Chief Pricing Officer

Meat Demand - The Big Picture

Every day billions of us make decisions on what we will buy, and how much of each item we will purchase.  Those decisions are tempered by how much money we have to spend, the relative prices of the goods and services available to us, and our individual preferences.  Our preferences are probably more determined by social norms and habit than we would like to admit, and do vary greatly by country.

Meat demand around the world is no different than any other good.  Depending on a wide variety of local conditions there are significant differences in meat diets at any point in time.  For example, in Australia, Brazil, Argentina and the U.S. we observe that beef has a much larger share of the diet than in Europe or China.  The major reason is that beef consuming countries need large areas of land suitable for grazing a beef cow herd.  China and Europe are crowded places, with limited land available for extensive grazing systems.  So, in Europe and China pork and poultry make up the vast majority of the meat diet.

When we look at total meat produced and consumed over time the spatial differences at a point in time tend not to matter.  What does matter though is total income and resulting total consumer buying power.  Funds available for consumer spending have driven almost all the growth in meat demand since at least 1961 (and probably before that if the data were available). 

The relationship between total consumer buying power and total meat production is one of the most remarkably consistent in all of agricultural economics.  The results of a simple regression between consumer spending and total meat consumption is shown below:

Goodness of fit:

Where:

Y = Total global meat production from FAO, FAOSTAT database, 1961-2007

Consumer Expenditures = Global final consumption expenditures, $2000, from the World Bank, World Development Indicators database, 1961-2007

Graphically, the relationship between the variables appears below.  The statistical fit is not quite as good in the 1960s as it was in later years, but the overall pattern is still quite consistent.

Several functional forms, including logarithms and exponential, were tried. The simple linear form had the best statistical fit and least amount of autocorrelation. 

At the data means the elasticity of production to a change in expenditures is 0.91.  That is, a 1% increase in expenditures results in a 0.91% increase in meat production (the elasticity from a natural log functional form was also about 0.90).  The coefficient for expenditures indicates that a $1 trillion increase in $2000 expenditures results in about a 9 million ton increase in total global meat production.

Not included as a separate variable, but also of critical importance, is global population.  From 1961 to 2007 population more than doubled.  All else equal, that factor alone should have doubled meat demand.  Looking forward, the rate of population increase is expected to slowly decline over the next 40 years.  Slower population growth will slow the rate of increase in global total real income and consumer spending.  Thus we should expect some slowing in the rate of increase in meat demand and production.

The equation tells us several things about 1961-2007.  There is a strong and consistent pattern of globally increasing real incomes that drove real consumption spending, and that drove meat demand, and then production.  The relationship has been consistent enough to tell us that the preference for spending for meat has been strongly ingrained for the almost 50 years of available data.  Despite some news about increasing societal preferences for avoiding meat consumption there has been no measurable change in global meat spending behavior.

Another pattern seen around the world is that as economies reach higher levels of real income and spending the demand for meat tends to respond less to increases in real income.  Market saturation may have an effect on future responses to increases in real income on a global scale, but there is no sign of any weakness in that response through 2007.  Outside of the richest countries of the world there are still well over 5 billion middle and low income people who would very likely increase meat consumption if they had more income.  Population growth in low income countries also tends to be higher than the global average.

It is implied by the equation that future gains in the volume of meat produced in the world will depend almost entirely on demand increases driven by increased incomes and spending.  However, one significant item that has not been statistically significant, meat prices, could derail this relationship, at least temporarily.

In fact, the astute reader should have already asked: “But what about meat prices, don’t they matter too?”  The answer is yes, they do.  But from 1961 to 2007 prices on a global scale did not vary enough to disturb what consumers do with their meat spending habits. 

Looking forward from 2009 we are seeing, on a global scale, real costs of meat production coming from grains and oilseeds markets that appear to have quickly moved to new price plateaus.  Those higher costs are in the process of being passed through as higher real retail meat prices.  Will those price increases be enough to cause a permanent change in consumer behavior?  History would argue that we might not see a significant effect.

We saw this same thing happen in the 1961-2007 data used in the regression.  From 1972 to 1976 there was a similar step-up in real feed costs and real meat prices.  If you look closely at the chart 1973 global meat production did actually fall below the long term trend, but then recovered in 1974-1975.  Increases in real income overcame real price increases, and the long term trend resumed.

Prices do matter in other important ways.  The relative prices of meats have had an important effect on the global market shares of the major meats.  Beef, generally the most expensive meat to produce, has seen its global share fall.  Chicken meat, the least expensive of the major meats, has seen major global share increases since 1961. 

Prices also matter enormously on the scale of short time periods and individual country and species markets.  Here in the U.S. were are currently seeing a price-cost squeeze coupled with a decline in real consumer spending that is leading a significant reduction in total meat production.  However, if history and the regression results above mean anything at all, when the global and U.S. economy begins its recovery meat demand will resume its long term growth path.

Market-driven price signals are also essential in determining decisions all the way down to the level of how producers process and market individual meat cuts.  At an a very low level of granularity price signals can determine, for example, whether chicken leg quarters are deboned, exported, or sold in the fresh market.  These decisions are critical to producer profitability and to supplying consumers with the optimal mix of the many products that can potentially be made from a live animal of any species.

Finally, freely moving, market-driven, prices are a major driving force behind the long term growth of global meat production and consumption.  Prices are the signaling mechanism that, at a very low level in time and space, efficiently tell producers what to produce and consumers what to buy.  Market prices are the mechanism though which we can approach an efficient and optimal product mix that simultaneously avoids waste, gives consumers the products they want, and allows producers to earn a profit.  Paradoxically, at a very low level, prices are almost all that matter.

Sounds pretty lofty and never an easy undertaking – transforming an organization.  But, even in this difficult economy and especially because of it, leading manufacturers are doing just that – transforming their pricing organizations to achieve better control over margins and profitability.

A 2008 AMR Research study “Building a Bullet-Proof Business Case for Pricing Improvement Initiatives” conducted by researchers Noha Tohamy and Heather Keltz asserts, “Companies that succeed in improving their pricing practices have typically centralized many of their pricing practices and invested in training their sales organization on fact-based pricing.”  A centralized pricing organization focused on using improved forecasting and optimization for more fact-based selling characterizes the companies that, in my experience, have successfully implemented pricing initiatives, as measured by their profit gains (ranging from over $1 million up to $20 million). Moreover they have been able to reduce price volatility.

There are four key elements at play in the success or failure of every pricing transformation:

1. Re-designed and Centralized Pricing Processes

2. Enhanced, Cross Department Communication

3. Effective Training, Integrating Process with Technology

4. Active Executive Sponsorship

Centralized Pricing Processes

In his recent guest post, Dr. Michael Freimer highlights the impact of price volatility and the need for tools and processes to control volatility.  Organizations that centralize the pricing function along with implementing better processes and tools gain better insight into customer buying patterns and improve fact-based pricing decisions.   For example, a growing commodity processor created a price management function focused on finding margin opportunities through changes in operations, product mix, and timing.  The price management function reports directly to the CEO and helps the organization execute their strategy to shift from spot to more forward sales of their commodity-based products.  Price managers have the responsibility for conducting detailed analysis of improvement opportunities using sophisticated forecasting and optimization software and communicating the results of their analysis to the sales team.  This provides sales with more fact-based and dynamic information that can be used in sales transactions.  In the fast-paced, transaction-oriented world of the sale representative, the time to conduct this type of analysis was virtually impossible without the benefit of the price manager’s role.

Enhanced, Cross Department Communication

Enhanced communication with the sales team is another benefit of a centralized pricing organization.  To achieve better communication, processes must be examined in light of the desired organizational change.  Cross-departmental communication can be facilitated through the use of common tools and by clearly defining the guidelines for how prices are quoted to the customer.  For example, one successful meat packer’s pricing team is accountable for establishing the final price quote for each transaction, while giving its sales team visibility to the same forecasting and optimization technology used for price setting so that both groups are consistent in their understanding of market trends. With this visibility, sales representatives have more “pricing courage” and provide better pricing guidance to customers, resulting in improved relationships with key accounts.

Effective Process and Technology Training

Training both the sales and pricing teams on the new processes and tools is also imperative for success during the transformation.   Understanding how to navigate forecasting and optimization applications may be fairly straightforward, however, understanding the use of these more sophisticated technologies within the pricing process is less so.  Effective training integrates both the process and technology use cases.

Active Executive Sponsorship

Too often organizations assume that by simply communicating a change and providing training that immediate execution will occur.  Training is only one aspect of managing the transformation, active sponsorship at senior levels must be present.  Executives who support structural and process changes as well as the implementation of new technologies and tools ensure that true transformation occurs.   Holding managers accountable and identifying champions for change from among the pricing and sales or buying groups are just two of the roles that executives play in managing the transformation.  Additionally, executives and managers must support shifts in the organization’s compensation structure to better align them with profitability goals.

AMR’s research points out the benefits of centralizing the pricing function as well as the risks.  Process redesign, implementation of improved forecasting and optimization technology, training and strong executive support represent the strategies for mitigating risk and achieving true transformation.   The true measure of the transformation is the attainment of profitability goals – that’s the real bottom line.

Professor Clive Granger, winner of 2003 Nobel Prize in economics, passed away on May 27, 2009. Few will argue that he revolutionized the field of economic time series forecasting. Professor Granger was particularly interested in prices and applied his theoretical ideas of causality and co-integration to financial stock market price time series.

He questioned bad econometric practices when he saw them….

“Before Dr. Granger’s studies, it was common practice for economists to take methods intended for stationary time series and use them to analyze nonstationary ones. But Dr. Granger — working closely with a colleague at the University of California at San Diego, Robert F. Engle — demonstrated that this approach could produce erroneous results” (http://www.nytimes.com/2009/05/31/business/31granger.html).

…and determined theoretically-sound concepts to overcome the underlying challenges.

“For want of better techniques, economists often applied statistics designed for stationary data to non-stationary data. But in 1974, Granger and his post-doctoral student Paul Newbold, building on the earlier work of the British statistician G Udny Yule, showed that pairs of non-stationary time series could frequently display highly significant correlations when there was no causal connection between them. For example, the US federal debt and the number of deaths due to Aids between 1981 and 2000 are highly correlated but are clearly not causally connected. Such “nonsense correlations” called into question the meaningfulness of many econometric studies.” (http://www.telegraph.co.uk/news/obituaries/finance-obituaries/5407598/Professor-Sir-Clive-Granger.html).

Professor Granger was awarded Nobel Prize in 2003 for his foundational work in the area of co-integration.

“His innovation has completely changed the way that economists estimate and build dynamic models of the macro economy,” Torsten Persson, an economist at the University of Stockholm who served on the Nobel Prize Committee for Economic Sciences, said at a ceremony honoring Dr. Granger in 2003. “Nowadays co-integration methods are literally used everywhere — by academically minded researchers in universities, as well as more practically minded investigators, be it in central banks or the private sector” (http://www.nytimes.com/2009/05/31/business/31granger.html).

As practitioners in the field of pricing, we owe a lot to Professor Granger and his lifetime of dedicated work.

Cooperation Means More Pie for Everyone

In a downturn, especially one with deflationary moves at retail, you get enormous pressure on margins throughout the supply chain - that’s generally not debated.

There are several ways supply chain companies might react to this: manufacturers - especially those with frequent price and promotion changes - may apply analytics to the price setting process, to get much sharper about what wholesale price they’re willing to accept for their products. This advantage comes not only from quantifying their customers’ price elasticities, but also from understanding the relative margins available from various products they sell which compete for the same capacity and raw materials.

Analogously, the retailer might apply sharper analytics to the purchasing process, to more accurately measure their seller’s indifference points and minimize product cost.  While both of these measures can have a significant positive impact on margins, there is a different approach with much bigger potential: cooperation.

If the manufacturer and retailer simply work together, and make an effort to help solve each others’ “problems” there is usually a bigger advantage available to both. For example, if a manufacturer’s sales team works with its retail customer to optimize exactly which product promotions will work best in specific stores, in specific time periods, he provides his customer with knowledge acquired from a much larger data set than the customer has available on his own.

However, what really turbo-charges this model is that there are win-win opportunities available at times when the manufacturer is undersold or “long” on a product in some future time window, say six weeks out, and needs to solve this problem. In this case the manufacturer calculates how much discount it’s willing to offer to get back into “balance,” and uses analytics to decide exactly which retailer customer would get the most bang for the buck from putting this product on promotion in that window, and then works with that retailer to strike a deal. So the manufacturer fixes a problem, and the retailer gets help with a promotion tailored to their own customers’ preferences, and for which they bought the product at a very special price. This is much better for both parties than haggling - no matter how good they are at it!

The bottom line is that there are clear, and significant, advantages to manufacturer-retailer cooperation, when they work together as real partners.

Thanks to the advanced price and product mix optimization technology manufacturers and retailers are starting to use today, it is possible for the entire supply chain to sharpen their game - and their margins. BOTH sides can  get a bigger slice of the proverbial pie.

Mike Neal, Founder & CEO
SignalDemand
www.signaldemand.com

Ever since the concept was introduced by the smart folks at McKinsey & Co. in “The Price Advantage,” in which authors Michael V. Marn, Eric V. Roegner, and Craig C. Zawada explain how companies can build the pricing capability into a significant and sustainable competitive advantage, the price waterfall has been a powerful yet elusive management tool.

Despite its overwhelming potential, price waterfalls remain one of the most misunderstood and underused weapons in the corporate arsenal. So, let’s get our feet wet with PRICE WATERFALLS.

PRICE WATERFALL - DEFINED

The price waterfall is a graphic representation of how a List Price - the price a company officially states on its sales brochure, website or contract - is gradually reduced, discounted and sliced and diced down to a Pocket Price, the money you actually get to put in your pocket. There are better, more consultant-speak definitions available, but basically the price waterfall shows how you go from “what you want” to “what you got” in the pricing of your products or services.  The picture below, courtesy of consultants Simon & Kucher is a good example.

Source: Simon & Kucher

Getting this kind of graphic right is hard work: you need to gather, synthesize and analyze a tremendous amount of transaction-level data, you need to include a wide range of disciplines including representatives from sales, marketing, finance, procurement and your technology operations group, and you need to drive the initiative fast and furious as most markets today are evolving quickly.

Why go through all this trouble? Simple. The price waterfall offers the best way for companies to locate and stop profit leakage. In addition, the exercise is necessary to segment diverse customers based on customer profitability. The price waterfall is also helpful when developing new sales metrics that base compensation not only on customer revenues but also customer contribution and profitability.

Building a price waterfall means developing a disciplined process that will ultimately determine which products and services should be offered to which customers, at what prices, through which channels, to maximize profits. Simple as that. Of course, those goals are lofty and complex, which is why most price waterfall initiatives are sponsored out of the office of the CEO, CFO or a business line leader.

Source: McKinsey & Co.

How Do You Build a Price Waterfall?

List Price - Start here. This is the price you print on your website, on your sales sheets, in your contracts. Some call it the gross price. Whether you publish a list price or not, you have a starting price that is internally transparent and known to all. Express that price as a percentage. List price = 100%.

Next, reduce from that list price all of the discounts and rebates you allow sales to give away. Reduce it again by any standard services you give away for free. The more categories you can create, the better your analysis will be. Competitive discounts, sales specials, exception deals, quantity shipment allowances, direct factory shipment discounts and so on. Express all of these “discounts” in terms of percentage points off the list price. Most will be between ½% and 5%. That gets you to the Invoice Price.

Invoice Price - Usually, the invoice price is the list price minus all of the “on-invoice” discounts we listed above.  Still, invoice price is not the same as the price you put in your pocket. But we include invoice price as a stop in our waterfall because in most companies sales negotiates the invoice price with the customer.

Now we will reduce that Invoice Price down further to Net or Pocket Price.

Net Price - What are the off-invoice discounts you are allowing? Here’s where you include those: any cash discounts, annual volume bonuses, any product bonuses, co-op advertising commitments, co-marketing funds, special promotions, freight coverage, anything like that. Again, the more categories you can measure and express as a percentage off of list, the better. Off-invoice discounts vary greatly between customers and sales reps, which is why they are so difficult to measure. Off-invoice discounts also have the greatest impact on transaction profitability.

The result is your Pocket Price: the last stop on your price waterfall. The pocket price is what goes in your pocket; it is the amount you are actually earning in a transaction. Simply stated it is the list price minus all customer-specific costs.

After The Flood: Is the Waterfall Complete?

If you think you’ve captured all of the customer-specific costs in your price waterfall, check again. Most companies fail to include hidden transaction costs such as internal freight and customer shipping charges, non-charged rush orders and non-standard order costs. Hidden service costs are also tricky; be sure to include sales team travel and expenses, customer training and education, unique promotions or gifts, undisclosed sales freebies to win the deal and the cost of credit offered. Of course, there is a matter of relevance in the exercise: allocating telephone expenses in a multi-million dollar software license sale may not have a measurable impact on customer profitability. So don’t attempt to boil the ocean.

Source: SignalDemand Inc.

Finally, the price waterfall is only as good as the data that informs it. Gray water in, gray water out. It’s also just a snapshot, as the figure above demonstrates. Price waterfalls are dynamic, they flow as your business flows, and so should your analyses. Do not rely on a static picture of customer profitability over the long-haul: update and refine it as needed given your market, competitive and customer dynamics.

From all of this you can easily discern which stop along the waterfall is the price that influences customer demand and increases the probability of closing a deal or having the customer purchase a few extra cases.  (Hint: invoice price is a common point of negotiation).

Next up:  What are the Benefits of a Price Waterfall?

No surprise, we are in the midst of an economic downturn.  What are the three actions being taken by every company in this recessionary climate?  No surprise:

1.    Control costs, mostly by cutting back spending and reducing staff
2.    Dump customers, keeping only the largest, most profitable ones
3.    Stay the course, hoping to ride out the storm

Not much of a strategy, then again, many CEOs running companies today haven’t weathered an economic storm like this one.  It’s a fair bet that none of the Fortune 1000 executive ranks were managing a P&L during the Great Depression.  So we’re all in new territory, but everyone is relying on the old strategic formula.  Old habits die hard.

The playbooks and management strategies we’ve turned to in bull-driven, steady growth markets, those catchy business book titles from Competitive Advantage to Core Competencies to Quality Circles to Reengineering the Corporation to Customer Focus, need to make room on the shelf for a new breed of thinking.

Here are three business book titles I’d like to see hitting the shelves this year and what they would cover:

The Biology of Pricing: Profits Under The Microscopic

Most managers elect to focus on their company’s core competencies during troubled times.  But do you even know what your core competencies really are?  Forget hosting executive off-sites or surveying your employee base.  Your core competency is right in front of you, in every pricing decision you make.  If you can dig into transaction data, understanding your pricing decisions and resulting margins for each sale, you have the foundation needed to distill what you are really good at, who you are best at delivering value to, and where you should invest and divest your operations.  Look at your price waterfalls, segment your prices and margins by customer and product, and take a look at what’s really driving your company’s profitability.  Don’t forget to include trade spend, discounts and rebates, receivables and bad debt costs in your analysis.  The resulting visibility will guide you in building a strong foundation around your true competencies and will allow your company not only to survive the storm, but to thrive when the economy turns around.

Cost Cutting vs. Precision Pricing: The Enlightened Road to Victory

Cutting costs are easy.  It’s one thing you can control.  But it’s not the most significant lever in the profitability equation.  Price is.  And even if you do turn to cost-cutting, be wary of cutting across the board.  Today’s accounting rules and financial statements often hide the true dynamics between costs and production.  Again, this is where a thorough study of transactional pricing comes in handy.  By digging in to your pricing decisions, you can develop an alternative view to your cost structure that helps you determine which areas of the business are most profitable, and those that are a financial burden.  Cutting is a necessary part of growing a business.  But remember, trimming the sails is very different than tossing the crew overboard.  Make incisions from insight.

Firing Failing Customers

During tough times, most companies will hold onto all their customers and all that revenue, even if it means giving away services, cutting prices or offering additional incentives.  Under the guise of improved customer loyalty, many companies kill their profitability by giving away the store.  What’s worse is how much is given away to the unprofitable customers that should’ve been fired long ago.  Customer profitability is like religion, it is a powerful motivator, but not something easily understood, let alone put into practice.  But now is the time, and it starts with prices.  Transaction level pricing insight is the precursor to understanding customer profitability.  Once again, if you can determine margin contribution on individual pricing decisions by product, customer segment, you’re well on your way to determining which customers to keep and which to fire.  And by all means, fire the bad customers immediately.  They’ll come back when they are ready, and when you are ready, too.

The common theme, of course, is that business success and profits all lead back to optimizing your pricing decisions.  The books recommended should become required reading for managers today.

In these dark times, what business book titles would you like to see?

Today Businessweek magazine is featuring comments from my friend and colleague Mike Neal (CEO, SignalDemand) on its homepage in reference to the article “Grocery Stores Fight Back Against Food Prices.”

According to its editorial staff, Businessweek’s new online “In Your Face” section highlights readers that offer “smart, incisive comments that move the conversation forward” - and this week the topic is Food 2.0:

The article is a worthwhile read, taking a look at the quickly forming “battleground” over food prices. Here’s an excerpt to give you an idea:

A year ago, when the cost of commodities such as wheat, oil, and corn was soaring, grocers grudgingly accepted price increases from Kellogg (K), General Mills (GIS), H.J. Heinz, (HNZ) and other food manufacturers. The strange thing is, those price tags never came back down, even when commodity prices collapsed in the fourth quarter of 2008. As a result, grocers have little cheer to offer their shoppers at a time of deepening economic gloom. “The prices don’t seem to go down as fast as they go up,” says Jeffrey Noddle, CEO of Minneapolis-based Supervalu, one of the nation’s leading grocers.

Now, the grocers are demanding action. On Jan. 7, Noddle told analysts to expect a “battleground” over the next six months as he pressures manufacturers to adjust their prices. And if they refuse? “In almost every category,” notes Noddle, “you have other vendors to look to.”

The food companies recognize that increases in the price of food outpaced commodity inflation during the fourth quarter last year, which should have resulted in higher profits. However, they argue, previous price hikes didn’t completely cover escalating production and commodity costs….

And for your convenience, Mike Neal’s comments in full:

Every major food producer has been anticipating this impasse. The problem lies in the fact that many producers don’t have the ability to accurately resassess their risk if they were to adjust prices. In order to confidently renegotiate contract prices, food producers must be able to accurately calculate the impact of price changes on volumes and margins, for each product line and customer contract.

Part of that calculation is a prediction of the success of demand shaping with strategic price changes. Without this knowledge and assurance, food producers with long term contracts could be effectively signing their own death warrants if faced with another jump in commodity prices.

Fortunately, technology has caught up with the pressures of the global marketplace and food producers are starting to adopt technologies that allow them to bring a new transparency and confidence to price strategy and contract negotiations. I envision that a new role - Chief Pricing Officer - will emerge from this awareness of the powerful strategic role pricing can play in the enterprise.

All you price professionals out there - what’s your take? Weigh in with a comment of you own on ChiefPricingOfficer.com.

Rip

The art and science of price strategy is not easily understood, let alone mastered. P.J. Jakovljevic at Technology Evaluation Centers (TEC) has undertaken this field as part of TEC’s coverage of supply chain issues.

Jakovljevic demonstrates keen insight in the not-to-be-underestimated area of pricing and offers several interesting articles via the TEC blog. He recently posted Part 2 of his analysis of SignalDemand, which I encourage you to check out, along with his overview of other pricing technology vendors. Here’s a brief excerpt to give you an idea:

Pricing Science of Matching Supply and Demand

Other price optimization solutions really only consider the demand side of the pricing equation, and these results are insufficient for manufacturers to make decisions when they need information on capacity and production constraints as well. SignalDemand’s hand-picked team of scientists and mathematicians from prestigious universities have built a pricing science based on eight pending patents.

This sophisticated science drives the recommendations provided by the software application. When making decisions on margins, the idea is to account for all major profit drivers such as to

• align strategic business objectives with pricing decisions;
• understand demand drivers to forecast future sales;
• account for fluctuating costs;
• on the supply side, account for asset utilization, available capacity, and inventory situation; and
• determine the most profitable product mix for a given demand.

Accounting for all the above factors helps with much more complete, consistent and actionable information to better anticipate future costs, forecast demand, identify poorly performing products or customers, and explore projections in the context of historical sales.

I encourage you to check it out along with his overview of other pricing technology vendors and general supply chain coverage.

SignalDemand: Dealing with Supply- and Demand-side Pricing Matters — Part 1

SignalDemand: Dealing with Supply- and Demand-side Pricing Matters — Part 2

The TEC Supply Chain Logistics Blog

Need more proof that pricing is more important than ever? Well, how about this headline from the Associated Press: “Food Prices Remain Stuck at High Levels.”

The American Farm Bureau Federation (AFBF) released its quarterly survey of retail food prices and found that even though gas prices and other costs of production may have dropped slightly, manufacturers are still feeling the pinch of rising production costs. Of the 16 items surveyed in the study, 11 went up in price, while only five went down. The overall price increase for these 16 items was 10.5 percent. Among the products that went up: pork chops, sirloin tip, ground chuck, cheese, apples and potatoes. The reason?

“We continue to see increases in several staple food items due primarily to the long-term effects of high energy prices in the food sector. Sustained high costs for processing, hauling and refrigerating food products are reverberating at the retail level,” said Jim Sartwelle, an AFBF economist.

Regarding the top gainer in this quarter’s survey, Sartwelle explained, “Acreage planted to potatoes was down nearly 8 percent this year. The combination of a smaller crop and some production losses in the field has led to higher-priced spuds in the produce aisle.”

The reality for food producers is that price spikes are here to stay - at least for the foreseeable future. So, what to do? Producers and manufacturers need to find a balance between maintaining profits without passing too many costs off to consumers. With proper insight into prices across channels, customers and product lines, producers should be able to make smart decisions about where margins can be maximized and where demand can be shaped with price in order to drive profitability without across-the-board price increases.

As is - unfortunately - too often the case with government economists, Federal Reserve Bank of Atlanta President and CEO Dennis Lockhart told us last week what we already know: Prices are too high.

Lockhard said that food prices have inflated 6.5 percent through the first half of 2008, while motor fuel jumped 32 percent and home utility costs rose 21 percent. According to Lockhart, those three things account for 25 percent of all consumer spending.

There was good news too, as Lockhart also predicted that inflation would ease as the overall sagging market naturally tamps down inflation. But, there’s still only one key takeaway for American manufacturers and consumers: It’s going to cost more to produce things and buy the products made.

The easing of inflation will be a welcome respite for all involved. But, ultimately, it will be like that 90 degree day after it’s been in the 100s for days straight: It’s nice, but still not too comfortable. Inflation, or at least volatility, will be with us for awhile, and price is quickly becoming the new flashpoint for the 21st Century. For manufacturers, smart pricing is essential in an inflated market - finding the correct balance between cost and demand, as supply prices spike, is quickly becoming the most important new business calculus of our time. Companies that have the correct insight into how to properly buy and sell will emerge as the new leaders, while those that don’t will struggle.

That’s an easy side to choose.