volatility will continue to impact manufacturing costs moving into the busy holiday season. As challenges persist, Consumer Brands participated in a White House roundtable last week focused on strengthening the security and resiliency of food and agriculture to advocate for the administration’s action to reinforce the food supply chain.

Following the discussion with relevant government and industry leaders, the administration released a national security memorandum directing the federal government to address threats to the food and agriculture sector. These include grain shortages resulting from Russia’s war on Ukraine, a halt in meat production due to a ransomware attack earlier this year and the spread of influenza’s impact on the health and wellness of poultry.

“The pandemic exposed major issues in the supply chain, and we’re grateful for the opportunity to partner with the Biden administration to bolster our country’s preparedness and to ensure the CPG industry can better deliver for consumers in the wake of future disruptions,” Madrecki said.

The possibility of a national freight rail shutdown is again on the radar of potential threats to supply chains. After reaching a temporary agreement to narrowly avert a rail strike in September, unions announced last week a new agreement deadline in early December. A strike-induced national freight rail shutdown would upset availability of key inputs and cost $2 billion in lost economic output a day.

Through earlier stages of negotiations with the rail unions, Consumer Brands called for congressional intervention if the Biden administration was unable to shepherd a deal. Consumer Brands has since backed legislation to fend off future rail disruptions and joined dozens of industry groups in urging President Biden to continue working ensure ratification of an agreement.

“The supply chain is improving but is far from where it needs to be to weather disruptions. A rail strike would be a tremendous blow to its recovery and one that must be avoided at all costs,” Madrecki concluded.

For more association news from The Shelby Report, click here.

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