Global Food Chain Tosses Prices

"For decades, globalization has increased the variety and reduced the cost of food. Now the pandemic, recent sanctions on Russia and other global disruptions have shown how that complex supply chain can also result in more turbulent prices.

Food-price inflation hit multidecade highs this year in the U.S. and elsewhere, outpacing overall consumer prices. While food inflation has cooled in recent weeks, food prices globally are still 25% higher than before Covid-19 struck in early 2020, according to the United Nations Food Price Index.

Among the factors pushing up prices, food-industry executives and economists say, have been manufacturing and transport disruptions stemming from the pandemic and the impact of the recent sanctions on Russia on energy and grain prices. While those issues may recede, and some suppliers say they will try to source from closer to home, analysts expect price swings to be more frequent.

Food and drink, like many manufactured goods from cars to iPhones, often include components from around the world. American pizzas can be topped with ham from Spain and Mexican sauce. Scotch whisky is sometimes made with Ukrainian barley.

Overall, almost a quarter of global food exports now have a foreign component, according to data from the World Trade Organization.

"When people think of globalized trade, they don't think that one of the major components of globalization was the food chain," said Susan Wachter, a professor at the Wharton School of the University of Pennsylvania, who studies inflation. "The increased complexity of that food chain makes food supply extremely vulnerable to supply shocks," she added.

Rabobank predicts food prices will stay volatile next year, given energy shortages, supply problems for key agricultural commodities and high fertilizer prices. U.S. food prices will rise 3% to 4% next year, above historical rates, the Agriculture Department projects.

Nations have imported food for millennia, with farmers in what is now Ukraine sending grain to Greek states as far back as the sixth century BC.

In modern times, the volume and variety of food crossing borders jumped as the world globalized. The U.S. imported about 18.3% by value of its food and beverages in 2020, up from 13.2% in 2008, according to the Agriculture Department. Globally, the share of wheat consumption sourced from abroad rose to 25% in 2019 from 17% in 1995, according to the International Food Policy Research Institute. In 2019, a country was 50% more likely to form a direct food and agricultural trade link with another country than in 1995, according to the U.N. Food and Agriculture Organization.

Huge gains in farming and food-manufacturing productivity, globalization and lower transport costs have all served to expand choice and hold down prices for consumers.

Moreover, diverse food supplies can sometimes insulate against price volatility. One country experiencing a crop failure, for instance, can turn to the rest of the world to boost its supplies.

Nonetheless, events of recent years have exposed the risks to a globalized food chain. When Covid-19 hit in early 2020, food-manufacturing sites, borders and farms closed around the world while transport costs rose amid port congestion and a shortage of containers and hauliers.

At the end of last year, 90% of the European and U.S. food and beverage companies polled by accounting firm Deloitte said they had experienced significant challenges in securing inputs and getting products to market.

Cuisine Solutions, a Virginia-based maker of vacuum-packed meals, had typically paid about $3,000 to hire a container to bring ingredients from Asia to the U.S. before the pandemic. That went as high as $30,000 before settling at about $4,500 now.

With truck drivers in shorter supply than before the pandemic, the cost of getting that container from the port of Baltimore to one of the company's factories in Pennsylvania has tripled to $4,500. Meanwhile, the giant Amazonian pirarucu fish the company for years had imported for business-class airline meals became so expensive that the company stopped the trade.

"Everything was working in perfection, and then the pandemic happened," said Felipe Hasselmann, Cuisine Solutions' chief executive.

More recently, sanctions on Russia in February closed down ports that transported a large slice of the world's grain and sunflower oil exports. Prices of these products, as well as fertilizer, shot higher.

Evangelos "Spike" Mendelsohn didn't realize how dependent his Washington, D.C.-based food and restaurant group was on Ukrainian cooking oil until the world ran out.

"It absolutely did surprise me," said Mr. Mendelsohn, a co-founder of PLNT Burger, which makes plant-based foods and runs 12 restaurants.

Some food manufacturers, among them Mr. Mendelsohn, are sourcing some products closer to home and switching ingredients. A mushroom jerky, for instance, will be made from fungi sourced from Pennsylvania, he said.

Consumers aren't about to lose their taste for affordable global cuisine. But they should expect further bouts of volatility as disruptive events hurt the supply chains that brought that choice at those prices, analysts say." [1]

1. U.S. News --- THE OUTLOOK: Global Food Chain Tosses Prices
Macdonald, Alistair. 
Wall Street Journal, Eastern edition; New York, N.Y. [New York, N.Y]. 28 Nov 2022: A.2.