Warning about the danger of another rise in the price of food

Well next to the ongoing impact of the war in the Middle East, as you know,

Iran's blockade of the Strait of Hormuz has led to higher costs for fuel and fertilizer,

both crucial elements of food production. So is it inevitable that food prices,

which had already been rising at twice the general rate of inflation,

will go up still further? That's a question I put to Michael Wallace,

whose professor of agriculture and food economics at UCD.

Yes, I think this Iran war presents a substantial energy price shock.

That is likely to feed through into higher food prices. I think which we're going to see

those in our grocery bills over the coming months. I think that's virtually inevitable now.

Which foods are likely to be affected first?

This energy shock has primarily focused on the price of oil and also

fertilizer, which obviously we have obviously the Middle East being major suppliers of both

commodities. Fortunately, the gas price so far has not been impacted to the same extent,

so that is, I suppose, one moderate positive in this. So given that the main factor on oil

prices, we're really looking at how that then feeds through in the food system,

particularly in the costs of diesel fuel for farming operations,

particularly as we get into the busy period of field operations on farms,

certainly farmers are going to really start to notice those costs with diesel prices

of a green diesel up about 50% on the pre-war level. The other aspect of this is how it feeds

through into food prices. Again, I would be focusing on the products where transport costs

tend to be a high share of the overall costs of getting those products onto the supermarket

shelves, particularly thinking about fresh fruit and vegetables, particularly those that are

imported, those perishable items that we have frequent deliveries, some of them air-freated in,

so you know, a whole array of fruit and invades to both products there that could be exposed to

quite significant inflation over the next three months, I would say. We would also, I think,

be looking at then similarly rising transport costs associated with things like milk collection,

obviously the delivery of milk out to supermarkets, again, fairly transport and hints of

summary for meat, fresh meat and fish, the cold tea and costs as well, bread and bakery goods,

and of course things like bottled beverages, all of those, I think, would be quite sensitive to

the increase in transport and the just costs reflecting the higher fuel prices.

So just about everything, really, then, what about fertilizer, which we've been hearing a lot

about over the past couple of days, is that likely to be an issue?

Absolutely, and that is another real concern. Fortunately, most of the fertilizer for the first

part of the growing season have been already in the process of being imported before the current

crisis, so thankfully there are good supplies on hand and that is more unfortunate aspect here,

but of course supplies that are going to be purchased in later on are likely to later in the

season are likely to be more expensive, and that is going to feed through into higher costs at the

farm level, and farmers have already entered very substantial cost increases, particularly in the

period from the the UK and war, so again, it's exacerbating those cost challenges that farmers are

faced. On top of that, when we have higher fertilizer prices, there is then the likelihood that we'll

see reductions in the use of fertilizer, and that will knock on impacts on particularly

things like crop yields, which further down the line could impact on prices if we have reduced

supply for those types of products. As you were saying there, we've seen enormous food price

inflation over the past four years, in particular in the immediate aftermath of Russia's invasion

of Ukraine. Are we looking at something similar again? I think I would say that it's going

to be somewhat less this time, despite the very serious energy price shock that we're facing.

The situation with Russia's invasion of Ukraine was impacted in a broader way, because

both Russia and Ukraine are major green producers and oil seed producers, so that directly

impacted on the food market there. In addition, the European Union was very dependent on your

on Russian gas exports at that time, about 40 percent of our gas was coming from Russia. That is

now down to about 6 percent, so there was a greater exposure there to elements that really elevated

costs, and we saw food price inflation hitting a peak of over 13 percent in March 2023,

and then since easing back to about 2.3 percent this month on a year on an annualized basis,

so I think looking ahead what we're probably likely to see is that starting to edge up again,

and I suspect by the autumn we could be back up to maybe six or eight percent

food price inflation on an annualized basis, and that could be adding something like 10 to 15

euro per week to an average household's food shop. A sobering assessment there from Michael

Wallace, whose professor of agriculture and food economics at UCD.