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‘It Is Clear Further Inflation Is Still To Come’: Higher Food Prices Expected Beyond 2023


“It is clear further inflation is still to come.”​ The sobering verdict of Barclays equity research analyst Andrew Lazar as he reflected on the higher pricing on display across the packaged foods sector.

Indeed, Lazar noted, food companies are even suggesting inflation could be as significant next year as it has been in 2022. “Bottom line, Barclays expects continued tightness in the grain and fertilizer markets lasting beyond 2023 – which suggests further pressure on input costs for packaged food players from here,”​ he observed.

Some industry insiders are suggesting that fertiliser costs will remain pressured for at least two more years as a rising global population and increasing requirements from the food sector compete with higher demand from non-food industries like biofuels. This is having a knock-on impact on grain prices as nitrogen consuming crops – like corn, maize and wheat – reach new highs and the global stocks-to-use ratio reaches its lowest level in 20 years.

Ukraine conflict adds oil to the fire

Lazar said Barclays sees ‘multiple reasons’ for the supply demand dynamic to remain constricted in the coming years. 

Even before Russia’s offensive in the Ukraine, potash and nitrogen markets were being squeezed by existing Belarus restorations. European nitrogen production has been further hit by rising gas prices and uncertainties over the gas supply to the region from Russia.

As leading exporters, Ukraine and Russia export limitations – which have been linked to Russia’s blockade of Black Sea ports – are further hampering the grain and oilseed markets. In a normal year, Ukraine grows enough food (mostly wheat, maize and cooking oil) to feed 400 million people. Nine-tenths of that is shipped through the Black Sea. This year, sea freight is at a standstill.

All of this, Lazar said, has served to amplify food security concerns as commodity prices jump.

This has resulted in a ripple effect of ‘protectionist policies on exports’ such as Indonesia’s recent move to restrict palm oil exports, China’s restrictions on urea exports and India’s wheat export restrictions.

‘Lessons have not been learned’ from 2007-8 crisis

From a food company perspective, Lazar said it might seem an unlikely time to talk about the profit and loss ledger coming out the other side. Nevertheless, he said: “Stabilization of costs, even at higher levels, would likely be the best outcome, as it would enable companies to get their arms around the supply chain issues and pricing would be in place. In our view, it is much harder to explain why sales are decelerating and promotional activity rising than the alternative, even with the obligatory timing lag of pricing catching up to inflation.”

In developed markets, pricing pressure is already seeing consumers tighten their purse strings, trade down and turn increasingly to cheaper private labels. Not great news for the branded CPGs in Lazar’s coverage. But looking at poorer developing parts of the world the outlook is far grimmer. 

Looking more broadly at the food system and policy landscape, International Panel of Experts on Sustainable Food Systems (IPES-Food) experts say that the Ukraine war escalating into a full-blown food crisis shows lessons of the past were not learned and point to the extreme consequences this situation could have on global political stability. 

Their analysis suggests the situation uncovers four ‘fundamental flaws’ in our system of food production and distribution: an over-reliance on food imports; ‘opaque and dysfunctional’ commodity markets and likely ‘excessive speculation’; production rigidities – such as the dependency on fossil fuel fertilisers – that make it difficult for farmers to shift and diversify production; and a ‘vicious cycle of poverty, conflict, and climate change’ that means millions lack the resources they need to adapt to shocks.

In particular, IPES-Food expert and Canada Research Chair in Global Food Security and Sustainability at the University of Waterloo Jennifer Clapp stressed, speculation on the commodities markets is having a big impact on food prices and security. “Evidence suggests financial speculators are jumping into commodity investments and gambling on rising food prices,”​ she said. “Governments have failed to curb excessive speculation and ensure transparency of food stocks and commodity markets – this must be urgently addressed.”

These issues were not corrected after the food price crises in 2007 and 2008, which lead to political and economic instability and social unrest, IPES-Food said in a recent report.

“A new generation is once again facing mounting food insecurity, and it seems no lessons have been learned since the last food price crisis. Continuing to rely on a handful of food commodities and countries for global food supplies, combined with predatory financiers betting on food, is a recipe for disaster,”​ warned Olivier De Schutter, co-chair of IPES-Food, and UN Special Rapporteur on Extreme Poverty and Human Rights.

With world food prices recording all time highs in March and FAO modelling suggesting numbers of undernourished people could increase by 13 million this year, IPES-Food believes food riots, civil unrest, and repressive government tactics ‘seem likely’.

“It’s alarming to see rising prices and the threat of hunger and food riots return to many countries in Africa. Rebuilding regional sovereign grain reserves is a key to resilience when these sorts of shocks hit – West Africa has made some progress, but it’s a wakeup call and all regions need support to accelerate this,”​ Mamadou Goïta, Mali, IPES-Food expert and executive director of Institut de Recherche et de Promotion des Alternatives en Développement Afrique (IRPAD Afrique), said.

So, what can be done?

Looking at the current crisis, De Schutter said ‘we can only hope that this time will be different’.

The report authors warn against short-sighted responses that will exacerbate the crisis, such as the suspension of environmental regulations, ramping up industrial food production, and further promoting export-oriented fertilizer-dependent agriculture.

Instead, IPES-Food is advocating structural changes to the food system that will help smooth out future disruptions. “Making our food systems resilient, diverse and less reliant on fossil fuels will help ensure the next shock – whether from conflict or climate change – does not spark another crisis,”​ De Schutter said.

IPES-Food recommendations:

  • provide financial assistance and debt relief to vulnerable countries,
  • crack down on excessive commodity speculation and enhance market transparency,
  • build regional grain reserves,
  • diversify food production and restructure trade flows,
  • reduce biofuels, livestock numbers, and reliance on fertilizers and fossil energy in food production.

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