Tyson Foods is struggling to raise prices fast enough to keep up with inflation in key production inputs, such as grain, labor, and freight costs, the company’s top executive said in an Aug. 9 earnings call.
“Costs are hitting us faster than we can get pricing at this point,” Tyson Foods CEO Donnie King said.
In the quarter that ended on July 3, the company raised its average price for pork by about 39 percent, beef by 12 percent, and chicken by 16 percent, according to King.
To offset inflation, Tyson has increased prices for restaurant customers and plans to raise retail prices on Sept. 5, King said, noting that more price hikes are in the works.
Branded and value-added products are particularly affected by inflation, which hit 14 percent in the company’s third quarter, King said.
“We have seen accelerating and unprecedented inflation,” King said in reference to Tyson’s prepared foods business line. “Inflation is up about 14 percent during our 3Q [third quarter] and 9 percent year-to-date.”
Tyson, like other companies, has been grappling with higher raw material costs and global supply chain challenges, along with a sharp rebound in demand.
“Retail orders, for example, are up 30 percent versus pre-COVID levels,” King said. “We continue to believe that the ongoing inflationary environment will create a meaningful headwind for Prepared Foods in the upcoming quarter.
“Raw material cost, logistics, ingredients, packaging, and labor are all challenging our cost of production. To offset inflationary pressure, we’re focused on pricing, revenue management, and commercial spend optimization.”
While King said the company has seen inflation across all inputs, he predicted that grain and goods costs will crest around the beginning of the fourth quarter.
Calling labor the “single biggest issue we face” across all of Tyson’s business lines, King said the company has responded by raising wages, creating flexible shifts, and setting up on-site child care arrangements.
The spread of the Delta variant of the CCP (Chinese Communist Party) virus, the pathogen that causes the disease COVID-19, has been a disruptive factor, King said.
“We were on a good trajectory and then the Delta variant showed up, and we’ve taken a step back as a result of that,” he said, noting that the outbreak and related mitigation measures have been a drag on productivity.
“We are more inefficient than we have historically been. Essentially, it takes us six days to get five days’ worth of work.”
The price hike plans come as economists have increasingly sounded the alarm on inflation, with some expressing concern that if prices rise too fast and stay high for too long, expectations of further price increases could take hold, driving up demand for wages and potentially triggering the kind of wage-price spiral that plagued the economy in the 1970s.
Fed officials, as well as key members of the Biden administration, have insisted inflation is transitory and upward price pressures will abate once pandemic-related supply chain dislocations moderate.
A number of Fed policymakers have started to say publicly that, in the face of strong inflationary pressures, the central bank should soon begin dialing back its extraordinary aid for the economy.
The Fed has kept its benchmark interest rate at near-zero and has been buying around $120 billion in monthly purchases of Treasury and mortgage bonds.