Understanding the Protein Price Increase
You may be aware that there has been a sharp increase in protein-related costs, impacting the cost of protein supplements — dairy proteins in particular (whey and casein).
Why is protein powder so expensive now?
The reasons for the protein powder price increase are a function of the general economy and inflation worldwide. Furthermore, supply chain issues stemming from the pandemic, continue to cause problems across industries. In case of milk proteins, climate change and the upkeep of cows are also factors that are impacting the protein price increase.
Economy and inflation
To be more specific, 2022 has seen gloomy developments as risks began to materialize. In the second quarter of this year, global output contracted due to downturns in China and Russia, while at the same time consumer spending in the United States fell short of expectations.
Essentially, the world economy, which was already weakened by the pandemic, took several more of these hits. This included:
- A higher-than-expected inflation worldwide, which was especially the case in the United States and major European economies.
- In turn, this triggered a tightening of financial conditions.
- A worsening slowdown in China associated with COVID- 19 outbreaks and lockdowns
- And let us not forget—the negative impacts from the war in Ukraine.[i]
So, what does this look like from a numbers perspective? According to the International Monetary Fund:
- The baseline forecast is for growth to slow from 6.1 percent last year to 3.2 percent in 2022, 0.4 percentage point lower than in the April 2022 World Economic Outlook.
- Lower growth earlier this year.
- Reduced household purchasing power.
- Tighter monetary policy driving a downward revision of 1.4 percentage points in the United States.
- In China, further lockdowns and the deepening real estate crisis have led growth to be revised down by 1.1 percentage points, with major global spillovers.
- And in Europe, significant downgrades reflect spillovers from the war in Ukraine and tighter monetary policy.
- Global inflation has been revised up due to food and energy prices as well as lingering supply-demand imbalances and is anticipated to reach 6.6 percent in advanced economies and 9.5 percent in emerging market and developing economies this year—upward revisions of 0.9 and 0.8 percentage point, respectively.
- In 2023, disinflationary monetary policy is expected to bite, with global output growing by just 2.9 percent.[ii]
In this scenario, the rising cost of raw ingredients for the proteins, as well as the costs of manufacturing the supplements, such as labor, operations, supplies, transportation, energy bills, and more, are driving up the price of the supplements.
Climate change and dairy cows
When considering milk-based proteins, global milk production dipped due to the erratic climate changes. Essentially, dairy cows became too stressed to produce sufficient amounts of milk due to excessive temperature and humidity, resulting in more scarcity. On a national level, present-day estimates for production losses are 1.9% relative to baseline production. While this may not sound significant, it can have a significant impact across the various industries that use milk—including the dietary supplement industry—and that impact may not be equally distributed. In any case, since the majority of these losses occur in the summer months, this has the potential to significantly impact operations in hotter climates.[iii]
Expense in feeding cows
It has also become more expensive to feed dairy cows. According to an article from Penn State Extension, “Feed prices [for dairy cows] are rising at an alarming rate. It is difficult to predict how long they will persist but 2021 is beginning to mimic 2012 when corn and soybeans reached unprecedented highs.” This same article shared data indicating that the feed cost per cow per day was around $5.50 and is now around $7.09—a substantial increase. Other data from Beef Magazine, indicating likewise, confirmed that feed prices were up 16% in May 2022 relative to May 2021, with the contributing reasons being high fertilizer prices and drought conditions which “have squeezed feed grain and hay supplies.”[iv]
Penn State Extension summarized the situation accurately with this statement, “The one consistent message about the dairy industry is the unpredictability of the milk and feed markets.”[v]
Another factor contributing to the rising cost of dairy proteins is that it is harder to find the workers who will process dairy products and transport them to market. In an effort to solve this problem, national dairy leaders are pushing the U.S. Senate to cut food prices and fix the agricultural labor shortage by reforming immigrant labor policies to allow dairy farms to hire H-2A visa workers. While the H-2A program allows employers to bring in immigrants for temporary or seasonal agricultural jobs, the dairy industry is currently excluded from the program.[vi]
Another problem which has impacted the dietary supplement industry is that it has become more difficult to get tubs, lids, and other packaging materials. This is a supply chain issue that impacts manufacturing and costs.
Furthermore, in these times of careful purchasing decisions, borrowing money has also become more expensive for manufacturers, so expanding operations to meet demand is more difficult. One of the reasons for this is that banks tightened their lending standards as the pandemic continued.[vii]
The good news is that this too will pass. The timing isn’t clear yet, but as the world begins to normalize from the pandemic and inflation, and as supply chain issues decline, the prices for protein should also normalize. An indicator of this is that there was more milk production during the summer months than expected, causing the USDA Economic Research Service to lower its all-milk price forecast for 2022 by 95 cents, and reduce its 2023 price forecast by $1.65. So, let’s keep our fingers crossed.