Food Prices Soar, and So Do Companies’ Profits
The price of food commodities has been on a steady rise for the last decade, according to the International Monetary Fund — now it’s on a rise that only a new kind of company can help them handle.
The IMF said food prices have been on a steady rise for the last decade, and the recent surge, fueled by an increase in oil prices and a decline in food prices, is unprecedented in recent history. “That’s about as big a step a company can take that we’ve never seen before,” says James Pethokoukis, a visiting fellow at the Atlantic Council, and an expert on the food industry. (Watch his video below.)
Pethokoukis says the good news is that the price hikes have hit companies, and not consumers. But, he worries, the bad news is that the impact of rising food prices on companies is likely to be greater than the impact on consumers.
“This is a very different set of issues from past food price surges, in part because of the complexity of the industry, and now I believe there are a lot of companies that will see their profits decrease,” says Pethokoukis. “So, if you are in a company, and you are worried about the impact of rising food prices, we encourage you to think about the impact on your shareholders.” (See The Impact of Food Prices on Consumers and Companies.)
Pethokoukis says he sees four potential causes for the food price surge, which has seen the prices for a number of foods spike in recent years.
First, is the rise in oil prices, which has pushed up the price of oil and the cost of food. Food prices also rose in part because of a general slowdown in the global growth rate.
“But, that’s actually not a sustainable scenario at all. People are always going to be hungry in the future. It’s just that they’re going to need more calories now than they do on a more per capita basis,” Pethokoukis says.
Third on Pethokoukis’ list of causes, says Pethokoukis, is the collapse in the commodity price — which