Foreseen and Unforeseen Ingredient Shortages and Supply Chain Issues– Navigating Surprise Price Increases (Part 1)

The past two years have forged even seasoned pet food professionals in the fire with volatile ingredient prices, shortages, increasing shipping delays, and other supply chain issues. Reformulating to combat surprise price increases is one of the primary requests made to BSM Partners these days. As these trends are expected to continue into 2022, here are some important strategies to keep in mind.

Know your ingredient landscape 

Certain grains are significantly more expensive now than this time last year. While many in the pet specialty market have less concern about increasing grain prices, corn and barley costs are driving increases in livestock feeding costs and increasing the cost of animal ingredients as well. Plant-based proteins, specifically legumes, have also drastically increased in price over the past year. The cost of other popular grain-free plant ingredients such as potatoes and sweet potatoes has remained somewhat constant. Please reference Table 1 for observed price increases in grains and other crops in Q4 of 2021 and Q1 of 2022.

Table 1. Observed price increases in grains and plant ingredients.

Ingredient	% Increase in Price
Corn	100%
Brown Rice	4%
Oats	100%
Pearled Barley	88%
Peas	66%
Chickpeas	58%
Lentils	61%
Tapioca Starch	70%

BSM has also seen an increase in the cost of animal proteins, including meals. It has become a popular marketing strategy to leverage the percentage of animal protein sources within formulas to attract consumers who like to see high meat, fish, and poultry inclusions. Animal-based ingredient claims are predicted to add significant production costs if they can be maintained in the face of ingredient shortages. Certain animal protein ingredients are now largely unavailable or being forecasted to not meet the needs of the supply chain, like menhaden fish meal, lamb organs, and turkey. Due to the highly virulent avian influenza outbreak spreading across the United States, chicken and turkey prices are predicted to increase above previous observations (Table 2), while availability may significantly decrease. 

Organ meats, largely used to reduce formula costs and increase palatability, are becoming a financial sore spot. Availability of hearts and livers was variable prior to the Covid-19 pandemic, but now organ prices are to a point where even low inclusions can cause significant price mark-ups. While we do not have consistent numbers for lamb, pork, and turkey organs, we have seen price increases exceeding 100%. 

Table 2. Observed price increases in animal ingredients.

Ingredient	% Increase in Price
Chicken	60%
Beef	16%
Fish	42%
Pork	20%
Chicken Meal	17%
Pork Meal	60%
Fish Meal	31%
Chicken Hearts/Livers	150%
Beef Liver	36%

Setting product prices

As a result of these unprecedented price increases, BSM Partners has been busy with product reformulations. This can prove to be challenging since most products are on the shelf, but we can reformulate in most instances without affecting the ingredient listing, guaranteed analysis, and other claims on the product’s package.

In these times, anticipating increased costs is essential to continued success. In some of BSM Partners' recent projects, we have seen quarterly cost increases exceeding 40%. Whenever possible, build buffers into sale prices to offset ingredient shortages.

Summary

Navigating this new ingredient and supply chain landscape can be frightening. Ingredient shortages and price increases will be prevalent in the coming months with the Russian-Ukraine conflict, inflation, and staffing or labor issues. Stay tuned for our next article on the importance of a detailed product brief and how that can help with the identification of priorities when reducing cost.

 

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About the Authors

As Vice President of Product Innovation at BSM Partners, David Perez brings nearly 20 years of experience in the pet food industry, specializing in formulation and product development. He has played a key role in driving innovation, developing products that align with evolving industry trends and consumer needs. Always looking ahead, he enjoys tackling challenges and finding creative solutions that push the industry forward. Outside of work, David can be found competing on the tennis court, composing music in his home studio, or enjoying a good scary movie—always bringing the same curiosity and energy to everything he does. 

Paige Lanier is a Manager at BSM Partners where she supports the Special Services practice. A graduate of the University of Arkansas, she earned her bachelor's degree in food science and culinary arts. She enjoys hiking the trails and skiing the slopes in the mountains above her home in Denver, Colorado.

Corrine Harris Trevino formerly served as a Manager of Technical Services in the Product Innovation Group at BSM Partners. Outside of work, she can generally be found walking, training, and playing with her dogs or wrangling her flock of sheep after a daring escape. Corrine also declares a bias for the Cardigan Welsh Corgi, which she believes to be the superior of the two Corgi breeds.