Impact of Ukraine War on food security

Irish food and drink manufacturers are still trying to quantify the mid-term effects of the Ukraine war, writes Bank of Ireland head of Food & Drink Sector Roisin O’Shea.

The impact of the Ukraine war on food security and prices has been widely reported. From an Irish food and drink manufacturer perspective, they are still trying to quantify the mid-term effects.

In the case of some products, sunflower oil and seeds for example, acquiring product over the next 18 months is likely to be challenging, regardless of the price paid.

“It is unquestionable that food price inflation is going to increase in the coming months”

Hence, the focus is on recipe reformulation. The industry is seeking easement on labelling requirements to allow the use of alternative oils, without having to destroy existing packaging stocks.

Price dangers

For other products where Ukraine and Russia are significant players – wheat, grain, berries – the issue is more around understanding what the impact on their cost of goods will be.

Prices are fluctuating – wheat futures have gone from €269 per tonne on the 1st of February, to a peak of €422 on the 7th of March and are now back down to €382 per tonne, which is 42% ahead of the February number.

Other commodities such as oils that would act as substitutes for sunflower oil – such as palm and rapeseed oil are similarly affected. The commodity price increases affect the whole value chain, particularly given the role of grains in animal feed and the effect of reductions on fertiliser use on grass growth, due to high costs.

The increased oil price has also impacted on transport prices. Energy prices have spiked again and increased wages as a result of inflation are also likely to be a feature of the coming months.

Producers had struggled to pass through commodity increases in 2021. While commodity increases impacted from April 2021 onward, food inflation in Ireland only started to rise in the final quarter of the year (CSO consumer price index). The harmonised index of consumer prices put food inflation at 3.1% in February in Ireland.

It is interesting to note that the similar figure for the EU 27 was 5.5%.

It is unquestionable that food price inflation is going to increase in the coming months.

A senior CEO in the UK suggested that it could be as much as 15% in the coming months.

This will put additional pressure on disposable incomes in all sectors but particularly in the bottom 40% of income earners in Ireland who spend approximately 25% of their net income on food.

Sector Developments & Insights March 2022
Roisin O’Shea
Roisin O’Shea is head of Food & Drink at Bank of Ireland.