Food

Russia’s war in Ukraine threatens to send U.S. food prices skyrocketing

Russia's war in Ukraine threatens to send U.S. food prices skyrocketing

As war continues to ravage Ukraine, Americans, especially those living paycheck to paycheck, are beginning to feel the financial pressure on their food prices from the conflict on the other side of the world.

It started with a rapid rise in gasoline prices. Now, with Russian oil banned in the United States and the global energy shortage worsening, experts say shoppers can expect their grocery bills to rise. in the coming months, especially if Ukraine misses its wheat planting season.

“It’s an absolutely horrific time for American consumers because we’re seeing inflation hitting almost 10% every day,” Dan Varroney, supply chain expert and founder of Potomac Core, told FOX Business. “Last month’s figures were close to 8%. And that means consumers, including those living paycheck to paycheck, are going to pay more for food.”

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Russia and Ukraine produce 25% of the world’s wheat supply, according to the Economic Complexity Observatory. Although none of these countries export wheat directly to the United States, their absence from the world market is expected to put pressure on supply and push up prices.

The Observatory of Economic Complexity reports that 25% of the world’s wheat comes from Russia and Ukraine.

All of this scarcity, from natural gas and crude oil to wheat and seed oil, will impact the cost of doing business for food manufacturers in the country.

Varroney, who delved into global supply chain issues during the pandemic in his recent book, said with the rising cost of inputs, some companies will have no choice but to increase the cost of their products to the end user. For him, it all comes down to the rising cost of energy at every step of the supply chain.

“Everything from extracting food from the ground to producing it, storing it and delivering it all involves energy,” Varroney said. “Natural gas is used to make these foods. Then when you go over that? And you go into logistics, you have a store, these foods, so there’s gas to ship and there’s fuel. ‘electricity to be stored.’

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“It’s energy costs that will stifle consumers across the board as food companies need to stay competitive.”

The baking industry is an industry facing particular pressure. With wheat as the main ingredient and natural gas used for large-scale industrial ovens, bakers are grappling with rising costs of doing business.

Robb MacKie, president and CEO of the American Bakers Association (ABA), said bread makers were starting to feel the pinch of increased demand on their inputs.

Food prices have already risen nearly 8% in the 12 months to February 2022. This is the largest 12-month increase since 1981.

“A lot of ingredients come out of Ukraine, especially wheat, oilseeds, barley and a number of other crops,” MacKie told FOX Business. “The challenge is that [region] is one of the top three wheat producing regions in the world. And if we take that out of production, which seems like if the conflict lasts much longer, that’s going to happen. This is going to have a significant impact on the price of US and Canadian wheat, which is what US bakers primarily use. »

MacKie’s organization highlighted several solutions the Biden administration could adopt to alleviate costs for producers and ultimately consumers. The ABA is currently lobbying the EPA to suspend implementation of an increase in edible oils in clean diesel products. MacKie said this will help keep edible oils available to bakers, reducing the cost of inputs.

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The ABA has also proposed that the USDA open up some conservation reserve lands that could be used to grow wheat and other crops during the global supply shortage. MacKie was careful to note that this proposal does not include the opening of highly sensitive wetlands.

MacKie also joined a myriad of voices from industry and think tanks calling on the Biden administration to open up domestic energy sources, like natural gas, gasoline and crude oil, which could help. mitigate energy inflation for producers and consumers.

“I think looking to the future, American shoppers should expect that, unfortunately, their grocery bills will go up and, unfortunately, their restaurant bills will go up,” MacKie said. “And sadly, this is going to impact the most vulnerable in our society, many of whom are still feeling the effects of the pandemic.”

He continued: “You just can’t have this type of disruption in the supply chain and inflation on raw materials and energy that we use and other things like packaging without it there is a reciprocal cost advantage.”

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The Bureau of Labor Statistics found that food prices had already risen almost 8% in the previous 12 months in February 2022. This is the largest 12-month increase since 1981.

The Bureau of Labor Statistics found that the rise in food prices over the past year is the highest in decades.

The dwindling supply of inputs is expected to threaten the ability of the US food production industry to manufacture food. US grocery store shelves are expected to remain stocked, but at higher prices.

“I think the disruptions from this war will only continue the upward pressure on food prices,” said Caitlin Welsh, director of the Global Food Security Program at the Center for Strategic and International Studies, told FOX Business. “I don’t expect that to happen immediately in the United States. It could take a few months for that to happen. And I don’t think it will happen to the same extent in the United States as in other countries. “Other countries that were much more dependent on imports to meet their food needs. But I expect it to have an impact and it will last at least as long as the war lasts.”

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With countries in Europe and Africa facing a direct threat to their wheat supplies from the war in Ukraine, Welsh said it was impossible to completely isolate the United States from global wheat markets. food and energy.

“Food markets are globalized so to some extent it’s impossible to avoid the impacts of disruptions like this,” Welsh said. “I think these types of disruptions remind us of how intertwined we, you know, the global economy and global agricultural trade are with the rest of the world.”