- The Washington Times - Friday, June 3, 2022

A worsening shortage of global grains, spurred by Russia’s invasion of Ukraine, will be the next affliction to hit American pocketbooks as the price of bread and rice increase by the end of the year, economists say.

Ricky Volpe, an agricultural economist at California Polytechnic State University, said the rising cost of wheat and soybeans caused by the grain shortage is extending food price inflation to even more staples.

“We’re going to see sustained impacts on cereals, bakery products, fats and oils, pretty much everything that’s shelf-stable and packaged in the center aisle of the supermarket,” Mr. Volpe told The Washington Times.

He predicts inflation in those food prices, which averaged 2% annually before the COVID-19 pandemic, will increase 4% to 5% next year.

“These rising commodity prices are going to have impacts that push this food price inflation we’re seeing into 2023,” Mr. Volpe said.

Larissa Russell, CEO of the San Francisco-based food distributor Pod Foods, said wheat prices — already up 60% over last year — could double by the end of summer.

“The end result is that consumers are going to feel this, either in their wallet or in their empty pantries,” Ms. Russell said in an email.

Russia and Ukraine together account for 30% of the world’s exported wheat, according to Northeastern University in Boston, and the Agricultural Market Information System says 25 countries receive at least half of their supplies from them.

According to Pod Foods’ internal data, out-of-stock groceries are up 6% from last year and could be up more than 10% by the end of summer as grain becomes more scarce.

Farm costs make up 10% to 15% of the cost of most bakery items, according to agricultural economist Jayson Lusk.

Mr. Lusk, head of the Department of Agricultural Economics at Purdue University, said a 100% increase in grain prices this summer could “push up retail prices 10-15%.”

Meanwhile, droughts, cold weather, rising production costs and transportation delays slammed California farmers even before Russia’s invasion halted millions of tons in Ukrainian grain exports.

America’s largest agricultural state is on course for a record-low rice crop that would raise the price of sushi in stores and restaurants nationwide.

The nonprofit California Grain and Feed Association, which represents animal feed producers and wheat growers, estimates the state will plant only 250,000 acres of rice crops this year instead of the usual 500,000 acres.

“We’ll be lucky to have half our rice crop this year because there’s not enough water to plant it,” Chris Zanobini, the trade group’s CEO, said Thursday. “I think it’s going to be a rough 12-18 months.”

Mr. Zanobini said production costs for labor, fertilizer, fuel, water and other farming expenses are up about 15% in California.

He anticipates rising U.S. prices for bread, corn, breakfast cereal, eggs and milk, in addition to sushi, as the state struggles to adjust.

“Simple supply and demand, plus rising production costs, means prices will have to go up,” Mr. Zanobini said.

Pandemic-era inflation has already forced U.S. food wholesalers and retailers to either raise their prices or sell less for more.

The latter adjustment, called “shrinkflation,” could mean companies will soon sell a five-piece sushi roll for the price of six pieces — something many fast-food chains are now doing with chicken wings and nuggets.

According to a recent report from the Food Industry Association, the average American household is already spending $148 per week on groceries in 2022, compared to $113.50 in 2019.

Economists are especially concerned about the rising cost of wheat.

Patrick Creamer, communications director for the Republican side of the U.S. Senate Committee on Agriculture, Nutrition, & Forestry, said the global wheat market is “the tightest it’s been in over a decade.”

The global wheat inventory — not including China — dropped from 148 million metric tons in 2019-2020 to 138 million in 2021-2022, according to a Senate agriculture committee Republican analysis of U.S. Department of Agriculture data shared with The Washington Times. As the Russia-Ukraine war drags on, the minority side’s chief economist predicts the inventory will drop to 126 million in 2022-2023.

China is not a major exporter and it stockpiles a significant amount of grains and oilseeds, so the USDA has started reporting supply and demand data for major grains and oilseeds without including China.

“There’s definitely a large ripple effect already happening as a result of recent global events, particularly Russia’s invasion of Ukraine,” Mr. Creamer said in an email.

A Russian blockade has left an estimated 25 million tons of grain stranded in the port city of Odesa. Meanwhile, Russian Foreign Minister Sergey Lavrov said Wednesday that international sanctions have affected Russia‘s exports.

Part of that ripple is a looming starvation crisis in the Middle East, whose nations rely on Russian and Ukrainian exports for most of their grain.

Mike Gunderson, director of agricultural strategy and research at MetLife Investment Management, said price increases in bread and bakery items will hit those nations and poor Americans the hardest.

“The ongoing Russian invasion has dramatically increased food prices [in the Middle East], driven millions of additional people into hunger, and started to raise protectionist actions in other countries such as India,” Mr. Gunderson said. “U.S. consumers with lower incomes and consumers in low-income countries will feel the pinch much more acutely.”

That means Americans who include breakfast cereal and sushi in their food budgets may be feeling the pinch well into next year.

Thomas Dans, a former counselor to the undersecretary for international affairs at the Treasury Department, said it’s impossible to predict where the grain shortage’s effects will end.

“With tens of countries around the world now restricting or banning grain exports, this has the potential, unfortunately, to get really ugly,” Mr. Dans said. “When a country like Kuwait is among the countries banning food exports, you know panic is not out of the question.”

• Sean Salai can be reached at ssalai@washingtontimes.com.

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