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David Ortega, food economist and associate professor in the Department of Agricultural Food and Resource Economics at Michigan State University, discusses rising food prices and what led to that. He said factors such as the war in Ukraine, the COVID-19 pandemic and climate change have interrupted food production around the world and led to steep price hikes that affect average families.
What caused food prices to rise?
As consumers, we have experienced the largest global food price shock in more than a generation. The COVID-19 pandemic, changes in consumer behavior and supply chain disruptions have led to rising food prices. More recently, the war in Ukraine has affected world grain markets and markets for edible oils – such as sunflower oil, palm oil and other vegetable oils – which have contributed to inflationary pressures on prices foodstuffs.
What was the impact of the war in Ukraine on the planting and distribution of wheat?
Russia and Ukraine supply a significant amount of grain to the world market, and we are in the middle of the planting season in Ukraine. Our report suggests that we are looking at a forecast of only about 60-70% of the planting acreage that will be planted this spring. So when we look at world markets for many of these products, we see that many countries are starting to build up stocks.
The main effects of the war will be felt in the countries of the Middle East and North Africa which depend heavily on this region for a large part of their imports. For example, places like Egypt, Lebanon and Turkey. Lebanon, a country of about 7 million people, depends on Ukraine for more than 80% of its wheat. It is a country that is currently experiencing skyrocketing inflation. Combined with a large number of vulnerable populations in these regions, they are going to be among the hardest hit nations.
How much have food prices increased?
In the United States, the March inflation report showed that food prices for domestic consumption rose 10% year-on-year. This is the biggest increase we have seen in 40 years. In particular, the price of flour increased by just over 14% compared to the previous year. Much of this is attributed to the war in Ukraine which is driving up the prices of grains and cereals.
The Food and Agriculture Organization of the United Nations has been monitoring global food prices since the 1990s. In March, they recorded the largest increase in food prices globally. Prices were up more than 12% from the previous month and more than 30% from the same period in March last year.
This means that families, especially in the world’s poorest countries, have less means to feed themselves. It is important to note that we have an abundant supply of food in the world for everyone. It’s about affordability and making sure it’s available to the right people at the right time.
Will prices drop soon?
In the United States, we can expect food prices to continue to rise in the near future due to the conflict in Ukraine and disruptions in grain and edible oil markets.
Putting these food price increases into context, the average US household spends 5% of its disposable income on food for home consumption. This may seem low compared to other expense categories, such as housing or transportation. But when you look at the poorest households in the country, the poorest 20% of households in terms of income spend more than a quarter of their disposable income on food.
When we look at these poor households in the United States, they will be the most affected by these food price increases. This 10% increase in food prices will significantly reduce their food budget as well as other categories of expenses.
What has been the impact of the COVID-19 pandemic on food prices?
The COVID-19 pandemic continues to pose challenges to the global agricultural and food system. In places like China, they are putting in lockdowns in some of the big cities like Shanghai.
Shanghai is home to the world’s largest container port and containers are piling up in the port due to disruptions in the transportation network. This is going to further disrupt the agriculture and food sector worldwide.
When it comes to food prices, we are an interconnected global market. Thus, it is not just the effects of the COVID-19 pandemic on agricultural supply chains or the war in Ukraine that are affecting grain and edible oil markets. But we are also feeling the effects of climate change. There are droughts in parts of South America, Brazil and Argentina as well as here in North America and parts of Canada which are major agricultural production regions in the world.