Could the drought in California affect the price of your Big Mac? Possibly.
Like many food companies of its kind, McDonald’s doesn’t own its food suppliers. President and CEO Don Thompson says they rely in individual suppliers for their products. One of the benefits of that, he says, is they can utilize their information on the drought situation. “Typically we will do some commodity purchases ahead of time from a fixed contract perspective to try to have some of our supply levels met that we’re going to need in a year like 2014,” he says. “In the critical areas like corn, soybeans, some of the feed based areas, and some of the dairy areas we do have some of the contracts formed.”
So how does that impact the company’s supply chain cost? “We do some hedging from a fixed cost contract perspective to make sure that we have as much as of a consistent price level that we can,” he says. “Then we’ll look to see what that means in terms of an increase as we move forward. Right now we’ve estimated that our US food costs will be up somewhere between 1 and 2 percent on the year.”
From there, Thompson says it’s a little bit of a “wait and see” as to what happens with yields and production for individual crops.