Free Shipping for orders $50+ | Most orders packed and shipped same day!

Repost from SF Chronicle: "The case of one S.F. granola maker shows a supply chain in crisis"

This story was originally published in the San Francisco Chronicle, on Nov 8, 2021, by Carolyn Said. You may read it here. Photos by Jessica Christian for The Chronicle.


Curious about why stuff costs more and is harder to get?

Just ask Michelle Pusateri, CEO and “granola master” of Nana Joes Granola in San Francisco, named after her grandparents.

Her artisanal concoction is simple as products go — a handful of raw materials, most of them agricultural; nothing electronic, chemical or exotic.

But the company sources its organic ingredients like nuts, seeds and coconut, as well as its packaging, from all over the world. In the past 18 months, prices have soared and availability tightened for many of the granola’s components, largely because of climate change’s impact on crops, although the supply chain crisis and pandemic-driven shortages also play a role.

Nana Joes’ predicament encapsulates in, ahem, a nutshell, the challenges that companies and consumers now confront in obtaining specific goods. If it is having such a hard time, imagine the dilemma faced by car manufacturers, whose products have about 30,000 parts from every corner of the globe.

“With the rising prices and the increase in our (cost of goods sold), we are going to greatly suffer and I am terrified seeing that the supply chain shock will last through 2023 and beyond,” Pusateri said. “I’ve spent the past 11 years of my life building up this company that was profitable last year, and now am looking at an almost $100,000 loss this year.”

Next year will be even worse. She expects to pay $342,000 more for raw materials for next year’s products, up 52% from before the pandemic. So far, she hasn’t raised prices (the granola retails for about $9 to $11 a bag), but she reluctantly acknowledges that she may have to.

 Take gluten-free organic oats, grown in Canada. She uses 52,000 pounds a year. Climate change — specifically drought — meant that her supplier, Central Milling Co., which mills the oats in Utah, could procure only 34,000 pounds — and they cost 70% more than pre-pandemic. As a safeguard, she is scooping up all those oats now instead of her usual order of 1,000 pounds a week because she can’t risk having another company swoop in and buy them. But that means she had to come up with a lot of cash on short notice for such a big purchase.

She will also have to pay more — she pegs it at $1,000 to $2,000 a month — for storage space for all those oats and other ingredients she’s trying to stockpile in case of shortages. As it is, bags, boxes and covered pails of ingredients are neatly stacked all around the perimeter of her manufacturing facility in the former American Can Co. building in Dogpatch.

Fortunately, Nana Joes had just gotten a pandemic emergency disaster loan from the Small Business Administration of almost $421,000. The loan, called a COVID-19 Economic Injury Disaster Loan, was recently expanded with a higher cap, deferred payment plan and other features. It is the last of the major COVID-19 relief funds for small businesses. She has 30 years to pay it back at 3.75% interest.

“That is what is saving us,” she said. “Otherwise we wouldn’t have been able to secure the oats.”

But she worries about the whole raft of small businesses like hers that don’t have deep pockets.

“Big companies can snatch up all these ingredients and cause prices to go sky-high,” she said. “They have relationships with farmers to take all of the next crop. It will get worse and worse until there are no (materials) left for small businesses.”

She’s been talking to D.C. lawmakers through Goldman Sachs’ 10,000 Small Businesses Voices initiative, which helps Main Street businesses advocate about issues important to them.

“Being vocal that small businesses need more working capital for situations like this,” is among the messages Pusateri said she shared with members of Congress.

Utah’s Central Milling, her supplier for oats, ground flax, maple syrup, olive oil and chocolate, also epitomizes the agricultural issues wrought by climate change.

Central Milling sells its main product, organic flour from wheat grown throughout western North America, to bread bakers ranging from the Mill in San Francisco and Maiden Breads in Point Reyes to Safeway’s Richmond bread plant. It also makes flour for Whole Foods and Costco.

From Texas up to Alberta, Canada, and west, drought affected the crop yields for its farmers, said Nicky Giusto, vice president of sales and marketing at the 160-year-old company.

“Drought was the No. 1 reason why we had such short crop yields this year in every single region,” he said. “California was hit the worst; we didn’t even get a crop out of California. Couple that with heat waves in the Pacific Northwest, Utah, southern Idaho — that shriveled the crop up even more.”

Even farmers with irrigation couldn’t cope, he said — “It was so hot that water would evaporate as soon as it hit the soil.”

“Some crops were down by 5% to 10% and some were down well over 50% in crop yield.”

Grain prices are now 20% to 45% above normal, while freight prices are up 15% to 30% and sometimes even double, he said. “The market is so tight now that farmers are getting bid up for wheat dramatically,” Giusto said. On top of that, COVID protocols slow down manufacturing at his mills.

Central Milling, which annually processes about 2 million bushels of wheat (120 million pounds), is now charging an average of about 30% more for the organic flour and other grains it mills, he said.

The net result: Bread will cost more.

“People need to raise their prices on bread; otherwise they’ll go broke,” Giusto said.

As for the dried fruits and seeds that Central Milling imports from overseas, “They are scarce or extremely expensive and a lot of them are stuck on the water now,” he said, referencing the global supply chain crisis that has led to scores of ships idling in San Pedro Harbor waiting to be unloaded.

The supply chain crunch hit Nana Joes’ few non-agricultural products: the bags in which it packages the granola and the boxes for six-packs. Some 35,000 bags are en route from Peru — weeks late, and at a cost that’s up 26%. On top of that, it’s possible she’ll have to pay a port surcharge — extra fees that port operators are now levying on many containers.

Climate change in far-flung regions of the world has had a big impact. Monsoons and typhoons in the Philippines affected coconut and coconut oil supplies. Hurricanes in the Caribbean and floods in South America affected cacao beans for the chocolate that’s then processed in California.

Nuts from California are also suffering from the drought. Pusateri is paying more for almond slices (she goes through 26,000 pounds a year), almond flour and pistachios.

Pandemic panic buying cut into supplies of sunflower seeds (Mexico), olive oil (Tunisia), cinnamon (Indonesia), maple syrup (Vermont) and chia seeds (Paraguay).

“Everybody was baking,” she noted.

Nana Joes came about by serendipity in 2010. Pusateri was seeking an energy-packed breakfast to fuel her while surfing at Ocean Beach and Pacifica, and found that regular granola was too sugary. A trained pastry chef, she developed her own recipe with more protein, fat and fiber and less sugar. She started giving it to friends and family, then found a few small markets to carry it. She quit her job at San Francisco restaurant Nopalito to care for her dad, who was dying of brain cancer, and he encouraged her to launch a business.

It’s grown organically with no investor money other than some family backing. Last year it had $1.97 million in sales, or about 280,000 bags of granola (they vary from 8 to 14 ounces). It’s mainly sold in California, Oregon and Washington, with some markets in New York and Texas.

She’s paying more to ship outgoing products. Part of the supply crisis is a shortage of trucks and truck drivers. The cost of trucking granola to Los Angeles has almost quadrupled. Trucking to Texas has doubled. In the other direction, hemp seeds from Canada and pecans from Texas now cost more to truck to California.

Labor is one area where Nana Joes — unlike many other businesses — has not felt a squeeze. Pusateri already paid her 10 workers between $20 and $27 an hour, well above San Francisco’s minimum wage of $16.32. As a result, she hasn’t suffered the attrition and inability to hire that’s become common at many non-white-collar jobs. She is paying 13% more for workers’ comp, however.

Pusateri is grateful to her vendors and farmers. “So many back-and-forth emails on inventory and calls about price increases and shortages,” she said. “Always giving us the opportunity to stock up and keeping us posted when new shipments arrive.”

Likewise she appreciates her customers. “The amount of support we have gotten over the years and especially at the beginning of the pandemic when everyone rallied and ordered our granola online has been fuel for me to continue to push through all the challenges and stay positive that this too shall pass.”