Worldwide Inflationary Pressures
Inflation, one of the most feared words in the international business community continues to be top of mind as we progress through the back end of 2011 (unless, of course, you are the U.S. Federal Reserve). BI sources products in over 35 countries and has seen inflation spikes on raw material pricing in over 70% of these locales. Inflation in the U.S. continues to impact pricing on domestic wild crafted and farmed botanicals. Fuel pricing, weather, immigration policies and land use alternatives have been driving up pricing throughout the year.
Offshore, the U.S. dollar policy of devaluation is severely impacting U.S. companies from sourcing competitively. The concept of a lower dollar being good for U.S. manufacturing is no longer valid in many industries (ours included) as so much of the raw material is sourced from offshore. China is actively involved in a major inflation policy fight which is impacting a number of industries, including agriculture. The governmental intervention in the RMB valuation as well as in the pricing for many consumer staples is ineffective in stemming the inflation metrics in the short term.
In spite of all the governmental countermeasures, official inflation rate is at a three year high of 6.5% in July. I believe that this will continue to rise as the cost of agriculture products is driven higher by increasing population demand and a shrinking available acreage to grow products. The Central government is once again dictating crop plantings reinforcing this view. Corn will be a major commodity in short supply this year for both silage and human consumption. Social stability is the Central Parties main focus, food shortages and disruptions are not complementary to that goal so it is “expected” that the Party planners will exhaust all available resources to combat that from happening, including to purchase large amounts of grains from U.S. Russia and South America (if they are available to weather issues).
Procuring raw materials for this industry is a dynamic and fluid challenge, irrespective of commodity. Whether it involves botanicals, grains, vitamins, specialty chemicals or other components, the negative impact of inflation affects us all.