UBS analysts identified five long-term forces likely to keep global food inflation "structurally higher" above its pre-pandemic average of about 2.5%, crushing consumer hopes that price pressures will simply fade.
"While food inflation globally has fallen from the COVID peak, a new debate is emerging: is the c2.5% LT average obsolete?" London-based managing director and equity-research analyst Sreedhar Mahamkali asked in a note penned on Monday.
Mahamkali and his team outlined five long-term drivers of global food inflation:
1. Climate risk is global, although its intensity differs by geography and commodity. Academic research suggests climate change could add around 0.9 to 3.2 percentage points to annual global food inflation by 2035.
2. Weak farm profitability limits investment and supply responsiveness globally. The pressure is most visible where farms are small, fragmented or exposed to volatile inputs, although scale, subsidies and access to credit can provide greater protection in some markets.
3. Higher welfare standards are lifting costs in animal protein. UK and European poultry provide the clearest current evidence, but similar changes in stocking density, housing, biosecurity and traceability are emerging across several markets.
4. Labor costs are rising across the food chain. The effect is strongest in labour- intensive farming, processing, logistics, food service as well as the front-end retail, although productivity, automation and the availability of lower-cost labour produce meaningful regional differences.
5. Supply flexibility is constrained globally: some markets face limited land expansion and tighter standards, while others contend with underinvestment and climate vulnerability. READ MORE AT SOURCE »
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