Hard to Swallow
The global food system is under unprecedented stress, a fact starkly illuminated by recent data from the United Nations Food and Agriculture Organization. The number of countries experiencing abnormally high food prices - defined as at least one standard deviation above the average historical price - has soared fivefold since the beginning of the COVID-19 pandemic. This is no longer an issue confined to low-income economies; over half of all nations across North America and Europe registered these high prices in 2023, representing a stark escalation from the minimal 4% average seen between 2015 and 2019. Moreover, Japanese inflation is dominated by food prices. The doubling in rice prices alone has added 0.6% to CPI this year. This is causing a dilemma for the Bank of Japan policy setters as without food, core inflation is 1.6% which is well below target.
This widespread crisis is the result of a powerful convergence of forces. At the micro-level, the volatility of agricultural yields has increased dramatically due to extreme weather events. Analysis by BloombergNEF highlights how climate change is translating directly into higher supermarket bills. Scorching heatwaves and prolonged drought in key growing regions, such as Brazil’s coffee belt or West Africa’s cocoa-producing areas, have decimated harvests. This has triggered shocking price increases, with cocoa and coffee prices surging by 50% and 145%, respectively, since the start of 2024.
Overlaying this climatic instability are macroeconomic pressures inflating the costs of everything from fertiliser production to transport and packaging. These operational expenses, combined with broader global inflation, are inevitably passed on to the consumer, translating commodity volatility into painful, persistent food price inflation for households. The price stability consumers once took for granted is rapidly eroding.
The pervasive nature of this crisis signals a critical fragility in modern supply chains, prompting urgent action from the world's largest agri-food companies. To manage accelerating climate risk, the focus is shifting to regenerative agriculture. These practices aim to fundamentally improve soil health, enabling fields to better retain moisture and regulate temperature, thereby increasing resilience against flooding and drought.
Major players are committing substantial resources; for example, McDonald's announced a $200 million-plus investment into a regenerative programme to bolster its US supply chains. Similarly, Nestlé’s Nescafé has already aggressively exceeded its own 2030 targets, with nearly a third of its coffee suppliers now employing regenerative farming techniques. Any avid viewers of Clarkson's Farm will also note the use of regenerative agriculture techniques through the method of intercropping, exemplified by planting wheat and beans together in the same field.
The knock-on effect of sustained food inflation poses a critical threat to the wider global economy. Persistently high food costs constrain consumer spending on other goods and services, acting as a brake on economic growth. Central banks, in turn, are forced to maintain higher interest rates to tackle the inflation, increasing the cost of capital for businesses and dampening investment. For the broader investor, this scenario translates into significant risk: commodity market volatility and supply chain disruption introduce uncertainty across equities, particularly in consumer staple and retail sectors. Investors are therefore increasingly looking towards companies that demonstrate genuine commitment to supply chain resilience and regenerative practices as a sign of future financial stability and effective climate risk management.
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