Here’s why food prices keep rising – Forbes Advisor

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The peak pandemic days of rushing to the grocery store and facing empty shelves are over. But now the high prices are rather frustrating consumers.

Food prices rose 10.1% from May 2021 to May 2022, according to the latest Consumer Price Index report from the Bureau of Labor Statistics.

Almost all food products are now more expensive. Cereals, for example, were nearly 13% more expensive in May than a year ago; the price of eggs has increased by 32%.

High prices are forcing some consumers to make tough decisions, like turning to food banks for the first time in their lives. Some say they’re not getting all of their dietary needs, like adequate protein, because it’s just too expensive.

Unfortunately, what’s driving the price spike isn’t a simple problem or fix, and analysts say it will take time for consumers to see relief.

Global and national problems drive up food prices

There are several reasons for the rise in food prices, including:

1. Pandemic disruptions

The pandemic has disrupted almost every link in the food supply chain, including production, processing and retail. These effects on the food supply chain are still being felt today.

As shutdowns forced people to eat at home, growers serving restaurants lost key customers, while grocery stores faced a massive surge in demand. Many food producers struggled in those early months to convert their operations to serve grocery shoppers.

Food production costs have also increased due to labor turnover, investments to protect products from contamination and additional costs for training workers. Even the cost of transporting food to processors and grocery stores rose as retailers placed rush orders to keep shelves stocked.

These cost increases are built into the price consumers pay for groceries.

And although Covid is no longer a focal point in many Western countries, China is still experiencing disruption from the virus – and as the world’s largest exporter of goods, that means other countries are inevitably affected. The latest round of lockdowns in China led to a decline in the country’s export growth, which put additional pressure on the global supply chain, although less severely compared to the initial pandemic lockdowns.

Closures are now restarting in areas around Shanghai, home to one of the world’s largest ports. These could again disrupt the country’s export capabilities, further disrupting the global supply chain.

2. The war in Ukraine

At the start of the war in Ukraine, analysts speculated that food prices would be affected. These predictions have come true.

Russia and Ukraine are among the largest wheat producers in the world, accounting for 30% of all wheat exports combined.

But the war posed obvious challenges for Ukraine to continue exporting wheat. Its agricultural production and export capacities have been decimated by the war: its freight exports are down 92% from a year ago, according to S&P Global Market Intelligence.

With Ukraine unable to fulfill its role as a major wheat producer, the world faces a shortage of wheat. A shortage means the price of wheat is much higher, making it more expensive to process key ingredients, such as flour and starch. In turn, food producers must increase the price they charge consumers to compensate for their higher production costs.

3. Soaring energy prices

Energy prices have also seen sharp increases due to many Western countries sanctioning Russian oil and gas. Energy prices rose 34.6% in May compared to the same period last year.

The war in Ukraine has driven up energy prices. Western countries have implemented bans on Russian oil, leading to skyrocketing gas prices.

Increases in the cost of oil are further exacerbating the already high costs of food production and transportation that the pandemic has unleashed.

When will food prices go down?

Despite the complicated factors contributing to rising food prices, there is good news: prices of major food items, including wheat, corn and soybeans, have declined from their recent highs. Wheat prices, in particular, are down 23% since mid-June.

Paul Hughes, chief agricultural economist and research director at S&P Global Commodity Insights, notes that the Federal Reserve’s recent interest rate hikes played a role in the decline by cooling demand, but that doesn’t mean that consumers can expect to see lower prices at the grocery store next week.

“There is a lag effect between commodity prices and the impact the consumer sees,” says Hughes. “It will take some time for everything to trickle down to the consumer.”

Hughes adds that food prices will not completely stabilize until the Covid-19 lockdowns in China are no longer a reality. While the shutdowns are playing a role in lowering demand, “they are creating significant supply issues,” says Hughes.

Until then, consumers may be reluctant to believe that there are ways to truly maximize their grocery purchases while prices remain exorbitant. But there are still ways to lower your grocery bills.

How to save on groceries while prices remain high

Shopping at low-cost grocery stores can be an option to help you optimize your budget.

Aldi, for example, is known as a cheaper grocery chain because it lacks the frills of typical supermarket chains: items are packed straight into their shipping boxes and you pack your own groceries. By keeping labor costs low, Aldi can charge lower prices.

If you haven’t considered coupons, now might also be the time to start. Many large grocery chains have their own apps that allow you to virtually “clip” coupons into your account and redeem them at checkout.

Read more: How the war in Ukraine could impact your grocery bill

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