Staple foods have come under intense pressure from inflation in recent times, and the drivers show no immediate signs of easing. While costs were already rising across the board, Russia’s invasion of Ukraine and the resulting impact on the world’s wheat supply has meant costs have soared for producers and prices have surged on-shelf for consumers.
Drivers of inflation in staple foods
Producers face the fact that COVID-19-related restrictions on shipping and transportation facilities have not yet disappeared, there are shortages of workers in the supply chain causing bottlenecks, and there are large supply-demand mismatches. In addition, the recovery in global demand and a decumulation of oil and gas inventories during the pandemic have led to large energy price increases, and as a result, the production costs of most staple foods have risen significantly.
On top of these factors, Russia’s invasion of Ukraine has further exacerbated the situation. Russia and Ukraine together export more than a quarter of the world’s wheat, which is vital for staple foods such as baked goods (particularly bread), pasta, noodles and breakfast cereals. In addition, the invasion has driven up energy and commodity prices further, especially in those European countries highly dependent on Russian imports.
Overall, increases in the costs of raw materials, shipping, labour and energy are leading to substantial price increases in all staple foods categories, in both developed and emerging markets.
With wheat supplies under pressure baked goods costs increase
While factors such as the rising costs of ingredients, production and distribution are having a significant impact across all foods, in baked goods (particularly bread), Russia’s invasion of Ukraine is further exacerbating these trends. Both countries feature amongst the world’s top five wheat exporters, thus creating a massive extra strain on supply and further driving up prices worldwide. Euromonitor’s commodity price data show that wheat prices rose 76% in the year to end-April 2022.
In May 2022, Euromonitor ran a half-year review of its staple foods data to feed into its Forecast Model (FM). The results clearly showed the impact of inflation, with higher prices driving increased sales value. This can be seen by charting the forecast made in 2021 (the October 2021 baseline on the graph below) vs the May 2022 update.
Source: Euromonitor International’s Staple Foods Forecast Model
Cost of feed drives processed meat price rises
While sales of processed meat are not being as disrupted by Russia’s invasion of Ukraine as the wheat/cereal-based foods under the staple foods umbrella, inflation is also causing significant increases in prices. Production has fallen from pre-COVID-19 levels, at the same time as demand has increased from consumers. In the key market of the US, many producers scaled back production amid uncertainty over the future (having had to cull animals during the pandemic while meat processing was severely disrupted), and have continued to be faced with labour shortages, while supply chain costs have increased significantly.
Key to these cost increases are agricultural inputs, particularly animal feed. In the UK, for example, Department for Environment Food & Rural Affairs (DEFRA) figures show average compound feed prices have been increasing across the board. Poultry feed – the highest riser – has grown by 40% since January 2020. Increased costs of fertiliser are also contributing to growth. These are necessary to grow the crops that feed livestock, with an estimated third of all agricultural land worldwide given over to this purpose. This latter factor is an area where Russia’s invasion of Ukraine has had a significant impact. UN data show that Russia is the global leader in nitrogen fertiliser exports, and second globally in phosphorus and potassium fertilisers.
Pasta and noodles also see prices surge
Baked goods is not the only key category within staple foods to rely on a ready supply of wheat. In 2020, consumers bought over 27 million tonnes of pasta and noodles on a worldwide basis, with global per capita consumption of 1.9kg (noodles) and 1.7kg (pasta). Russia’s invasion of Ukraine has placed further strain on global wheat supply, and thus prices, which were already rising due to factors such as higher production and distribution costs. As would logically be expected, it is the largest categories (by volume) that are seeing the largest revisions in sales value across the forecast period: dried pasta and instant noodles. Compared with before the inflation surge, consumers are having to deal with higher prices and spend more to get the pasta/noodles they want.
Staple foods are in the firing line
In summary, inflation has driven up sales value of staple foods across the board, with raw materials, labour, transport and pandemic-related supply chain issues all major contributory factors. This is particularly true for foods derived from wheat, as Russia’s invasion of Ukraine has constrained global supply. But it is also the case that the impact on agricultural inputs from the invasion – on top of other inflationary drivers – has seen prices soar for other categories, such as processed meat, with animal feed prices a particular issue. Given the essential nature of many staple foods, consumers are now spending more overall, and going forward their price concerns will increasingly drive shifts to lower-priced products, including private label.