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A collage depicting food price increases.
Are high food prices here to stay?
A perfect storm of pandemic shortages, Russia’s invasion of Ukraine, and extreme weather events have driven up food prices and threatened food security globally. Now, a strong El Niño event stretching into 2024 could exacerbate this food crisis, but not for everyone.
A 2023 report by the UN Food and Agriculture Organization found that as many as 783 million people worldwide faced food insecurity in 2022 – 122 million more than in 2019. The pandemic brought supply chain challenges that have been slow to abate. Extreme weather and global conflict further drove up hunger by limiting access to food. The problem is acute in the developing world, but it’s hitting people hard in North America, too.
Faint hope but gathering despair
Recent weeks have brought better news about food inflation in the US and Canada, with signs that it’s beginning to cool. In June, the Biden administration’s Council of Economic Advisers pointed out that it was slowing after a long period of elevated growth, driven largely by declining egg and fruit prices. They cautioned, however, that prices would remain above pre-pandemic levels throughout 2023.
North of the border, the Royal Bank of Canada found the same: Prices rose 18% in two years, and the rate of growth is slowing though prices are unlikely to come down. A fifth of Canadians, nearly 7 million people, lived in a food-insecure household in 2022. In the US, a study by the Urban Institute found that in 2022, a quarter of Americans reported being food insecure – a whopping 83 million people.
Peter Ceretti, director of Global Macro Geo Strategy at Eurasia Group, echoes the numbers from the Biden administration and RBC. “Consumers are seeing food price inflation begin to cool in the US and Canada, which is a good thing, but I don’t think that food price levels are likely to fall economy-wide in the near future,” he says.
Experts in the United States and Canada are already warning that changing weather will continue to drive up food prices as it delays or kills crops. And that’s not all. “In addition to putting upward pressure on prices,” Ceretti notes, “climate change introduces more uncertainty into weather patterns and growing conditions, which can increase volatility in food costs, too.”
The El Niño factor
What exactly do climate change and El Niño, the warming in the Pacific that impacts weather worldwide, bring to the table? Writing in The Conversation, David Ubilava, associate professor of economics at the University of Sydney, argues that El Niño will not have a significant aggregate effect on food prices at the global level. Instead, while the aberrant weather induces some crop failures (palm oil in Indonesia and Malaysia), it could lead to better harvests for others (in the Horn of Africa). The effects, however, will not be borne equally and could produce famine and conflict.
US Special Envoy for Global Food Security Cary Fowler has highlighted Southeast Asia, Central America, and southern Africa as particularly at-risk areas from El Niño. Meanwhile, Peru’s higher-than-normal water temperatures threaten its fishing industry.
With El Niño arriving and climate change threatening food security, the US and Canada are being asked to do more to support food aid. The Biden administration has launched the Vision for Adapted Crops and Soils. With an initial pledge of $100 million, the program is currently focused on Africa and developing resilient crops in the face of climate change. Last year, Canada announced CA$250 million in food aid, blaming Russia for soaring prices, but cut foreign aid by 15% – a projected CA$1.3 billion – in its 2023 budget.
Climate change is the game changer – and it comes with conflict
Even if El Niño spares some, climate change combined with its attendant crises, such as geopolitical instability and conflict, threatens us all. The Russian invasion of Ukraine, Europe’s breadbasket, has shown what can happen when conflict converges with extreme weather events.
Long term, the effect won’t be pretty. “Global food demand will increase by more than 50% in 2050, but due to climate change, agriculture yields of major crops could decrease over that same period,” according to Secretary of State Anthony Blinken.
Global food producers are already producing relatively smaller yields than in recent decades, says Canada’s largest farmland owner Robert Andjelic. This won’t be helped by the weather this summer, with the hottest month in recorded history – July – and wildfires that ravaged Canada and the US. In recent days, sea temperatures in Florida broke records – hitting 101 degrees Fahrenheit. El Niño or no El Niño, extreme temperatures, and weather events are going to hurt crops and affect food prices and security.
Andjelic issued a stark warning that he expects high food prices to become the new normal when he spoke recently with The Toronto Star. “What I’m going to say is not going to be very well received by the consumer, because I see prices going much higher. This is not just in Canada. It is a worldwide supply and demand issue.”
Trade under pressure
Crop failures could also shape trade and international relations. Canada, for instance, relies on the US and Mexico for much of its produce imports. Last year, the USDA said the US was on track to become a net food importer. Canada became a net exporter in 2019 – but remains a top importer of US agricultural exports, while the US scoops up nearly 60% of Canadian agricultural exports.
Both countries, however, can feed themselves and have plenty of arable land to do so. Ceretti says deep integration and interdependence and (mostly) tariff-free exchange between the US and Canada means that while “there may be disruptions or trade imbalances that emerge in certain food products, generally, I think that trade relations will remain strong.”
But both Canada and the US rely on Caribbean, Central American, and South American states for certain commodities. Consumers may soon face higher prices for coffee and chocolate as futures in sugar, cocoa, and robusta coffee are through the roof, with the latter hitting an all-time high.
Ceretti warns that food security concerns can lead to potential export restrictions, “which can shock global food prices and make it difficult for net food importing countries to buy sufficient supplies at prices they can afford.”
Political risks abound, too
High food prices and insecurity also pose a political risk to incumbents. The 2024 US presidential race is taking shape, and in Canada, PM Justin Trudeau is due to face the electorate by October 2025.
The cost of food and other goods will factor into the US and Canadian elections, putting pressure on Biden and Trudeau to act. But with climate change running unchecked, persistent global geopolitical instability, and potentially greater and more unpredictable El Niño and other weather events in the future, just about every politician is going to face these pressures for the foreseeable future.
A vendor arranges onions for sale at a market in Lagos, Nigeria.
Why food prices remain high
Thanks to the war in Ukraine and the pandemic before it, food inflation remains sky-high throughout much of the world. With the Black Sea grain deal set to expire on March 18, we take a look at global food security in 2023 with Eurasia Group expert Peter Ceretti.
Is the food security crisis over?
Unfortunately, not yet. International prices have moderated for staple grains — like wheat, and corn — since early- to mid-2022, but they’ve stabilized at a high level.
When Russia invaded Ukraine, food prices had already been disrupted by COVID-19. The war led to a blockade of Ukraine’s ports, higher energy and shipping costs, and Western sanctions and self-sanctioning targeting Russia, all of which caused prices for wheat, corn, and other grains to spike.
As the world learned, Ukraine and Russia are major exporters of wheat, maize, barley, and sunflower seeds and oils, and prior to the war, Ukraine used to ship most of its food exports through the Black Sea. Russia and Belarus are also major fertilizer exporters, especially to the MENA region and sub-Saharan Africa.
Over time, Ukrainian producers adjusted, shipping more of their crops westward over land and by river. Then, in July 2022, Russia and Ukraine reached a deal brokered by Turkey and the UN to reopen some of Ukraine’s ports for food shipments, helping to restore Black Sea shipments to Turkey, Europe, the Levant, and North Africa, among other destinations.
This helped to relieve concerns over shortages. Coupled with the Federal Reserve’s tightening cycle, and eventually a moderation in oil and gas prices, the improved outlook brought food prices down.
“Down” is a relative term though. Using the FAO’s Food Price Index as a benchmark, food prices are about 8% lower now than they were a year ago, but they’re also about 11% higher than they were in early 2021 and around 30% higher than in early 2020.
So availability is now less of a concern, but basic foodstuffs are still very expensive.
Why are food prices still so high?
Good old supply and demand are a part of the story. The USDA forecasts that global production will fall for rice and corn this year and that consumption will outstrip production for wheat, rice, and corn. There should be enough to go around in the aggregate, but this will mean that global stocks will fall compared to last year’s levels. A tight market keeps a floor on prices.
Inputs are another factor. Oil and gas prices are still relatively high, driving up prices for fuel used for farm equipment as well as for transportation and refrigeration. Natural gas is also used as a feedstock for nitrogenous fertilizers, and even though prices have come down in recent months, this year’s harvests could be affected by under-application in 2022.
Weather is a third consideration. We’ve had an exceptionally long “triple-dip” La Niña, which can lead to extreme weather events that are also becoming more frequent due to climate change. La Niña is expected to recede, but there’s a good chance that El Niño conditions will set in by late 2023, which could bring more disruptive weather.
What consumers pay for food does not correspond one-to-one to international price developments, either. Many food products are consumed in the country where they are produced. Most countries subsidize agriculture and enact some degree of protective trade policies. In wealthy countries, a large share of food spending goes to marketing and distribution, and only a small share of food prices — around 15% in the US — are determined by the actual cost of food. Finally, other factors like exchange rates and regional discrepancies in food costs can also distort the relationship between domestic and international food prices.
In practice, this means that the pass-through from changes in international prices to domestic food costs is partial and occurs with variable lags. There’s even some recent evidence to suggest that more of price rises on international markets is passed through to consumers than price falls. So even though international food prices are falling year on year, about 90% of countries are seeing consumer price inflation on food of 5% or more. In January, the median food inflation rate was about 14%.
What is the outlook for staple foods for the rest of 2023?
At present, the outlook is mixed. Barring any major, unexpected developments, I think prices are likely to continue to fall on a year-on-year basis through mid-2023, though there are some important uncertainties. Weather and the possible onset of El Niño later in the year is one factor.
Oil and gas prices are another consideration. My colleagues think that it’s likely oil and gas prices will rise again in the second half of 2023, as China’s economy gains steam, Europe recovers, and supply-side conditions remain tight — especially given Europe’s energy decoupling from Russia. This would help to drive food and fertilizer prices upward again.
What about the Black Sea Grain Initiative?
The continuation of the grain deal is a major wildcard. Our view is that the deal will be renewed. Russia has structural incentives not to let it lapse, as it nearly did last November. Among other things, Moscow is seeking to maintain ties with developing countries, which have been hit hardest by higher food costs and are disinterested both in the war and in Western sanctions. China, for instance, has purchased over 20% of the grains and oilseeds shipped through the grain deal and has sought to interject itself into diplomatic efforts to end the war. Turkey and Iran are also major beneficiaries of the deal.
On the other hand, killing the deal would bring the Kremlin closer to crippling the Ukrainian economy. About 11% of Ukrainian GDP came from agriculture prior to the war, and Putin aims to do long-term damage to Ukraine’s economic structure.
Are there any other factors to watch?
Rice is another watchpoint. Rice prices have been decoupled from other staple grains throughout the conflict, and they fell for much of last year. But international prices are now rising by around 17% year on year, and given the number of countries in Asia that depend on rice as a staple, this should be a point of concern. Most East, South, and Southeast Asian countries have support programs in place to shield the population from major rice price movements, and much of the rice that is consumed in the region is produced domestically. But a knee-jerk restriction on exports from a major rice exporting country, like India, has the potential to spike prices internationally.
The Graphic Truth: Food inflation still flying high
As the war in Ukraine lingers and pandemic aftershocks continue to pound the global economy, food inflation remains sky-high throughout much of the world. Consider that over the past year alone, egg prices in the US rose by a whopping 60% on average. While prices of some food staples have dropped in recent months, partly due to the Black Sea grain deal, stubborn inflation driving up transport and labor costs means that consumers aren’t feeling prices ease at the supermarket. We take a look at food inflation in select countries now compared to a year ago, exactly one month after Russia invaded Ukraine.
Laborer carries food at the main market in Colombo, Sri Lanka.
Is the global food crisis here to stay?
The mood surrounding the annual UN General Assembly kickoff this week has been grim. Russia is pounding Ukraine and climate-related disasters are devastating places as far-flung as Pakistan, Portugal, and Puerto Rico.
In 2022, with total war returned to Europe and the global pandemic having scrambled supply chains, the food crisis is where the conversation is at.
But it’s not an issue of scarcity. This year’s global food crisis was initially (mostly) due to Russia’s blockade of Black Sea ports in southern Ukraine, which prevented millions of tons of grain from reaching countries that rely on Europe’s breadbasket to feed their populations. Ukraine is a major exporter of wheat, corn, and edible oils, accounting for more than 40% of sunflower oil supply globally before the war. (Dinner party fact: the yellow band on the Ukrainian flag represents the country’s vast golden fields of sunflowers.)
The scarcity issue has begun to stabilize since the UN and Turkey brokered a deal between Moscow and Kyiv in July, allowing exports to resume. But the problem is far from resolved.
Surging prices → hunger pains. Amid the war in Ukraine, global food prices rose in July by 13% year on year and could continue to rise another 8.5% over the next five years, according to the UN. There are several reasons for this.
The food crisis has been exacerbated by the surging price of fertilizer ingredients that are crucial to crop nutrition. Crucially, many fertilizer ingredients – like ammonia, nitrate, and potash – come from Russia and Belarus, both of which are unable (or unwilling) to meet global demand due to Western sanctions. Meanwhile, the situation has been exacerbated by Chinese curbs on some fertilizer ingredient exports.
Though the EU insists that its sanctions “have minimal impact on the agriculture sector,” Russian and Belarusian entities have been cut off from the SWIFT global payment network, and shipping companies face extremely high insurance premiums to transport Russian goods. Russia, for its part, says that Western sanctions make it difficult to export its stockpiles.
“While the information fog of war dictates caution, it’s pretty clear the invasion is the primary cause of food disruption. The Russian track record also indicates they are not above weaponizing food,” says Gerald Butts, vice chairman of Eurasia Group.
Connecting the dots. Fertilizer production is extremely energy-intensive, particularly for nitrogen fertilizer, which needs a lot of natural gas. Europe, for its part, is grappling with an energy crunch as it limits its reliance on Russian natural gas, which has driven up prices for European fertilizer producers that are then passed along to consumers.
What’s more, as Europe has become a net importer of fertilizer, many states have turned to alternative sources – like Morocco – for key fertilizer ingredients. However, upscaling takes time and has led to bidding wars for limited supplies that put emerging market economies at a disadvantage.
“In 2022, we have enough food that is not well distributed,” UN Secretary-General António Guterres told GZERO Media in a recent interview. “But in 2023, if we don't normalize the fertilizer market we simply won’t have enough food worldwide,” he says, adding that “fertilizer is extremely important not only for the present situation but for next year.”
African agriculture reels. The impacts of the food crisis are being acutely felt across Africa, long vulnerable to climate change, drought, and food insecurity. Heavily dependent on imported fertilizers, many African farmers either can’t afford the ingredients or can’t find them on the market. The African Development Bank, for its part, says the continent is short of at least two million metric tons of fertilizer, which could exacerbate hunger crises in countries already on the brink of famine, like Somalia.
In some African states, including the Ivory Coast and Cameroon, fertilizer prices have increased by 50% since Russia invaded Ukraine, prompting some agriculture workers to slash fertilizer usage, further threatening food production. In other countries, farmers have sought fertilizer substitutes: Some Ugandan farmers are replacing nitrate with … maggots, whose digestive systems transform food waste into fertilizer. And while a few international fertilizer producers are donating fertilizer to African farmers, many say it’s “too little too late.”
When leaders huddle at the UN this week, the deepening hunger crisis – including how climate change is exacerbating food insecurity – will be high on the agenda.
But what can the UN actually do to mitigate the worsening food disaster?
“Wealthy economies have limited capacities to directly tackle the issue of price inflation in the short run,” says David Laborde, a senior researcher at the International Food Policy Research Institute. However, they “could prioritize fertilizer production when dealing with natural gas rationing, make sure that global trade remains fluid and … avoid new waves of export restrictions,” Laborde says, pointing to concerns over India’s recent decision to limit some rice exports.
“It’s really a ‘money issue,’” Laborde adds, noting that “UN agencies need 30 more billion this year to tackle the hunger and malnutrition crisis.”
Overlapping factors make the current global food crisis extremely hard to address. But one thing is clear: maggots are not the only answer.
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We've reached peak global food inflation, says IFPRI expert
Global food prices have been going through the roof over the past few months — but there's some good news on the horizon.
Weather permitting, the prices of key commodities like wheat are now almost back to their levels before Russia invaded Ukraine, David Laborde, a senior fellow at the International Food Policy Research Institute, said during a livestream discussion on the global food crisis hosted by GZERO Media in partnership with the Bill & Melinda Gates Foundation.
"Overall, I think really we have reached in global markets already the peak in terms of prices," he added.
At the country level, we can still expect a few more months of rising prices because there's always a lag between global markets and our local grocery store. The other problem is high energy prices, which drive up transportation costs, but unless there's a climate shock in a big producer Laborde believes "we have seen the worst of it."
The Graphic Truth: Global food prices on the rise
Pandemic-related supply chain disruptions – exacerbated by the Ukraine war – have sent the global food supply into chaos. Ukraine and Russia are massive food exporters, and the war has left global food supplies scarce and prices sky-high. Some countries have responded to the turmoil by enforcing export bans on some products to keep prices down at home – further disrupting the global food network. We take a look at food inflation in select countries over the past year.