From wheat to tomatoes: scarcity and price increases are on the rise. There is no longer any doubt that food prices will (continue to) rise, but the consequences of a disrupted global system go much further than that – for supermarkets as well.
Prices 20 % up
Reuters has put into concrete figures what we all sensed: global food prices have gone up by 20.7 % in February. Last year, it was the non-food industry that learned how fragile the globalised supply chain is and how dramatic the consequences can be from the smallest disruption. This year it is up to the food sector to experience that first-hand.
Since about a third of all wheat comes from Russia and Ukraine, it should come as no surprise that the wheat price has reached an all-time high. Add to this the sky-high energy prices: Belgian truck drivers saw diesel prices rise as much in January and February as for the whole of 2021. As a result, freight transport costs almost 5 % more, while fishing boats sometimes simply do not sail because diesel prices are skyrocketing. Fish from North Sea fish have consequently already become 20 % more expensive in wholesale.
Fruit and vegetables also face the same problems: February saw the number of Belgian tomatoes on the market halved, while there are also much fewer cucumbers from our own soil. Due to the exuberant energy prices, many growers were unable to meet their costs in these winter months, Belgian newspaper De Tijd reports, even when the prices at the auctions did rise as well.
How Putin is making palm oil more expensive
However, it can still get worse: entirely in the logic of the globalised supply chain, we now also have a shortage of palm oil. After all, in response to the Russian invasion in Ukraine, Indonesia is limiting the export of that oil, that is so important in food production. The country wants to ensure that cooking oil remains affordable for its own population, after palm oil prices have already risen by more than 50 % this year. What do the Russians have to do with this? Russia and Ukraine account for nearly 80 % of global sunflower oil exports …
Moreover, Russia is globally important for the production of fertiliser, on which almost all agriculture in the world depends. Add to that peak inflation, the remnants of the corona crisis and environmental problems (the world’s largest wheat producer China has the worst harvest in history) and the result is clear: we are heading for a global food crisis.
Negotiating the unpredictable
Price increases are therefore inevitable and they are already being felt. Prices and delivery times will continue to fluctuate for the time being and will vary widely from product to product, depending on local availability and reliance on scarce resources. However, it is difficult in food retail to react quickly and to coordinate the various links in the value chain. The annual negotiations between the producers and the supermarket chains have only just come to an end, and this time they had already been particularly difficult.
It seems that they already have to start all over again: when supermarket chains “neither confirm nor deny” that they are sitting around the table with the suppliers again, then you can guess what is going on. Retailers, but especially producers, also see Russia and Ukraine disappearing as sales markets, which means an additional financial loss for them. But how do you negotiate about this unpredictable uncertainty?
The real new normal
Disruption in supply and demand has been a normality for two years now: since the outbreak of the corona pandemic, there has not been a moment of peace and no chance for recovery. The chances are small that a turnaround will soon present itself: the 2020s have already been described by trend watchers as a decade of transition. The new normal, that people were eagerly talking about in Covid times, is one of a faltering global system. If they are no political crises, they are pandemics or natural phenomena caused by climate change.
Producers are forced to turn to more local solutions: instead of “lean” and “just in time”, companies are investing in buffer stocks and a wider range of interchangeable suppliers. The same applies to warehouses: as the accessibility of regions can fluctuate due to crises, the stock must be cleverly spread over several locations. Artificial intelligence is becoming an important tool for matching supply and demand in the right locations. Non-food did it before, now it’s up to the food sector to learn lessons
