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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.
Sustainable Investing Spotlight
In Planting for Tomorrow: Weaving sustainability into the path toward food security, a new special edition newsletter from Citi Global Wealth and Eurasia Group/GZERO Media, we take a deep dive into the challenges and the innovations in sustainable agriculture. This newsletter gives you an essential look into the future of food.
Want to go even deeper in the food security challenge? Check out the Living Beyond Borders podcast from Citi Global Wealth Investments and GZERO and listen to our episode compelling called Global Food (In)security.
Listen:"We need to keep that investment flowing to come up with better ways to do this so that everyone is fed within the constraints of what the planet is able to bear," says Peter Ceretti, Director of Global Macro Geo Strategy at Eurasia Group.
In the latest episode of Living Beyond Borders, a podcast produced in partnership between GZERO and Citi Global Wealth Investments, Ceretti is joined by Harlin Singh, Global Head of Sustainable Investing, and Malcolm Spittler, Global Investment Strategist and Senior US Economist, both at Citi Global Wealth Investments, to discuss the latest causes and ripple effects of food shortages around the globe.
Following shortages that came out of the COVID pandemic as well as the war in Ukraine, the dual food problems of affordability and availability persist. While temporary impacts may be waning, the experts also discuss the longer-term impacts of the global food production system on the environment and what will - or won't - be sustainable going forward, including the food system's massive dependence on fossil fuels.
This episode is moderated by Shari Friedman, Eurasia Group’s Managing Director of Climate and Sustainability.
Peter Ceretti
Director, Global Macro-Geostrategy, Eurasiia Group
Harlin Singh
Global Head of Sustainable Investing, Citi Global Wealth Investments
Malcolm Spittler
Global Investment Strategist and Senior US Economist, Citi Global Wealth Investments
Shari Friedman
Managing Director of Climate and Sustainability, Eurasia Group
Trader Warren Meyers watches the Fed Rate announcement on the floor of the New York Stock Exchange
Breather for the Fed?
For background, the Fed has been bumping up rates since March 2022, when pandemic-related stimulus and supply chain kinks were driving annual price growth towards 9%, a 40-year high.
But these days things are looking rosier. The latest data show annual price growth in May was just 4%, almost a full point below April’s clip. It’s the 11th consecutive month that inflation has fallen.
Falling energy prices, down nearly 12%, played a major role. And that’s despite Saudi Arabia’s recent decision to cut oil output by 1M barrels a day. Oil prices have actually fallen since then, as other petrostates keep pumping flat out, while the post-COVID economic recovery of China — the world’s largest oil importer — remains sluggish.
All of that leaves room for the Fed to hold rates. But if so, the reprieve may be short: Core inflation, which excludes fuel and food prices, is still above 5% — a long way from the pre-pandemic average of about 2%. Even if the Fed stands pat, it may still have to hit the hiking trail again at its next meeting in July.
Who's to blame for sky-high food prices?
More than a year after Russia's war in Ukraine, have we turned from not enough food to more expensive food for all? How is this having different impacts in the developed and developing world?
Who's to blame for food inflation? And can the US and Canada do something to make food more available and affordable for the rest of the world?
At a US-Canada summit, GZERO's Tony Maciulis caught up with Ertharin Cousin, who knows a thing or two about this stuff as CEO of Food Systems for the Future and former head the UN World Food Programme.
For more, sign up for GZERO North, the new weekly newsletter that gives you an insider’s guide to the world’s most important and under-covered trading relationship, US and Canada.
- Global food crisis: when food isn't merely expensive ›
- If we don't act fast to help smallholder farmers, developing world might soon run low on food ›
- Podcast: The Ukraine war is crippling the world's food supply, says food security expert Ertharin Cousin ›
- How Russia's war is starving the world: food expert Ertharin Cousin ›
A chart comparing countries with the largest Muslim populations with corresponding food inflation rates.
The Graphic Truth: Ramadan celebrations now cost more
The holy month of Ramadan has begun for the world's roughly 1.9 billion Muslims. But for many, the joyous feasting with family before and after the Ramadan fast will be overshadowed by inflated food prices thanks to Russia’s war in Ukraine. Majority-Muslim populations in Asia and the Middle East, where many countries rely on food imports, will feel the economic pinch most. We take a look at countries with the largest Muslim populations and their corresponding food inflation rates.
Inflation, war, climate headline at UN General Assembly
Ian Bremmer shares his insights on global politics this week on World In :60.
As high-level week at UNGA gets underway, that's United Nations General Assembly, what is top of mind for visiting world leaders?
I don't know. How about war on the ground in Europe? How about massive inflation happening in food prices and energy prices around the world? How about how the Europeans get through a very cold winter and what happens as a consequence of that when they don't have enough energy, and prices are like two, three, four, five times what they were last year? How about climate change ongoing and still becoming a bigger and bigger problem every year? Lots to talk about at UNGA, depends on who you talk to though. Depends on who you talk to.
Is Putin looking to end the war in Ukraine as President Erdogan of Turkey suggests.
It's interesting. I was with the president of Kazakhstan yesterday, President Tokayev, and he also suggested that in his meeting with Putin, the fact that Putin said that he was interested in talking to Zelensky and opening negotiations without preconditions, which he certainly wasn't saying before, struck him as significant. Look, who knows at the end of the day if Putin would be willing to start talks. But what is very clear is that Putin's willingness to accept an outcome of the war is nowhere close to what would be remotely acceptable to Zelensky and the Ukrainian people. Putin is not going willing to give up the territory that they have captured since February 24th. And the Ukrainians believe that by fighting, they can potentially take it back. So I don't think we are anywhere close to an end to the fighting in Ukraine, over Ukraine, and more broadly between Russia and NATO.
President Biden says "the pandemic is over". Is it?
Well, I mean, it feels over in the United States, though a lot of people are still dying of COVID. But of course, a lot of people die of a lot of things in the United States. I will say that in China, the pandemic is most definitively not over and that's because most of the Chinese had never gotten COVID. A disturbing number of elderly Chinese still haven't gotten vaccines. The vaccines they have aren't very effective and as a consequence, that's one of the biggest things that's driving all these lockdowns, rolling lockdowns, driving significant problems on the ground. I'm not going to China. You're not going to China. Why not? Because there's still a pandemic. Clearly, Biden didn't care about that when he was asked the question, but that wasn't what he was talking about. He was talking about the US. He looked around, think it was an auto show or something, and said nobody's wearing mask. Pandemic must be over. Hey, that means the pandemic has been over in Florida for like two years. Awesome. I don't know. We'll see what you say about that. Talk to you soon.
Shortages reach far beyond food
The war in Ukraine is just the latest crisis to befall global supply chains in recent years, and it appears likely to get worse before it finally eases. It’s not just about interrupted flows, shortages, and higher prices for food and fuel. According to a report published in May 2022 by Dun & Bradstreet, a total of at least 615,000 businesses operating globally depend on supplies from either Russia or Ukraine. About 90% of those firms are based in the United States, but supply chains in Europe, China, Canada, Australia, and Brazil are heavily impacted. According to the report, a total of 25 countries have a high dependency on Russia and Ukraine for a variety of commodities.
Five months into the war, it’s clear that the likeliest outcome of the current fighting will be a long-term stalemate. Russia doesn’t appear militarily strong enough to take and hold all of Ukraine, and Ukraine doesn’t appear strong enough to drive Russian troops completely off Ukrainian land. As a result, those who depend on resources and production inputs from Russia and Ukraine now know they’ll likely need to invest in new suppliers of hundreds of different commodities and products – from sunflower seeds to turbojets – to build better resilience into their supply chains, rather than simply waiting for the fighting to end.
Food prices are falling: that’s good news, right? Right?
Don’t look now, but one of the worst stories in the world is actually getting better. Slightly.
You’ve doubtless seen a lot about — and probably experienced — soaring global food prices in recent months. The pandemic drove up prices, and the war in Ukraine sent them to dizzying heights. Close to a billion people slid closer to famine and poverty.
Well, global food prices are actually falling now. In fact, they’ve been on their way down for several months.
The latest readout from the UN showed average food prices fell just over 2% in June, and 3.5% since March. More specifically, grain prices fell 4% last month, and vegetable oil prices have drizzled down 16% since sizzling to record highs this spring when the war of the sunflower superpowers began.
Why is this happening? The UN says higher prices have simply driven down global demand, and harvests look better than expected in big grain producers like Canada and Russia.
Meanwhile, Indonesia’s decision to reverse a crippling ban on palm oil exports has eased prices for cooking oils. And there is a prospect of further relief for global grain markets as Ukraine and Russia appear close to a deal to reopen Ukraine’s Black Sea export routes, which would immediately free up millions of tons of grain trapped in Ukrainian ports.
More broadly, says Peter Ceretti, a senior analyst with Eurasia Group, fears of a US recession are driving down commodities prices across the board.
That’s great news, right? Well, depends on your perspective, says David Laborde, a senior researcher at the International Food Policy Research Institute. Prices are still 23% higher than they were a year ago and 60% higher than before the pandemic, when lockdowns and worker shortages crimped food supply chains around the world.
“We went from very high to extremely high,” he says. “Now we’re simply back to very high.”
The basic problem is still the same. As economies roared back from the pandemic in 2021, global demand for food exceeded supplies that had been undercut by lockdowns, labor shortages, and bad weather. That drained the world’s food inventories, even before the war in Ukraine dealt an added shock to prices. At the same time, the pandemic crippled the disposable income of billions of people around the world, making it harder for them to afford food.
Right now, says Laborde, what we need is a year where supply exceeds demand so that the world can get back to normal. Could the next year be that year?
Looking ahead, a lot rides on what happens with 2023 harvests, and that’s a function of two things that farmers need in order to produce bountiful crops: good weather and cheap fertilizer.
On the weather front, it’s anyone’s guess what nature has in store, particularly given the increasing frequency of extreme weather events (Europe, the floor is yours at the moment.)
But access to affordable fertilizers is also a huge concern. Half of the world’s people consume a diet dependent on fertilizers, according to Ertharin Cousin, former head of the UN’s World Food Program.
Fertilizer prices have risen to historic highs because of high costs for natural gas, a key input for some fertilizers, as well as export restrictions from key producers like China. The war and sanctions disrupted supplies from Russia and Belarus, both leading potash manufacturers. None of the three factors is likely to subside quickly, and farmers need to plant their 2023 crops soon.
Wait, my grocery bill is still ridiculous — why? Lower prices for basic staples like wheat or cooking oils don’t necessarily translate into lower prices at the register, and certainly not immediately.
For one thing, the cost of those inputs may be only a small part of the price you see on the tag. In the US, for example, the price of wheat is only about 5% of the cost of a loaf of bread, says Laborde. The rest of that price comes from other production and shipping costs, all of which are high because of broader inflationary pressures.
“If you’re a bakery in New York City, you’re probably more worried about the cost of your lease than you are about global prices for wheat,” Laborde says.
Meanwhile, in low- and middle-income countries, the basic challenges of food security won’t ease much in the near term, according to Ceretti. Any lower prices will take time to pass through to local markets in these countries. What’s more, he points out, households there typically spend up to 40% of their budget on food as is.
“Imagine how it would feel if something that eats up 40% of your household budget rose in price by a quarter or more in the past year,” says Ceretti. The recent drop of a few percentage points might not even make a dent for you.