Is pet food inflation on the horizon in Latin America?

Corn is a main ingredient in Latin American pet food, and its rising price could soon force pet food producers to pass along that increased cost to consumers.

quotestheraven |
quotestheraven |

Corn is one the main ingredients in most pet food products in Latin America. As the global economy is starting to recover from the multiple crises of 2020, the biggest consumer markets—such as China, India and the U.S.—are increasing their demand for commodities, putting some pressure on international corn prices. In the past six months, corn prices have increased steadily, cumulating to a 64.3% rise.

For example, in México, a country that imports around 14 to 16 million tons of yellow corn for animal feed and pet food every year, prices of imported corn started a new upward cycle, resulting in a 26% increase from August to November 2020 in dollar terms.

However, as the exchange rate remained stable during 2020, pet food producer prices didn’t experience pressure that year. Indeed, some local pet food companies, such as Nupec, announced no price increases of their pet food products as a way to support consumers enduring harsh impacts of the COVID-19 pandemic on household income.

Price decreases of pet food likely short term

In Mexico, pet food prices observed a decreasing trend throughout 2020, ending the year with annual inflation of just 3.54%, down from 4.7% in 2019.

Moreover, as the boom of pet food internet sales hit the market in 2020, some e-commerce platforms offered aggressive promotions and discounts to gain customers in the short term. Such promotional activity also pushed down the overall prices of pet food products.

Nonetheless, given the outlook of corn prices in 2021 and the increasing trend in commodities prices, a future price adjustment for pet food products is foreseeable.

Corn prices will impact pet food

As the economy recovers in 2021 and beyond, commodities prices will likely rise, thus necessitating pet food producers to pass such increases onto consumers.

It is worth mentioning that the last time international corn prices skyrocketed was in the 2011-2013 period, when prices doubled. Local pet food prices followed two years later, registering inflation as high as 19% in November 2014.

Although pet food inflation is not generally a concern in the Latin American region, with few exceptions, it is relevant to understand price pressures and shocks and how they impact consumer prices later.

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