Oatly has announced it is looking outside of its regular oat suppliers, in light of poor harvests. Oat supplies have become strained, requiring the dairy-free milk brand to cast its net further afield for reliable provision. Consumers will bear the cost of the supply chain turbulence, with prices of products already rising. Oatly’s CFO, Christian Hanke, confirmed price hikes on a Q4 earnings call, held this month.
Hanke confirmed that the company has sourced enough oats and other relevant ingredients to meet consumer demand for 2022. This includes growth predictions. Oatly has been proactive in trying to get out in front of anticipated shortages, but plans have gone awry. Despite increasing its global production facilities, unforeseen construction cost increases and extensive harvest issues have forced the company to renege on certain plans.
What’s happening with oat supplies?
North American oat harvests were severely impacted by unprecedented drought conditions last year. Supplies have been cited as being close to all-time record lows, thereby creating difficulties for oat milk manufacturers. Compared to 2020, U.S. oat production was down by 39 percent in 2021. Canada recorded similar problems, claiming its smallest harvest since 2010.
Adverse weather conditions have done more than impact optimum oat growing conditions, it has affected the logistics of available crops as well. Rail issues have been flagrant in hampering the oat supply chain. Canada saw flooding in its western provinces last year, resulting in stalled deliveries. It then came up against a cold snap at the start of this year. Overall, these issues are anticipated to make short oat supplies even harder to come by, not least because oats are not the only resources waiting to move.
“We’re going to have a very, very busy first quarter here once we get some good weather behind us,” James Cairns, senior vice president of rail centric supply chain for Canadian National Railway, said in an organisation earnings call in January. “You think about the grain, you think about the coal, you think about the international imports, they’re all there ready to move.”
The rising cost of available oats
Lacklustre harvests plus complicated logistics have pushed oat prices up to a new U.S. record. The USDA has predicted costs of $4.20 per bushel through the rest of the year. This eclipses the previous all-time high of $3.89, witnessed in 2012/2013. Oatly will be forced to pay anywhere between eight and 50 percent more, depending on where it sources from.
Difficulties for Oatly
Oatly has been experiencing a downturn in fortunes in recent months. During the pandemic, it saw a surge in sales as consumers scrambled to buy healthier alternatives to conventional meat and dairy. This spurred on its IPO in May 2021, with a company valuation of $10 billion, but since then, problems have arisen.
Alongside a reported 80 percent fall in shares, supply shortages have meant that new brands have risen up the ranks to claim significant market share. Oatly has remained determined to hold onto its position, but new facility delays and spiralling costs are adding to its woes.
Last month, Oatly suffered another blow in the form of a U.K. ruling that its adverts are misleading. The Advertising Standards Authority conducted an investigation and found Oatly guilty of overstating claims about emissions. The ruling followed previous complaints of greenwashing and overinflated revenue from Spruce Point Capital and an unsuccessful trademark lawsuit against Glebe Farm.
Lead composite create using Oatly product photography.