Today, in America, many families find themselves in a dire situation…
The U.S. Department of Agriculture (USDA) estimates that 30 million adults and 12 million children are living in food-insecure households.
And unfortunately, the latest inflation figures, just released this morning, won’t provide any comfort.
Inflation is now at 9.1%. That’s the highest reading since the end of 1981.
And the cost of food is now up 10.4% since this time last year.
But it’s not just in America that this squeeze is being felt…
According to the United Nations (U.N.), 276 million people around the world are now severely food insecure.
And alarmingly, that figure has doubled in the past two years.
More than half a million people are experiencing famine conditions. That’s up more than 500% since 2016.
And here’s why…
The U.N.’s Food and Agriculture Organization (FAO) Food Price Index tracks monthly changes in the international prices of a basket of commonly traded food commodities.
The latest reading (June 2022) shows a modest improvement in recent months… But the index is still 23.1% higher than in June 2021. And it’s up 65% over the last two years. You can see that in this chart…
Government Supports Coming to an End
Unfortunately, food poverty isn’t a new phenomenon in America… And the U.S. government has been helping families buy food for nearly a century. The original Food Program was set up in 1939.
Today, the U.S. government’s Supplemental Nutrition Assistance Program (SNAP) helps 41 million people experiencing food insecurity.
During the pandemic, Congress expanded eligibility and increased benefit levels under SNAP and other federal nutrition programs.
But with many of the public health measures brought in to combat the Covid-19 pandemic now curtailed, enhanced SNAP payments recently came to an end for many.
Seventeen states, including Colorado, New Mexico, Texas, and Georgia, have already discontinued the extra benefit payments. More states are likely to follow.
And now, as that extra support is being taken away, the cost of food is still rising…
And the knock on effects of the war in Ukraine on food supply chains is continuing to push prices higher across the world…
Not a Once-Off Event
But today’s food crisis isn’t the first we’ve experienced this century…
Back in 2007, investors feared the world would run out of food. They believed the world was incapable of growing enough crops to meet the needs of an increasingly wealthy global middle class.
From 2006 to 2008, the FAO Food Price Index jumped 61%.
And many of the arguments that propelled food prices a decade and a half ago are still valid.
The global population continues to rise. And climate volatility is even more of a factor today.
The reality is that the world needs more food.
Fertilizer Prices Have Soared
But to produce food, farmers need to make sure conditions are as optimal as possible.
Fertilizers are part of the answer.
Simply put, they help farmers grow more food.
Fertilizers nourish the plants that feed us. That’s why they are critical for global food production.
But fertilizer prices have been climbing in recent years. They’re up 214% over the last five years.
And despite reversing course over the last couple of months, they are still up 85% over the last year, as this next chart of the Fertilizers Price Index shows.
So food producers have had to either reduce their use of fertilizers… and therefore, their crop yield… or increase their prices to consumers.
There are several reasons for the sharp rise in fertilizer prices. I wrote to you about these a couple of months ago, when I first put the fertilizer crisis on your radar.
To recap quickly… rising gas prices are having a knock on effect on the price of ammonia, one of the key ingredients in fertilizer.
Plus, Russia and China’s ban on fertilizer exports have severely restricted global supply. That’s because, together, the two countries are responsible for about 33% of global trade in fertilizer.
And on top of that, Belarus, one of the world’s largest exporters of potash, is having problems getting its product to market. Potash is another vital raw material in fertilizer.
But sanctions imposed on Belarus because of its support for the Russian invasion of Ukraine are causing disruptions to this supply chain.
The bottom line is that rising natural gas prices… the fertilizer supply squeeze from Russia and China… and a restriction in the supply of potash from Belarus… have driven fertilizer prices higher.
And this has resulted in higher prices for the food we buy every week…
What This Means for Your Money
So, how do you claw back some of that extra spend in your budget?
There are several straightforward ways we all need to consider to deal with rising food prices.
The first is obvious – buy less. That way, you can make your budget stretch further.
Think about the things you buy at the store every month. Some are nice to have, but you don’t need to have them.
Check your cupboards and refrigerator and plan your shopping list before you go. That way, you’re not wandering the aisles wondering what you need and buying things you have at home already.
The second option is to buy in bulk. That way, you can lock in prices now, before they rise any further.
Consider a membership to a wholesale store like Sam’s Club or Costco. They offer such great deals on bulk items, the membership fee often pays for itself.
Editor, Inside Wall Street with Nomi Prins
P.S. Lowering your spending and buying in bulk aren’t the only things you can do… I recently told my paid-up Distortion Report subscribers about a way to take advantage of what’s going on in the fertilizer industry… To find out how you can become a Distortion Report subscriber, click here.