Fuel Costs VS The Food & Beverage Industry

High fuel costs don't only affect the trucking industry, which delivers all our products, but it also affects our farmers, which impacts the food & beverage industry as a whole.

The great majority of farms and ranches in the United States are family-owned small businesses whose financial solvency greatly depends on mother nature which dictates their crop yield. One lousy harvest season can render the farm bankrupt due to narrow profit margins, expensive farm equipment that needs constant upkeep, and the natural seasonality of the industry. To add in record-high fuel costs, many farmers can no longer clear a profit. These skyrocketing fuel prices impact all Americans, including when we sit down for a meal. To produce a pound of beef or a head of lettuce, farmers and ranchers use tractors, plows, and balers — all things that run on fuel. For many businesses, when the cost of doing business (such as fuel) increases, the business equally increases the cost of its goods. But because there are a lot of necessary middlemen between the ranch and your table, and most farmers and ranchers are still family businesses, they can't increase their prices because the middlemen will buy the raw product from someone else. And the family farmer or rancher will go bankrupt.

This means we are not just in a fuel crisis but close to a food crisis. A year ago, the average family of four was spending $250 a week on groceries. The United States Department of Agriculture has noted a 7% increase in the price of food from January 2021 to January 2022. Assuming food prices do not increase the rest of the year (which is highly unlikely), the average family will spend an additional $870 on groceries this year. Transportation and production costs are not the only factors increasing the price of groceries, but they are large ones. The same issues that plague the kitchen table also cause problems for the restaurant industry by increasing the cost of materials resulting in restaurants raising prices, which translates into fewer people choosing to eat out. A higher cost of doing business and fewer customers affect the employment of many food servers, chefs, hostesses, and so on. This is a domino effect that impacts the economy as a whole.

With the Fed raising interest rates, banking will be affected as well. Small businesses looking for working capital loans to bridge the gaps in their cash flow will have a more challenging time getting approved since historically high-interest rates result in more stringent qualification guidelines. Thus, fewer loans are being approved. This will be especially true with traditional lenders who will look to reduce the risk for their shareholders by no longer lending to the newly created unbankable small businesses. Traditional leaders will only look for the strongest financials and best credit profile applicants. Fortunately, many online lenders will pick up the slack. Small businesses are the backbone of this country and employ the majority of the workforce, so it's imperative to assist our small businesses to adjust and mold their operations around the ever-changing business climate.

Fundblock Capital is a part of a network of over 100 private lenders that specializes in working capital funding. Please speak to one of our Business Funding Professionals for a personalized business funding consultation.