We should be more concerned about the price of food than gas, warns BlackRock

Dramatic increases in oil and mineral prices following Russia’s invasion of Ukraine have distracted investors from the lasting and more dangerous impact of food inflation, warned Larry Fink, founder of BlackRock, the world’s largest asset manager.

“The only thing I worry about that we don’t talk about enough is the food,” he told the Financial Times. “It’s not just a concern about inflation. There are also geopolitical concerns that result from that.”

Prices for energy, gasoline and oil-based farm inputs soared earlier this year as Western countries imposed sanctions on Russia after the invasion. The costs of grains and edible oils have also been hit hard because Ukraine is a major exporter.

Crude oil started to fall this week to pre-crash levels as traders brace for a sharp drop in consumption. But food price inflation remains stubbornly high. The US consumer price index for June shows that the price of chicken pieces and flour rose nearly 20% a year and that of margarine jumped 34%.

“We talk a lot about gas prices because that’s what affects Americans, but the bigger problem is food,” Fink said. “There has been tremendous destruction of arable land in Ukraine… Globally, the cost of fertilizer has increased by almost 100%, and this additional cost is reducing the amount of fertilizer used in agriculture. This will harm crop quality worldwide. “

While lower oil prices have started to affect the pump price for motorists, consumer goods companies continue to see high input costs. Any drop in fertilizer prices will likely come too late to boost this year’s food crops.

The World Bank predicted, after the Russian invasion, that global food prices would rise by 20% this year, far outpacing the rise in raw materials.

The impact is particularly severe in Africa, which often imports grain from Ukraine in addition to producing its own food. Fertilizer prices are up 300%, and the continent faces a shortage of 2 million tonnes, according to the African Development Bank. The bank has approved a $1.5 billion program to help farmers fill the gap, but warns that total production could fall by 20% this year.

Janet Yellen, US Treasury Secretary, said on Friday that the world is facing “an extremely difficult time for global food security” and urged the G20 group of leading nations to lift restrictions on the storage and export of food. food and provide additional financial assistance to countries and populations struggling with food insecurity.

Bill Gates, the philanthropist and co-founder of Microsoft, flagged similar concerns this week, saying the dwindling supply of wheat, edible oils and other foods caused by the war in Ukraine is “raising food prices, which will increase malnutrition and instability in low-income countries”. He noted in a blog that improving agricultural productivity in Africa requires “a lot more investment”.

Effects of the war even in the snacks

While some consumer product manufacturers and food retailers say they are hopeful that food inflation will begin to ease, others are preparing for the worst.

Snacks maker Mondelez is seeing so much inflation and “availability issues” in edible oils and grains that “we’re looking for a flexible formulation to ensure we can replace some ingredients and components that are in short supply with something more available,” said Luca Zaramella, its chief financial officer last month.

General Mills forecasts a “significant increase in input cost inflation” to 14% in the fiscal year that began in June. CEO Jeff Harmening said last month that the company, which makes Cheerios, Pillsbury and Betty Crocker products, expects to see a “reduction in consumer purchasing power.”