As war ravages Ukraine, Americans, especially those living paycheck to paycheck, are beginning to feel the financial strain on their food prices from the conflict half a world away.
It started with a rapid rise in gas prices. With Russian oil banned in the United States and energy scarcity mounting globally, experts say shoppers can expect their shopping to soar in the coming months, especially if Ukraine misses its wheat-planting season.
“It’s coming an absolutely terrible time for American consumers because we’re looking at inflation close to 10% every day,” Dan Varroney, a supply chain expert and founder of Potomac Core, told FOX Business. “Last month’s numbers were almost 8%. And that means consumers, including those who live 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 Observatory for Economic Complexity. While none of these countries export wheat directly to the US, their absence from the global market is expected to put pressure on supply and drive up prices.
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 at home.
Varroney, who addressed global supply chain issues during the pandemic, said that 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 rising energy costs at every step of the supply chain.
“Everything from extracting food from the ground, producing it, storing it and delivering it, it’s all about energy,” Varroney said. “Natural gas is used to make those foods. And once you get past that? And you get into logistics, you have a store, these food products, so there’s gasoline to ship and electricity to store.”
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“It’s energy costs that will choke consumers at every level as food companies need to stay competitive.”
One industry facing particular pressures is the bakery industry. With wheat as the main ingredient and natural gas used in large-scale industrial ovens, bakers are struggling with rising operating costs.
Robb MacKie, the president and CEO of the American Bakers Association (ABA), said bread makers are beginning to feel the pinch of increased demand for their inputs.
“Many ingredients come from 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-growing areas in the world. And if we take that out of production, which seems like the conflict is going to take a lot longer, that’s what’s going to happen. That will have a significant impact on the price of US and Canadian wheat, which US bakers mainly use.”
MacKie’s organization highlighted several solutions the Biden administration could take to lower costs for producers and ultimately consumers. The ABA is currently lobbying the EPA to halt the implementation of more food oils in clean diesel products. MacKie said this would help keep food oils available to bakers, reducing input costs.
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The ABA also suggested that the USDA open up some natural areas that could be used to grow wheat and other crops during the global supply shortage. MacKie noted cautiously that this proposal does not include the opening of highly sensitive wetland areas.
MacKie also joined a host of industry voices and think tanks asking the Biden administration to open up domestic energy sources, such as natural gas, gasoline and crude oil, which could help reduce energy inflation for both producers and consumers. .
“I think as we look ahead, American shoppers should expect their grocery bills to go up and unfortunately their restaurant bills to go up,” MacKie said. “And unfortunately, this will affect the most vulnerable in our society, many of whom are still feeling the effects of the pandemic.”
He continued, “You just can’t have these kinds of supply chain disruptions and inflation of raw materials and the energy we use and other things like packaging without there being a mutual cost benefit.”
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The Bureau of Labor Statistics found that food prices have already risen nearly 8% in the past 12 months as of February 2022, the largest 12-month increase since 1981.
The declining supply of inputs is expected to threaten the ability of the US food production industry to produce food. Supermarket shelves in America should remain stocked, albeit at higher prices.
“I think the disruptions from this war will only put further pressure on food prices,” Caitlin Welsh, director of the Global Food Security Program at the Center for Strategic and International Studies, told FOX Business. “I don’t expect this to happen in the US immediately. It could be a few months before that happens. And I don’t think it will happen in the US to the same extent as in other countries that have been much more dependent on imports to get in. their food needs. But I do expect it to have an effect and it will last at least as long as the war lasts.”
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While countries in Europe and Africa face a direct threat to their wheat supplies as a result of the war in Ukraine, Welsh said it is impossible to completely isolate the United States from global food and energy markets.
“Food markets are globalized so to some extent it is impossible to avoid the effects of such disruptions,” Welsh said. “I think these kinds of disruptions remind us of how much we, you know, the global economy and global trade in agricultural products are intertwined with the rest of the world.”