Russia-Ukraine crisis could push food prices even higher

Rising prices for raw materials and energy will continue to push food prices, and the Russian invasion of Ukraine will exasperate the problem, expect feed company ForFarmers and ABN Amro. The sharp rise in the prices of crops like wheat and palm oil will also push food prices, Rabobank expects. Russia and Ukraine are important suppliers of grains and edible oils. 

According to Rabobank analysts, the Russian-Ukrainian crisis is a significant concern for vegetable oil, wheat, and maize. According to the bank, stocks in many agricultural commodities have been low since the beginning of this year. Rabobank believes that price increases on supermarket shelves will be smaller, as raw material prices only make up a relatively small part of the prices of end products.

Ukraine and Russia account for about a quarter of the global wheat trade and a fifth of maize meals. They also account for 80 percent of global sunflower oil exports. The rising tensions between the countries pushed wheat prices to their highest level since 2012. Corn and soybeans also became more expensive. And the price of palm oil rose to record highs. 

Another problem is the drought in South America, which clouded the prospects for soy supplies. Palm oil, which is used in thousands of products from biscuits to shampoos, is also rising sharply as labor shortages limit production at its primary producer, Malaysia. 

The inflation outlook is exacerbated by the rising cost of fertilizers. The market is already feeling the pressure of reduced potassium supplies from Belarus following US sanctions. Any reduction in nutrient exports from Russia will further increase price pressure. If farmers use fewer fertilizers, this could lead to fewer harvests, which could put further pressure on food prices.

All of this could lead to higher prices in supermarkets as the production of everything from pasta to chocolate becomes more expensive. 

As society opens up after the coronavirus lockdowns, more food will be produced. But because production costs are rising rapidly, consumers will inevitably feel price increases in their wallets, ABN Amro economists said in a new report. Producers spend more money on raw materials, transport, and energy costs. Higher costs put a break on production growth, ABN Amro said. This year, food production will only increase 1 percent, and beverage production about 5 percent. Producers will have to negotiate with supermarkets about prices. 

According to the bank, consumers will look for cheaper alternatives if price increases are too great. Research by the bank shows that price plays a greater role for 40 to 55 percent of consumers than, for example, convenience and sustainability. Furthermore, more than a quarter of the respondents say they pay less attention to sustainability if the groceries become considerably more expensive as a result.

ForFarmers presented its annual figures on Thursday, announcing a turnover of 2.7 billion euros for 2021, an increase of 13.5 percent. The company's profit fell by more than a third to 33.5 million euros. Rising prices for raw materials and energy are causing headaches for the feed company. And the company expects these prices to remain high, given the "worrying political situation" surrounding Russia and Ukraine. The invasion already resulted in the prices for gas and oil skyrocketing.