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Understanding food supply chain and drivers of soaring prices

Price pressure: grocery stores and food wholesalers are at the end of the food supply chain

According to the World Bank, Bermuda still has one of, if not, the highest GDP per capita world-wide at $110,869.50.

Hah! If they only knew just how extraordinarily expensive it is to live on an isolated island where everything — except sand, seaweed, limited broccoli and potato crops, native paw-paw, banana, loquat and Surinam cherries — is imported.

Our community is food and fuel challenged greatly these days!

Even so, we are not alone.

Listen to the same problems of serious price escalation by producers, wholesalers, distributors, and consumers in the United States at CBS Morning Grocery Sticker Shock. - A look behind the scenes along the food supply chain.

Understanding the food supply chain

Farm producers: let’s use growing lettuce (arugula) as an example. Highly dependent on labour, weather, soil production, fertiliser over/undersupply, pollination (bees), machinery, processing (cleansing and packaging), with additional setbacks these last couple of years from Covid, the Ukraine war of grain attrition, extreme heat, drought and time deterioration.

Then, additional costs: insurance, storage, fuel, taxes, plus surplus/scarcity changes in bargaining power and sales price fluctuations. All good returns when crops supplies are limited, lower when growth surpluses hit the market. Yet production costs remain the same or greater. The farmer gets the smallest slice of the production pie.

Middle-tier processors: purchase raw produce from growers. Enter their shipping, fuel, plant, machinery, labour and benefits, marketing, packaging, machinery, marketing, packaging, processing and production convenience, distribution, and shipping, etc.

An estimated 30 per cent of leafy greens are reprocessed into packaged salad greens, a big staple of American diets.

Price comparison — a 5oz package of Organic Girl baby arugula costs between $3.29 and $4.49 in the US; in Bermuda the same product costs $5.99 on special or $7.99 at the regular price.

Distribution: links from processors to retailers – items are shipped from every country these days via boat, plane, rail, and highway truckers. Just about all the above factors come into play for distributing companies, along with issues that are unique to the shipping industry itself.

The US recently resolved a massive railway strike, which, unresolved, would have affected long-haul truckers (there are nowhere near enough of them to cover railway delivery), seaport distribution centres, rerouting of highway supply chains, interruptions and scarcity of services and products across the country.

In Bermuda, items are shipped or flown in at a possible higher cost — one factor is that ships or air freight carriers return generally with less full or empty holds to the next port.

Retailers: wholesalers and retailers locally are faced with Customs duty on landing, not at point of sale, with all proceeds going into government coffers. This, before they can even begin to price goods and services to include the cost of employees and benefits, utilities, fuel, marketing, floor space, maintenance, turnover, shrinkage (including theft, obsolescence, old goods, deterioration of produce), surprise shipping/fuel adjustment surcharges for inflation, or hold-ups — for example, shipments on dock too long, refrigeration malfunctions, storms at sea — before setting a profit margin, because why else would they be in business?

Food wholesalers and retailers are particularly challenged — more than those carrying products that do not deteriorate, have longer shelf lives, and don’t require the same intense immediate handling.

What happens, if say a soft produce offering deteriorates too soon, or the sell-by-date for a hard product is too short, or in the event of languishing on the dock for some indeterminate amount of time, it must be reduced in price or discarded?

The merchant has already paid the upfront customs duty, the varied cost of employee handling, the fixed costs of operating the business property and the goods themselves, now worthless. There is no choice but to absorb the loss.

Then, when the final prices are listed, they are labelled greedy for charging so much —even though they’ve generously contributed gratis to local charities and food kitchens.

Do we really feel that way?

I challenge anyone to track a cost of a good from overseas farm or manufacturer to the end point, a local retail store. When time permits, I will be presenting my results.

Consumers: there is no argument that items imported are generally much more expensive than for consumers in food-producing nations. Additionally, it is easy to forget that even though costly, we do have enormous selections of goods to choose from in varying price ranges, relative to other countries.

Readers, how long this inflationary environment will last is anyone’s guess.

We can, however, still choose to manage our food costs. Here are some tips to do this:

• Set a reasonable budget dollar amount to spend each week

• Do not go over that amount, no matter what

• Eat less — smaller plates, smaller portions

• Stick to the basics, save the frills for very special occasions only

• Never throw food away, plan to use up left-overs.

I truly understand that cutting back will not be easy with children, but consider being honest with them, for example, “we can’t afford both – so you can have a choice between say a snack food, or a favourite movie, excursion, toy, etc”.

And I feel great empathy for everyone in our community struggling to put a decent meal on the table.

Readers, I wrote of these same issues in 2011, “We really are what we eat, an eye-opening look at what we eat and how much we spend on our weekly groceries”. https://www.royalgazette.com/other/business/article/20110205/we-really-are-what-we-eat-an-eye-opening-look-at-what-we-eat-and-how-much-we-spend-on-our-weekly/

My article featured the work of the Hungry Planet where ordinary people the world over posed with their week’s worth of food — emphasizing again that a picture is worth a thousand words. The German family budgeted 320 UK pounds, while the smallest budget family lived in a refugee camp in Chad, feeding six people, including three small children on 79p a week — mostly low-cost filler grains and starches, with an occasional egg.

The disparity between the largest and most frugal food spenders is staggering!


World Bank, Bermuda’s GDP per capita

CNN, Here’s what’s getting more expensive at the grocery store

Farm Traveller, Understanding the Food Supply Chain

The Guardian, Hungry Planet — what the world eats

Martha Harris Myron is a native Bermuda islander with US connections. Author of Bermuda’s First Financial Literacy Primer – the Dawn of New Beginnings, a Google News contributor, and the Bermuda – Bermy Island Finance Blog. Contact: martha.myron@gmail.com

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Published December 17, 2022 at 7:43 am (Updated December 19, 2022 at 7:46 am)

Understanding food supply chain and drivers of soaring prices

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