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Wheat Crisis Could Cost US Food Industry More than $2 Billion
added: 2010-09-16

If global wheat prices remain at or near the high levels reached in August, food companies in the United States will be forced to absorb at least $2 billion in additional costs over the next 12 months or pass these costs on to consumers. "Separating the Wheat from the Chaff," a new study by Oliver Wyman, quantifies the economic impact of recent global wheat shortages to the US food industry.

"The higher costs resulting from the wheat crisis are significant and material," says Alex Wittenberg, Oliver Wyman partner and co-author of the report.

“Food companies ranging from processors, to manufacturers, to restaurants need to prepare now for how volatile agricultural prices will impact their earnings,” says Mark Robson, Oliver Wyman partner and co-author.

The study forecasts that it will be difficult for food companies to pass on most of this cost to consumers given the sluggish economic recovery. As a result, higher wheat prices could put a significant strain on food companies’ working capital and margins. They could also drive more consumers to purchase less-expensive substitutes like private-label products.

The new Oliver Wyman study:

- Predicts that sharp shifts in agricultural prices across the board will continue

- Notes that the frequency of agricultural shocks is rising with the number of extreme weather events

- Argues that food companies need to devote more resources to managing price shifts in key ingredients

- Provides five key recommendations for how companies can better cope with severe agricultural price swings

Source: Business Wire

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