March 15, 2022
How Rising Energy Costs Impact the Global Food Supply Chain
We were recently talking with colleagues about the complex and varied challenges facing the global food system today. As the industry confronts rising energy and transportation costs, food prices are skyrocketing in the United States and all around the world. According to the U.S. Labor Department, January prices were 7.5% higher than one year ago – driven primarily by increased costs for food, electricity, and shelter.
As of March 10, AAA cites the average cost for a gallon of gasoline in the U.S. as $4.32, which is the highest recorded average price ever. Just one month ago, the average price was $3.48 and a year ago it was $2.82. The cost of gasoline in the US certainly impacts transportation costs for food, but the global energy market has even broader impacts. For example, the high cost of fuel energy has recently resulted in closure of fertilizer plants in Europe which will decrease the supply of and increase the price of fertilizers. With less fertilizer available, food production efficiency or the amount of food produced per unit of land will go down which will decrease production of food or increase the amount of land needed for food. Either way, both will result in further increased food costs.
In addition to rising fuel costs and high inflation rates, the food industry was already navigating supply chain disruptions and labor shortage challenges related to the COVID-19 pandemic – which drove major shifts in consumer behaviors and demands. And now, the unfolding crisis in Ukraine will lead to even more significant impacts to the global food supply chain. The war is exacerbating existing issues with supply chains and escalating the movement of already increasing prices.
Ukraine is vital to global food supply chains. According to the U.S. Department of Agriculture (USDA), Ukraine accounts for 16% of global corn exports and 12% of wheat exports. Ukraine also produces 50% of the world’s sunflower seed oil, according to the International Food Policy Research Institute. As the conflict extends, commodity market disruptions and food insecurity issues will escalate in many areas around the world.
Our hearts go out to the innocent civilians directly impacted by Russia’s aggression in Ukraine. It is our hope that all involved can find a path to peace in the days ahead. Food system leaders will be called upon to lean in and partner with government officials to ensure quick action on policies to maximize food availability and accessibility by addressing the complex and unprecedented challenges facing our global food system today. Even in conflict, we must remember that food is a basic human right and essential to meeting the Sustainable Development Goal of Zero Hunger.
The University of Minnesota Integrated Food Systems Leadership (IFSL) Program is designed for professionals interested in accelerating their careers. The IFSL program is a unique, online, graduate certificate program that fosters leadership, collaboration, and innovation across the food system. IFSL is a Post-Baccalaureate Regents Certificate program aimed at bridging the gap between traditional food system education and a professional leadership program.