Looking Forward

By Peter Thor, President Bellissimo Foods

Summer’s over and the New Year is just around the corner. 2018 has been a tumultuous year, and 2019 promises more; But What? Our industry has been the recipient of some unwanted structural changes to costs and supply. While we do not have a crystal ball, important exogenous changes are happening that we believe will profoundly impact our industry.

Close to home, trucking and transport costs have rocketed skyward due to regulatory changes for drivers and trucks, as well as fuel and operating costs. In many areas, finding drivers and getting loads covered have become significant problems. Perhaps you’ll notice “Drivers Wanted” ads near you as we do. The shortage is particularly acute for large trucks where “Class A” licenses are required.

These issues have been compounded by tariffs, anti-dumping duties, and additional government regulations on imported goods and recent implementation by the FDA of F.S.V.P., abbreviation for Foreign Supplier Verification Program. Tariff fights on Chinese, European, NAFTA, and seemingly all countries we source food from have received a lot of press and are still going. As of this writing, a trade deal with Mexico has been announced and experts are expecting similar agreement with Canada soon. However, trade issues with partners in Europe and Asia do not appear close to resolution anytime soon. Implications for our industry mean generally higher costs on foreign sourced foodstuffs and non-food goods like disposables, foil, etc.

In addition, our September newsletter (see online at www.Bellissimofoods.com) described many of the domestic supply implications likely resulting from tariffs and counter-tariffs. Since that article, numerous large food companies have reported their quarterly results, and most have blamed missed earnings on tariffs and resulting lower export demand. As an example, Tyson Foods recently lowered its 2018 profit forecast by 12%, citing uncertainty related to tariffs that has plummeted export demand and sent chicken and pork pricing lower. Bad timing, because according to the USDA, the United States is in the middle of a historic meat glut, with a record 2.5 billion pounds of beef, chicken, pork, and turkey in cold-storage. Remembering last year when demand for chicken surged along with prices due to high priced beef, now the opposite is true.

The so-called Foreign Supplier Verification Program (FSVP) is yet another government program, well-intentioned but misguided. The FDA, apparently unable to negotiate bilateral food safety regulations, has imposed on the domestic industry the obligation to require and document that foreign suppliers meet US standards for hygiene and food safety. Pushing the obligation to importers will likely create an entirely new middleman industry, as copious regulations will be beyond many company’s ability to comply. Moreover, foreign companies will have to either add necessary regulatory and inspection costs or forego selling into the United States. Both outcomes are bad for competition and costs; and are unlikely to meaningfully improve food safety in the US.  After all, there are plenty of food safety and hygiene issues at plants here, and one only has to look at the disgraceful lack of regulation of casual transport of perishable goods in non-refrigerated vehicles from “Depot’s” and cash and carry outlets. +

Good News domestically is that for the time being, costs for key ingredient food categories of dairy, beef, pork, poultry and grains should be stable to lower excepting higher transport costs. Recent tomato harvest information also suggests a large 2018 harvest which absent the tariff on steel/tinplate, would suggest lower costs on paste and pizza sauce. As noted, the USDA is reporting record inventories of meat, suggesting continued weakness in beef, pork, and poultry pricing heading into fall promotion periods. Projected large grain harvests in the US are tempered by a severe drought in Australia and lower projected harvests in Europe. Nevertheless, grain and feed prices in the US are expected to stay low which is a good sign for flour prices, as well as feedstock for cattle, hogs, and chicken.

Pork supply is threatened, however, by the recent discovery of African swine fever in China. This deadly disease is highly infectious and deadly to swine. In weeks it has spread hundreds of miles across Asia and millions of animals could potentially perish as a result. If it reaches the US it could have devastating impact as there is no cure or vaccine – and China controls 25% of the world’s supply of pork which, of course is the primary ingredient in pepperoni, the world’s most popular pizza topping.

Looking forward, we see stable and lower price for most of our food ingredients. In addition, we are entering the highest demand period for pizza, America’s #1 favorite meal. We’re seeing an uptick in domestic demand and clearly independent restaurants are winning when they focus on their strengths; thinking local and using better ingredients and serving a better and more creative product. Wishing you every success!

Adding something special to specialty foods for more than 60 years.