Inflation: The self-raising ingredient found in 2021 food prices - Raiz Invest

Global food prices in 2021 have been going up. And up. And up. In May, the UN Food and Agriculture Organization’s monthly index spiked 40%, the biggest rise in a decade, increasing the possibility that inflation caused by the COVID-19 recovery is accelerating.

This was the largest jump in the food index since 2011, which suggests that your favourite burger and fries is about to become more expensive.


Why are food prices moving higher?

This latest jump in prices comes as China’s appetite for grain and soybeans continues to keep prices moving higher, as they rebuild their own strategic stockpiles that they allowed to run down during 2020. Moreover, drought in Brazil is limiting the output of corn and soybeans, causing prices to move higher still. You can also add to the mix a strike in Argentina which is limiting the supply of beef, even as beef imports by China reach all time highs.


Who pays more when there is food inflation?

In some cases, when food inflation is mild, multinational corporations like Nestle and Coca-Cola will absorb the cost and not change the cost of their products. But the rise in raw materials has been so steep this time round that both companies have said they will be passing on the costs. That just made Nescafe Blend 43 more like Nescafe Blend 47… and don’t even get us started about Coke Zero…

Keep in mind, part of the final cost of the food we eat and the beverages we drink is in the cost of transport. With oil prices at two-year highs, and shipping costs also on the up because of backlogs at global ports, all of the input costs are going to affect how your items scan at the checkout.


Who is most impacted by food inflation?

Poor countries which are reliant on imports for much of their staple food needs will feel most of the sting. In more fortunate countries like Australia, the raw cost of materials only counts for a small proportion of the price we pay at supermarkets and restaurants, because of our higher wage levels and other fixed costs.

Countries reliant on importing much are of their food are also at risk because of the currency they use. If these countries need to buy their inputs from Australia, and their currency keeps getting weaker against the Australian Dollar, it will cost more of their money to be able to afford the same amount of food as before. Here in Australia, with so much farming and agriculture, we will fortunately not face the same level of cost increases as other countries that need us for all of their food and staples, like animal products, dairy products, fruits, vegetables and grains.


What can you do about inflation at the checkout?

If you notice that your weekly shop is going up in price, you are not alone. And if this is starting to make a dent on your weekly budget and impacting your ability to save and invest, it might be the time to switch to more generic brands for the staples, or hone in on weekly specials. Making a list should also help you to buy what you need and avoid impulse items, even though they can be so tempting…



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