What can be done to stop the increase of food prices and how did we get here?
As almost everyone knows, the inflation of food prices has hit previously unheard-of heights. Here, Richard Volpe considers some of the primary reasons behind this excellent tsunami, along with some more obscure effects.
The Food at Home Consumer Price Index (CPI) is frequently used in the US to calculate food prices. Since 2000, this CPI has risen by 2.1 percent year on average; however, between May 2021 and May 2022, it jumped by 11.9 percent. The first five months of 2022 saw an average increase of 1.3 percent per month, which is the greatest five-month average increase since April through August of 1973.
Extensive literature has been produced regarding the reasons for the continuous rise in food prices. Global food loss increased because to the COVID-19 pandemic, which also increased labor and shipping costs and created economic instability, among other causes. The prolonged conflict in Ukraine has also increased global prices for wheat, cereals, baked goods, and oils. However, prior to COVID-19, a number of interconnected structural problems were already having an impact on the food supply system. When taken as a whole, they offer a roadmap for developing a secure, long-lasting, and effective food supply system that will benefit future generations as well as an explanation for why inflation has been persistently high since the latter part of 2021.
Prices for oil
From farm production to family consumption, energy is essential at every point in the food supply chain. The global crude oil price curve saw a significant shift at the turn of the century that poses challenges for the agriculture sector. The average price of an oil barrel was $19.21 in 1990–2000, but it rose to $65.57 in 2021 from 2001–2021. One of the most significant expenses that food firms confront, energy prices, have likewise increased in volatility.
Every link in the food supply chain is connected by transportation, and in recent years, the system has grown more complicated. Port traffic has grown by 238 percent worldwide since 2000, indicating the increasing significance of trade in the food supply chain.
Ports all across the world have been extremely crowded for months, leading to considerable increases in transit times and lengthy wait periods for loading and unloading—days or even weeks in some cases.
Additionally, truck transportation—especially with refrigerated capacity—has grown to be quite challenging. Due to a severe driver shortage in the US, supply chain unpredictability and transportation costs have increased. The US is seeing an increase in the lack of refrigerated trucks, which has increased by 55% since the beginning of 2019. Over an extended period, truck rates have experienced a significant rise, commensurate with the rise in crude oil prices. In the United States, short-distance and long-haul rates have increased by 42% and 68%, respectively, since 2000. Globally, wealthy nations have experienced similar dynamics.
Effects of climate change
In recent decades, inflation and volatility in food prices have been driven more by weather and other uncontrollable factors than by energy costs. Since the 1990s, if not before, there has been a consistent global increase in the frequency of severe weather events that impact agricultural regions. Recent examples of weather-related events that have decreased the availability of food, raised food prices, and created uncertainty include hurricanes and droughts in the US, as well as floods in China and Australia. Diseases and pests are additional considerations. For instance, one of the most dangerous citrus plant diseases in the world, citrus greening, has significantly decreased orange production in the United States.
Ultimately, even if COVID-19 brought to particular problems for the labor force in the food manufacturing and retail sectors, there were long-standing problems in the food industry prior to the pandemic. Companies want to reduce turnover because it is expensive and results in the loss of institutional knowledge and competence in the workforce. Turnover is a sign of low employee retention.
The US Census reports that during 2011, there has been a rise in turnover in the food production industry of over 32 percent and in grocery stores of over 52 percent. New hiring in the US agricultural production sector—which includes fruit, vegetables, livestock, and hogs—have decreased by 33% since 2001 and 17% since 2011, which is indicative of a declining labor force responsible for feeding an expanding population.
Of course, many people are wondering what might be done to address these problems. There are few short-term fixes, but the growing local food movement makes food more accessible, especially in rural regions. As an addition to the supermarket, customers would be wise to examine farmers markets and other direct-to-consumer businesses. Public and commercial groups should collaborate to guarantee that food can move freely between the retail, restaurant, and institutional marketing channels in light of the COVID-19 pandemic’s emphasis on supply chain rigidity. Although there is still a lot of food loss and waste in the US and other industrialized countries, these issues can be resolved to increase food supply and lower costs through a combination of better industry practices and consumer education.
The use of defective produce in food retail is one example of this. Fruits and vegetables that don’t seem good enough to be in the produce area should and can be used internally for party trays, smoothies, baked goods, and other customer-facing products with added value and higher profit margins.
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A corrective action plan
A long-term plan that can guarantee the earth has access to cheap, plentiful, and safe food consists of four main parts. Vertical farming and other indoor controlled production methods are the first. With far less input from water and soil, vertical farming has the potential to considerably increase agricultural yield and productivity. Crops can be cultivated in environments with precisely regulated temperatures and protection from pests, illnesses, and extreme weather.
The second is the food supply chain’s increased usage of renewable energy. Vertical farming requires a lot of energy, therefore renewables like solar and wind power, which are becoming more affordable and efficient, help alleviate this issue. More crucially, perhaps, renewables will lessen the global impact of fluctuating and skyrocketing crude oil prices on food supply and costs. The possibilities for using renewable energy in agribusiness is huge, ranging from solar panels in supermarket parking lots to electric tractors.
Automation and mechanization come in third. The labor shortage that is affecting food production, manufacturing, and retail sales is making it evident that more work needs to be done by machines in order to get food from the farm to our plates. Naturally, throughout the previous few generations, technology has led to amazing gains in efficiency and production. However, human labor is often used in a number of supply chain operations, such as fruit packaging and animal processing, which could be completed more quickly and cheaply by investing in machine technology. The application of autonomous vehicles, which are now being tested in small quantities by major US companies like Walmart, brings this idea to light.
Last but not least, innovations like blockchain technology have the power to significantly enhance food supply chain traceability and, as a result, mitigate the effects of food safety incidents. These days, problems with foodborne infections can lead to the widespread devastation of livestock or crop stocks. We can isolate the root of problems and deal with them head-on without engaging in expensive food loss, which leads to shortages and increased pricing, if we can reliably pinpoint the origin of our food and every step it took to get to our homes or restaurants.
It will require time, money, and coordination and collaboration between the public and commercial sectors to successfully execute these solutions. With all that is going on right now, there will definitely be hiccups along the way, and food costs will probably be above average until 2023. However, we have a plan in place to build a food supply chain that is resilient to the biggest risks it confronts today, and the majority of the technology needed to make it a reality is now available. There’s cause for hope for the future.