Food prices are up, and that’s a problem
But it might not be for the reason you think.
Global food prices are at the highest levels in modern history.
U.S. grocery prices are climbing too, but we’ve seen worse.
The cost of food matters for everybody, which is a problem for us.
Global food prices are at historic highs. They’ll probably get higher.
The price of food is on the rise. But the cost of almost everything seems to be going up these days, so how bad is it really? Simply put, global food prices are as high as we’ve ever seen.
The yellow line in the graph below shows average global food prices adjusted to constant dollars:
Using constant dollars accounts for inflation and puts past price levels in real context for comparing over time. When doing so with food, we see today’s global prices rival historic highs.
As the yellow line shows, food prices today top recent spikes from both 2008 and 2011. The only other time global food price levels were this expensive was back in 1974, during some of the worst inflation in modern history.
While today’s global food prices are already breaking records, they’re likely to get even higher. What’s to blame? Look no further than Russia’s invasion of Ukraine.
Current prices only partly reflect the effects of the Ukraine-Russia conflict. Until recently, increases have mostly been driven by higher input costs for things like fuel and fertilizer that’ve been on the rise due to global supply chain issues.
Now the worry is how a war between two nations that together account for 12% of world food exports will further impact food prices that’ve already topped record levels.
The global grain market is of particular concern, as Russia and Ukraine together account for about 30% of global wheat and barley exports.
One of the worries about grain prices is a ripple effect. Not only are wheat and barley consumer staples but they also function as animal feed for meat and dairy producers. Rising prices means additional costs on top of existing supply issues, which squeezes profits and discourages expanding food production.
Less production means more shortages and higher prices. Not good.
What does this mean for food prices in the U.S.?
The continued climb in global food prices means U.S. groceries will likely be more expensive in the near term. But there is some good news: our markets have been pretty good at absorbing the impact of rising global food prices in the past.
The blue line in the chart below tracks the average U.S. grocery price level, while the orange line shows global food prices:
Notice that the blue line tends to move along with the orange, but it’s typically much smoother. U.S. food prices are often less subject to global swings because of our ability to produce food commodities on our own.
In fact, U.S. food output consistently outpaces domestic demand for many products, meaning we end up sending out more food to the rest of the world than we bring in. While this doesn’t make us immune to fluctuations in world prices, it does make it easier to absorb shocks from the global market.
It’s also helpful to put today’s price increases in historical context. While the cost of food in the U.S. today is rising fast, we’ve seen worse.
The blue line below shows the growth in U.S. grocery prices from year to year:
Grocery prices rose by double-digit percentage points from year to year for long stretches of the 1970s into the 1980s. While today’s situation hurts, it pales in comparison to that period in history.
Nonetheless, food prices are climbing fast and that’s uncomfortable. So what does that mean for our future?
It’s not just about more expensive food. It’s what that means for the world.
Higher food costs will force some U.S. consumers to face tough decisions. This might mean opting for generic brands, considering alternative products, or cutting other parts of household budgets to keep putting the same food on the table.
But another consideration for Americans has to do with what an increase in food prices means for other parts of the world. For some countries higher food prices isn’t just about more expensive grocery bills—it’s a matter life or death.
Rising food prices have been one of the underlying causes of social and political instability in resource constrained countries who are dependent on imported food commodities. For instance, research points to food costs as a driver of the Arab Spring uprisings that occurred throughout Northern Africa and the Middle East in 2011 (see the first chart in this post).
The economies and budgets of many of these nations are already strained by the pandemic and high energy costs. Rising food costs further compound threats to future geopolitical stability in these areas.
While it might seem like these nations are half a world away, geopolitical stability is everyone’s business. The fallout from instability—social unrest, failed governments, and mass migration—creates uncertainty that could affect us all in unpredictable and undesirable ways.
Stay tuned, more to come.