Food Processing Industry: Navigating Challenges Amid Market Volatility

Supply Chain Disruptions

Supply chain disruptions have significantly impacted the food processing industry, with companies like General Mills and Kellanova highlighting these challenges. Conagra Brands notes past disruptions but sees improvement, while Mondelez International reports increased costs due to international supply chain issues. Campbell Soup Company emphasizes their strong supply chain's role in meeting production demands.

"I mean, they had a lot of supply chain disruptions, which are well documented and they've talked about." --- (GIS, conference, 2024/05/29)

"For us, we obviously talk quite a lot about the impacts of COVID and then obviously supply chain disruptions and our pullback in merchandising and overall innovation activity." --- (K, conference, 2024/06/06)

"That's been a headwind. But we haven't had any other disruptions like we've had the last couple of years in supply chain, given the environment that now we're able to -- we're really encouraged that we're able to make -- fund the investments we want to fund and execute our productivity programs and drive the gross margins that we're looking for." --- (CAG, earning call, 2024/Q1)

"During the first three months of 2024, price volatility and the higher aggregate cost environment increased due to international supply chain and labor market disruptions and generally higher commodity, transportation and labor costs." --- (MDLZ, sec filing, 2024/Q1)

"Given the strength of our supply chain, we've been able to step-up production to help meet that need which has accelerated growth in this normally stable category." --- (CPB, earning call, 2024/Q1)

Raw Material Cost Fluctuations

Companies in the food processing industry manage raw material cost fluctuations through strategic purchases, hedging techniques, and price adjustments. Kraft Heinz, McCormick, and Hershey employ risk management strategies to mitigate the impact of commodity price volatility, while Archer Daniels Midland anticipates moderated soybean crush margins in 2024.

"We manage commodity cost volatility primarily through pricing and risk management strategies including utilizing a range of commodity hedging techniques in an effort to limit the impact of price fluctuations on many of our principal raw materials." --- (KHC, sec filing, 2024/Q1)

"While future movements of raw material costs are uncertain, we respond to this volatility in a number of ways, including strategic raw material purchases, purchases of raw material for future delivery and customer price adjustments." --- (MKC, sec filing, 2024/Q2)

"We continue to monitor and use our risk management strategy where possible to hedge commodity prices in order to mitigate corresponding increases in our raw materials and energy costs (see Part II, Item 1A - Risk Factors included in this Quarterly Report on Form 10-Q)." --- (HSY, sec filing, 2024/Q1)

"As a result, we anticipate the global soybean crush margins would moderate in 2024, likely moving into a range of $35 per metric ton to $60 per metric ton." --- (ADM, earning call, 2024/Q1)

"But our CCI program -- we target all levels of the P&L. I mean, a lot of times programs will just look at cost of goods sold, raw material, things like that, which is an important part of our portfolio." --- (MKC, earning call, 2024/Q2)

Regulatory Changes

Food processing companies face increasing regulatory requirements related to climate change, food safety, advertising, and labeling laws. They rely on guidance from regulatory bodies like the FDA, EFSA, and UK FSA, but often find these agencies lagging in updating health impact evaluations.

"Risks Associated with Climate Change Certain jurisdictions in which our products are made, manufactured, distributed or sold have either imposed, or are considering imposing, new or increased legal and regulatory requirements to reduce or mitigate the potential effects of climate change, including regulation of greenhouse gas emissions and potential carbon pricing programs." --- (PEP, sec filing, 2024/Q2)

"of U.S. and foreign economic conditions on items such as interest rates; statutory tax rates; currency conversion and availability; legal and regulatory factors including changes in food safety, advertising and labeling laws and regulations, the ultimate impact of product recalls; business disruption or other losses from war, terrorist acts or political unrest; and the risks and uncertainties described in Item 1A below." --- (K, sec filing, 2024/Q1)

"Their claims fail to recognize and acknowledge the abundant reporting and research the company relies on from regulatory bodies like the U. S.Food and Drug Administration, the European Food Safety Authority and the United Kingdom Food Standards Agency, and this is to name just a few." --- (KO, event transcript, 2024/05/01)

"Risks Associated with Climate Change Certain jurisdictions in which our products are made, manufactured, distributed or sold have either imposed, or are considering imposing, new or increased legal and regulatory requirements to reduce or mitigate the potential effects of climate change, including regulation of greenhouse gas emissions and  " --- (PEP, sec filing, 2024/Q1)

"It is not enough to abide by various countries' regulatory guidance as these agencies in the EU, Canada and the U. S.For example are often decades behind in reevaluating the health impacts of MSS." --- (KO, event transcript, 2024/05/01)

Consumer Demand Shifts

Consumer demand in the food processing industry is shifting towards value options and snacking, driven by financial stress and the need for affordability. Companies like Tyson Foods, Campbell Soup, Hormel Foods, General Mills, and Kraft Heinz are adapting by improving profitability, emphasizing value, and expanding product choices to meet evolving consumer needs.

"to meet customer and consumer demand. Turning to pork, better spreads and ongoing operational execution led to improved profitability in the quarter and the first half of the year." --- (TSN, earning call, 2024/Q2)

"However, we've seen improvement in the latest weeks and remain very confident in the continued consumer demand for snacking and the strength of our portfolio of advantage brands." --- (CPB, earning call, 2024/Q3)

"We're also shifting some dollars into the category to be speaking with consumers about the value that these items play especially as consumers are thinking about value options as they're shopping." --- (HRL, earning call, 2024/Q2)

"And so, combine the consumer perception with consumers are stressed financially right now, you see the rise in credit card debts and so forth." --- (GIS, conference, 2024/05/29)

"But more importantly, we are expanding the choices we offer our consumers so that they don't have to sacrifice, whether" --- (KHC, earning call, 2024/Q1)

Strategic Market Responses

Mondelez focuses on consumer-centric growth and operational excellence, Campbell explores strategic alternatives for non-core categories, Conagra invests in consumer engagement, Hormel progresses on long-term growth initiatives, and General Mills aligns M&A with strategic priorities. These strategies illustrate diverse responses to market volatility in the food processing industry.

"We aim to be the global leader in snacking. Our strategy is to drive long-term growth by focusing on four strategic priorities: accelerating consumer-centric growth, driving operational excellence, creating a winning growth culture and scaling sustainable snacking." --- (MDLZ, sec filing, 2024/Q1)

"Even though we have decided to explore strategic alternatives for the business, as yogurt is not a strategic category for Campbell's, the business has truly exceeded our expectations." --- (CPB, earning call, 2024/Q3)

"Here are our key assumptions for fiscal ’25. We expect our brands will continue to benefit from our ongoing strategic investments to maximize consumer engagement and drive further volume improvements." --- (CAG, earning call, 2024/Q4)

"Importantly, we made further progress on our strategic initiatives and we remain on track to deliver on our commitments to drive long-term shareholder returns and growth." --- (HRL, earning call, 2024/Q2)

"To your second point around criteria for M&A, obviously, the critical filter for us that we start first with our strategic priorities, which leads us to look at critical occasions, which would get us to priorities around breakfast and convenience -- convenient meals and snacking, as well as obviously pet food." --- (GIS, earning call, 2024/Q4)

Labor Market Challenges

Labor cost inflation and tight labor markets are significant challenges for the food processing industry, impacting recruiting efforts and increasing expenses. Companies like Conagra, Hormel, and Tyson Foods are addressing these issues through strategic facility investments and supply chain optimizations.

"Trends Impacting Our Business: Our industry continues to be impacted by commodity cost fluctuations, labor cost inflation, input cost inflation, and other global macroeconomic challenges." --- (CAG, sec filing, 2024/Q3)

"Not only does this new facility assist the company's recruiting efforts in today's tight labor market, but more importantly, the center provides a needed service for our team members and our community." --- (HRL, earning call, 2024/Q2)

"What I'm describing to you is a new opportunity and a new waste being eliminated from our system, all through supply chain in terms of where we manufacture, what is the capacity utilization, the yields, the labors, all those things you would see in a typically commodity oriented business." --- (TSN, conference, 2024/05/15)

"develop qualified personnel; risk of increased pension, labor or people-related expenses; risks and uncertainties associated with intangible assets, including any future goodwill or intangible assets impairment charges; risk relating to our ability to protect our intellectual property rights; risks relating to acquisition, divestiture, joint venture or investment activities; the amount and timing of future dividends, which remain subject to Board approval and depend on market and other conditions; and other risks described in our reports filed from time to time with the Securities and Exchange Commission (the "SEC")." --- (CAG, sec filing, 2024/Q3)

Sustainability Practices

Food processing giants like Bunge, Coca-Cola, PepsiCo, ADM, and Kellogg's are prioritizing sustainability by adopting low carbon intensity practices, developing sustainable packaging, investing in digitalization, and supporting farmers in optimizing sustainability performance. These efforts underscore the industry's commitment to enduring global trends amid market volatility.

"This combination will also enhance our role as a bridge between growers and end consumers to adapt and prioritize new sustainability practices that produce low CI products while bringing value back to the farm." --- (BG, earning call, 2024/Q1)

"From creating new products and brand extensions to the development of more sustainable packaging to more efficient equipment and the use of technology to improve our business, we believe innovation is a key enabler in creating value." --- (KO, event transcript, 2024/05/01)

"So we feel good about the flywheel in Europe. But at the center of that is a very strong productivity, cost discipline and reinvestment strategy that is, in a way, what we're trying to do across the full company, elevating our productivity and driving their investments both into affordability, availability, a better brand equity and then investing back into our future, digitalization and sustainability at the center of that investment." --- (PEP, earning call, 2024/Q1)

"We made progress on each of these priorities in the first quarter. Our efforts to manage through the cycle highlight ADM's ability to mitigate challenging headwinds while building structurally on enduring global trends, such as sustainability." --- (ADM, earning call, 2024/Q1)

""We have a strong commitment to continuous improvement and look forward to engaging with and supporting North Carolina wheat farmers in measuring and optimizing their sustainability performance." In addition to the regenerative wheat, a key output of this program will be agronomic insights on farm and supply chain resiliency." --- (K, press release, 2024/06/18)