High food prices – a fundamental reset?
Developing countries are facing a full-on existential crisis where food insecurity is not just about costlier, but also scarcer food resources. While the level of crisis may not be life-threatening in developed countries, for many poorer households, it is at least life changing. As all struggle with the fast rising cost of living, are there fundamental changes at play which could reset food prices to higher levels for the long haul?
Relative food spend has been falling for decades
Western households have been spending an ever-decreasing percentage of their resources on food. By 2015/16, the Irish spend was nearly half that of 1980, reflecting both higher household incomes and lower food costs due to greater production efficiency and market competition. Food inflation in recent months may change the figure but does not (yet?) challenge the trend.
With numerous retailers discounting vegetables for less than the cost of production for years, the Irish public at least may have lost the sense of true cost of putting food on the shelf. In the UK, keeping food cheap has been a well-publicised policy since the aftermath of World War II.
It is clear from the Eurostat graph below that the UK and Ireland are at the lower end of the household budget spend on food (the 2019 data reported by Eurostat suggests Ireland’s spend that year was around 9%). While the EU average was around 13% for 2019, some of the poorer countries in Europe are still spending one fifth to one quarter of their budget to buy food. Food and non-alcoholic beverages come third after ‘housing, water, electricity, gas and other fuels’ which account for 23%, and ‘transport’ at 13.1% of household spend.
International experts consider that the share of household resources spent on food is a good indicator of food security: Engel’s Law states that the share of household income spent on food decreases as income rises. The International Dietary Data Expansion (INDDEX) project has reviewed numerous studies on the topic, and while no internationally agreed thresholds exist, they have singled one out by Smith and Subandoro (2007 ) which propose that households spending over 75% of their income on food are considered very vulnerable and consequently food insecure, whereas people spending 65-75% are considered to have high food insecurity; those spending 50-65% have medium food insecurity; and those that spend less than 50% of their income on food are considered to have lower levels of food insecurity.
Going by this measure, Europe is fairly food secure, but Europeans are not shielded from food price inflation in addition to the other rising costs of living, and many economically challenged households will find their level of food security massively disimproved.
High food prices – here to stay?
The latest UN FAO Food Price Index shows a decrease for the third month running. However, this is after spectacular increases in the last couple of years, and the index remains 23% above the level it was at a year ago, and a whopping 62% above its pre-pandemic (2019) level.
The impact of COVID-related supply chain disruptions, worsened by the war in Ukraine, has come as a massive shock to the system in Western Europe, but food price increases are only part of the shock. Energy, housing, heating and other costs have all risen to erode purchasing power.
Food inflation is an issue in the West, but we must remember that in food insecure nations, lack of availability as well as costs are existential, threatening hunger, civil unrest, population displacement and migration, with all the local miseries and global strife they entail.
Food prices could remain high because production capacity is challenged
There are many reasons that suggest food prices could be experiencing a lasting reset, and that is because a number of potentially long-term factors could affect food production capacity internationally.
COVID 19 disrupted supply chains and distribution for all sectors, not least food. With lockdowns in various parts of the world incapacitating labour and activity in ports the world over, shipping container availability has dwindled, and costs have more than quadrupled, from under $2000 per 40ft unit to up to $10,000. As the food chain adapts, traders have reported a move from “just in time” to “just in case”, in which processors and retailers seek to secure stocks on hand to improve predictability, but at a significantly higher cost.
Recent geopolitical events have challenged supply chains in what is a global food trading system which for all its faults, has been intrinsic to keeping food supplies flowing around the world, including to more food insecure nations.
The war in Ukraine is impacting directly the supplies of staples like wheat, sunflower oil.
Indirectly, fertiliser supplies are challenged by the sanctions against Russia, and it is hard to see those sanctions, linked to the persisting attacks by Russia in Ukraine, being lifted in the medium term.
Furthermore, fertiliser manufacture requires gas – and Russia is also a major supplier of gas. Expected shortages of gas supplies over the coming months have already led to warnings of rationing and prioritising of certain users over the coming colder months (hospitals, schools, households) over industrial users in Ireland, Germany, and other EU countries. So displacement and replacement of Russian fertiliser manufacture will be difficult.
Production costs have skyrocketed for all industries, not just food production and distribution. Energy price inflation, exacerbated by the Russian war in Ukraine, affects every single sector. Labour shortages in Europe’s food chain, literally from farm (scarcity of farm labourers) to fork (lack of restaurant/hospitality/retail staff) have given rise to wage inflation – also fed by the massive increases in the cost of living.
Climate change and environmental degradations are affecting food 
production capacity by increasing the risk of crop failures from major events (floods, heatwaves, droughts, wild fires); suboptimal pollination from lower pollinator numbers; imbalanced ecosystems allowing pests to thrive; degraded water quality and overfishing impacting river, lake and maritime ecosystems, wild and farmed fish and seafood stocks.
Somewhat perversely, national and international policies on climate action as they pertain to food systems involve reducing significantly chemical use in agriculture, whether chemical fertilisers or pesticides and antibiotics, and increasing the share of organic production. This is crucial from a climate, water quality and biodiversity perspective, and to fight against antimicrobial resistance for animal as well as human health.
But unless implemented at a pace and in a manner which allows for the development of alternatives, those measures will impact yields and food production capacity negatively, as numerous international studies have shown. (For more details on this, check out our February 2022 issue).
From Trump’s revival of the America First policy of Woodrow Wilson to Boris Johnson’s Brexit, we have seen a move towards national priority, disengagement from international co-operation and protectionism in recent years. Globalisation, of which food trade is a vital feature, is increasingly challenged.
The COVID vaccines experience has shown that wealthy countries will find ways to prioritise their populations in accessing vital resources, and I fully expect the same will hold true when it comes to scarcer, costlier food resources. This is not good news for populations in the most food insecure countries, nor for poorer households in developed countries. However, while this may sound selfish, just as we have a vested interest in ensuring all countries can protect their populations against COVID19, our security and wellbeing are equally dependent on populations the world over having adequate access to sustainably produced, nutritious, safe food in sufficient quantity.
We need more food, more sustainably produced and more fairly distributed
It is essential, to fulfil all our important sustainability goals, especially eliminating hunger while protecting our planet, that we rethink our agricultural and food policies to ensure we not only maintain but develop our capacity to produce more food, more sustainably, and ensure that it is more fairly distributed.
We have our work cut out – these are challenging, some would argue contradictory goals – but no real choice in the matter.
Our next newsletter will be issued in early September.
© Catherine Lascurettes, Cúl Dara Consultancy
