Food prices rise to level of 2011 crop crisis

The prices of food are rising around the world due to increased demand and shortages due to transportation problems and supply chain. And the timing couldn’t be worse, just as government stimulus fades and consumer savings begin to dry up.

The Food Price Index chart from the Food and Agriculture Organization of the United Nations (FAO) shows how food prices have risen back to the level of 2011. Those increases they were blamed on dry weather affecting big grain producers, including a drought in the United States and a fire in Russia that destroyed its grain harvest. The impact was magnified in Middle Eastern countries where bread is a staple, and some geopolitical analysts said that contributed to the Arab Spring.

Now, the post-pandemic rebound is doing the same thing as the natural disasters and civil wars of a decade ago, showing the scale of the problem.

The demand caused by COVID is having a big impact on food inflation as more people choose to cook and eat at home instead of going to restaurants. Last fall, retail sales data indicated that spending on food and beverages was one of the main drivers of price increases. And while December data showed spending may be slowing, food and beverage retail sales are still up 9.3% year-over-year.

Emerging markets like Mexico and Colombia are feeling the pressure as fresh food prices drive up inflation and force their central banks to raise rates faster than G10 countries to combat inflation. More locally, the impact can be seen in profits at supermarket chain Albertsons Cos., which has to raise wages and increase hiring to account for increased sales of fresh produce.

The question now is how much can prices go up before it discourages spending? It is a number that is difficult to pin down. Energy, for example, is also a major driver of inflation and industry insiders believe that demand will begin to decline if oil hits $100. Finding the same level for food is difficult due to the effects of fiscal stimulus and savings on spending and demand. So the market just has to wait and see how this all plays out.