Inflation fuels food price increases

Global conflicts and bad government policies lead to higher food costs
VP, Government Relations Food & Energy Policy
May 2, 2022

American consumers are suffering under heavy levels of inflation not seen since the early 1980s. The burden spans across nearly all products and services, but the price increases for food can be especially hard to swallow.

Unfortunately, much of the increase in food prices is from supply chain constraints brought about by the COVID-19 pandemic and its impacts on labor supply — which are largely beyond anyone’s control. For example, the longstanding shortage of long-haul commercial truck drivers existed before the pandemic but was exacerbated by declining participation in the labor force.

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But some of the fault for the dramatic surge in food inflation lies with bad government policy. Specifically, the 2007 Renewable Fuel Standard mandates certain food crops to be diverted away from food production so it can be converted into ethanol and biodiesel fuels.

Much of the food on grocery shelves is processed, as is the food that restaurants buy at wholesale, and contains vegetable oils like soybean, canola, palm and sunflower. Known in the industry as “edible oils,” they’re used in everything from baked goods to sauces and dressings to frying oils for restaurants and cooking oils in the home.

Prices for soybean oil, the most widely consumed edible oil in the United States, have nearly tripled the last two years. Certainly, the war in Ukraine accounts for some of the very recent rise in vegetable oil prices, because Ukraine is the world’s largest producer of sunflower oil and its production has been significantly curtailed. Moreover, it’s now in doubt whether Ukraine will be able to produce any sunflower at all this year. As vegetable oils are a global fungible commodity, this supply constraint sends shocks through the entire supply chain.

But most of the dramatic increase in vegetable oil prices predated Russia’s invasion of Ukraine, and most agricultural economists now agree the federal government’s ever-increasing mandates to blend vegetable oils into biodiesel fuel are largely to blame.

In fact, the situation is only growing worse as countries that produce edible oils are starting to restrict or even halt exports of the oils. Global markets for palm oil, for example, were sent into a frenzy recently as Indonesia banned exports of the crucial commodity. Global food security officials are now worried about unrest in countries around the world as staple foods like edible oils become increasingly scarce. Consumers here in the U.S. are expected to see prices continue to rise and, unfortunately, even see some products disappear from store shelves as edible oil shortages become critical.

The RFS has increased demand for vegetable oils for biodiesel use, outpacing agriculture’s ability to produce enough to supply both the food industry and the biodiesel industry. For soybean oil alone, there’s been a 126 percent increase in the oil for biodiesel over the last decade, compared with only a 5 percent increase for food use. Layer on top of that the current geopolitical crisis that is crimping supply, and it’s a perfect storm leading to skyrocketing prices and outright shortages.

Despite our pleas to various agency officials, in late 2021 the Biden administration proposed raising the RFS mandate for advanced biofuels, which include biodiesel and renewable diesel, to their highest levels ever. As we explained then and repeat now, the administration should ideally lower the mandate temporarily until supply can catch up with demand for edible oils or, at the very least, pause the mandate at last year’s levels.

Increasing the biodiesel mandate for this year and next will only make the current crisis worse. Join NRF in calling on Congress to address inflation by participating in our Tame Inflation Now grassroots campaign.

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