Fuel causes direction in the supply chain

How Do Fuel Prices Affect the Food Supply Chain?

As it has become more and more apparent that fuel prices are rising and causing turmoil amongst commuters, it is important to understand the domino effect that happens as a result of changes in price. We keep hearing about the supply chain, but what does that really mean? What is the true impact on food supply when we are paying more at the pump?

At Peddler’s Son, we provide consistent food delivery with local service, a centralized warehouse, and advanced technologies. Read our blog post below to find out why buying local could help keep costs down. 

What is the supply chain and how does it work? 

The first step in understanding the cause and effect relationship between pricing in one industry and the result it has on another’s supply chain is understanding what a supply chain is. A supply chain in its simplest form is a focus on the core activities within an organization required to convert raw materials or component parts through to finished products or services. A supply chain is typically made up of five parts: 

  • Sourcing – this includes finding suppliers or the source that can provide the needed goods or services to a business. 
  • Procurement – this is when the business or entity acquires products or services. Often companies select suppliers based on existing relationships or on the results of the analysis they have done.
  • Demand Planning – the accuracy of demand comes into play so that supply chain managers can have an accurate number of supplies available to customers. The supply chain organization works with suppliers to ensure they meet projected demand. 
  • Order Fulfillment – this is when the supply chain organization can react to the level of demand, or a business can plan to order more inventory to ensure supplies are produced and available to be purchased. They will either be building or depleting inventory depending on sales volume. 
  • Inventory – this is the physical aspect of the supply chain. Inventory is an asset with the purpose of being sold. Inventory in the supply chain can fall into a few categories including being held for sale, in the production process with the intent to be sold, or in the material’s phase of the production process intended for consumption. 

Why is the food supply chain directly affected by gas prices? 

Thinking specifically about the requirements of the supply chain in the food industry, we must think about the means by which we get our food. One example of a food supply chain is growing produce at a farm. The farmer first plants the seeds, the produce grows, it is harvested from the source, cleaned or processed, packaged for sale, shipped to a destination to be sold, put up for sale, and bought by the consumer before being eaten or cooked into a meal. 

Each part of this theoretical supply chain comes with a multitude of moving parts. The distribution of food is directly affected by high fuel prices. When the cost of gas is high, trucks and other forms of transportation have to adapt by either traveling less of a distance at the same price or increasing the price of the product in order to cover the expense. This affects consumers because they might not be able to purchase what they demand if distribution can’t travel the distance. Or, as we’ve seen in the market today, the price of food increases. In order for distributors to meet the same level or higher demand, they must incur the cost and mark up the final price to avoid a loss. 

As of February 2022, food prices rose by 0.9% to an annualized rate of 7%. Food at home saw the largest increase in the segment, rising 1% in January, while food away from home was up 0.7%. As you can see, the domino effect that we were talking about earlier will then cause higher inflation as a direct result of higher food prices. Consumers will have less disposable income as they are paying more for gas and food. Both of these can be considered necessities, but in order to save money, consumers might consider buying fewer types of food. This can hinder the food industry greatly with decreased demand for many products, making certain suppliers unable to sell their food products. 

Peddler’s Son is a Trusted Arizona Supplier

 Considering buying local? Peddler’s Son is the go-to supplier for Arizona restaurants, hospitals, schools, and more. Family-owned and operated since 1988, Peddler’s Son brings you honest pricing, unparalleled customer service, and farm-fresh produce every day. Contact us today to create your account and order fresh goods.

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