Rajan Wilcox
The cost of food and fuel are inextricably linked, with the price of both rising and falling in tandem. The current global food system is highly dependent on fuel and transport, with fuel costs accounting for up to 50-60% of ship operating costs. Oil is used in modern agriculture to power machinery, transport goods, and as an input in agricultural chemicals. As oil prices rise, so does the demand for biofuels, which are often made from agricultural products, further increasing crop prices and making food less affordable. Food prices are also influenced by other factors such as supply chain disruptions, outbreaks of disease, and geopolitical tensions. Understanding the interplay between food and fuel prices is crucial for managing economic stability and ensuring food security.
| Characteristics | Values |
|---|---|
| Food and fuel prices | More volatile than other consumer spending categories |
| Average annual change in food prices (2004–23) | 2.7% per year |
| Food price increase (2020–21) | Driven by shifting consumption patterns and supply chain disruptions resulting from the Coronavirus pandemic |
| Food price increase (2022) | Fastest since 1979, due to avian flu and the Russian invasion of Ukraine |
| Food price growth (2023-24) | Slowed as wholesale food prices eased |
| Nominal food expenditures in the US (2024) | $2.63 trillion |
| Average annual food-at-home prices (2024) | 1.2% higher than in 2023 |
| Price increase leaders in 2024 | Eggs (8.5%), beef and veal (5.4%), sugar and sweets (3.0%) |
| Price decrease leaders in 2024 | Fish and seafood (1.9%), dairy products (0.2%) |
| All-food Consumer Price Index increase (2020–24) | 23.6% |
| Cost of crude oil | Largest component of gasoline prices (54%) |
| Organization influencing oil costs | Organization of Petroleum Exporting Countries (OPEC) |
| Second-largest component of fuel price | Taxes (17%) |
| Food-related energy use | Natural gas, diesel fuel, gasoline, electricity |
| Largest electricity users in the food system | Households, foodservice establishments |
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What You'll Learn
- Food prices and fuel prices are volatile, but food prices have lower annual swings
- Food prices are influenced by farm-level commodity prices and costs of bringing food to market
- Food prices rose faster in 2022 than any year since 1979 due to avian flu and the Ukraine war
- Oil prices impact food prices due to agricultural reliance on oil for machinery and transport
- Food-related energy use includes energy for production, preparation, and transportation of food
Food prices and fuel prices are volatile, but food prices have lower annual swings
Food and fuel prices are volatile, but food prices have lower annual swings. The current global food system is highly dependent on fuel and transport. Fuel costs represent 50-60% of total ship operating costs, and agricultural farming relies heavily on oil for transport. As fuel prices increase, so does the demand for biofuels, which are made from agricultural products, and this pushes crop prices upwards.
Food prices and fuel prices have risen and fallen in tandem over the years, but the average annual change in food prices is lower than that of fuel prices. For example, over the past two decades, motor fuel prices often experienced double-digit annual price swings, while the average annual change in food prices was 2.9%. In 2024, food prices grew by 2.3%, while motor fuel prices declined by 5.3%.
Food prices are influenced by a variety of factors, including farm-level commodity prices, processing and retailing costs, and consumer demand. Egg prices are the most volatile food category, with large month-to-month swings influenced by factors such as weather, production, seasonality, and disease outbreaks. In 2024, egg prices rose by 8.5% due to a highly pathogenic avian influenza (HPAI) outbreak.
Additionally, income levels play a role in the volatility of food prices. Lower-income countries allocate a larger portion of their per capita income to food, while higher-income countries like the United States and the United Kingdom spend relatively less on at-home food preparation and consumption.
While fuel prices can significantly impact food prices, the annual swings in food prices are typically lower, and other factors also influence the volatile nature of food pricing.
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Food prices are influenced by farm-level commodity prices and costs of bringing food to market
Food prices are influenced by a multitude of factors, including farm-level commodity prices and the costs of bringing food to market. Retail food prices are influenced by farm-level commodity prices, but other costs, such as processing and retailing, play a more significant role in determining the final price. For instance, in 2024, the average annual food-at-home prices in the US increased by 1.2%, a relatively modest rise compared to the 20-year historical level of retail food price inflation of 2.7% per year.
Farm-level commodity prices can vary year-to-year, with aggregate crop prices jumping 18% in 2020, followed by another 14% increase in 2021. The prices of certain agricultural commodities, such as corn and wheat, can have a direct impact on food prices. For example, increasing wheat prices can lead to higher bread prices. However, overall, commodity prices have been shown to have a limited influence on food inflation. This is because wholesale and retail trade, along with food processing, account for a significant portion of the cost of food consumed at home. These sectors contribute to the majority of the costs that consumers pay at grocery stores, and labour costs are substantial within these sectors.
The costs of bringing food to market encompass various expenses, including transportation, processing, and retailing. Transportation costs have seen significant increases, with a 34.4% rise between 2020 and 2024. The current global food system heavily relies on fuel and transportation, making food prices susceptible to fluctuations in fuel costs. Oil is used to fuel farm machinery, transport inputs to farms, and deliver farm produce to consumers. As oil prices rise, the demand for biofuels, often made from agricultural products, increases, pushing crop prices upwards and making food less affordable.
Other factors influencing the food supply chain can also affect retail food prices, including global trade issues, pandemics, animal and plant disease outbreaks, and war. For example, the COVID-19 pandemic caused supply chain disruptions and shifting consumption patterns, leading to increased food prices in 2020-2021. Similarly, the 2022 Russian invasion of Ukraine and the highly pathogenic avian influenza (HPAI) outbreak contributed to rising food prices. Federal agencies can indirectly influence food prices by implementing measures to prevent food shortages. For instance, during the COVID-19 pandemic, the FDA allowed food intended for restaurants to be diverted to grocery stores, helping to avert potential food shortages and further price increases.
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Food prices rose faster in 2022 than any year since 1979 due to avian flu and the Ukraine war
Food fuels are essential for the agricultural sector, powering farm machinery, transporting inputs and outputs, and more. The price of food fuels is closely linked to food prices, which rose faster in 2022 than any year since 1979, due to a combination of factors, including avian flu and the Russia-Ukraine war.
In 2022, food prices surged by 9.9%, the highest increase since 1979. This sharp rise was driven by multiple factors, with the Russia-Ukraine war and the avian flu outbreak being key contributors. The war disrupted agricultural supply chains and caused wholesale food prices to soar, impacting food prices globally. The avian flu outbreak, specifically the highly pathogenic avian influenza (HPAI), affected egg and poultry production, driving up prices for these commodities.
The Russia-Ukraine conflict significantly influenced global food prices due to both countries' crucial roles as major exporters of agricultural products. The disruption to their exports, particularly wheat, led to reduced supply and higher prices worldwide. The conflict also exacerbated existing economy-wide inflationary pressures, such as high energy costs, which further contributed to rising food prices.
The avian flu outbreak, particularly the HPAI strain, had a significant impact on egg and poultry prices. The disease reduced egg-laying flocks and poultry production, causing a decrease in supply and subsequent price increases. This outbreak began in 2022 and continued into 2025, with egg prices in May 2025 still significantly higher than in May 2024.
While food prices rose sharply in 2022, there was some respite in the following years. In 2023, food prices increased by 5.8%, and in 2024, the increase was 2.3%, indicating a slowing of price growth. This easing was attributed to a combination of factors, including a reduction in wholesale food prices, lower energy prices, and a decrease in economy-wide inflationary pressures.
The relationship between food and fuel prices is well-established, with agricultural production heavily reliant on fuel for machinery, transportation, and agricultural chemicals. As fuel prices rise, so does the cost of agricultural production, which is then reflected in food prices. Additionally, the demand for biofuels, which are often made from agricultural products, can further increase crop prices and impact food affordability.
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Oil prices impact food prices due to agricultural reliance on oil for machinery and transport
Oil prices have a direct impact on food prices due to the heavy reliance of agriculture on oil for machinery and transport. The current global food system is highly dependent on fuel and transport, with oil being used to fuel farm machinery, transport inputs such as fertilizer and pesticides, and transport outputs to the consumer. Oil is also used as an input in agricultural chemicals. As oil prices increase, the costs of these processes also increase, which is then reflected in food prices.
The connection between food and oil prices has been observed over time, with price increases in oil leading to subsequent rises in food costs. For instance, Chen et al.'s study in 2010 revealed that the increase in food prices is significantly influenced by the rise in crude oil prices. Similarly, Nazlioglu and Soytas's investigation in 2011 confirmed the impact of world price changes on agricultural product prices. The introduction of biofuel policies around 2005 also increased the price transmission between fossil fuels and food commodities, demonstrating the leading role of fuel prices in influencing food prices.
The impact of oil prices on food costs is particularly notable in developing countries that are both food importers and oil exporters. For example, Nigeria's economy is heavily reliant on crude oil, and changes in oil prices have significant effects on economic growth and welfare in the country. Oil price hikes contribute to food price volatility in Nigeria, as oil is used to power agricultural and processing machinery and transport goods. This volatility has severe consequences, including economic inefficiency, increased food insecurity, malnutrition, and possible social unrest.
Additionally, export-led agricultural strategies in less industrialized countries can increase vulnerability to high oil prices. Donor agencies often encourage these countries to focus on cash crop production, leading to a reliance on imported cereals or food aid programs. Rising transport costs due to higher fuel prices contribute to the increasing prices of food imports, making them less affordable. This dynamic was observed from early 2007 to mid-2008, when soaring fuel costs increased the cost of shipping food aid by nearly 30%.
To mitigate the impact of oil prices on food costs, proactive steps should be taken to reduce the energy required for food transportation. This includes supporting local producers, encouraging local consumption, and utilizing more efficient modes of transportation. Diversifying economies away from sole reliance on oil exports is also crucial, as is the development of alternative energy options and sustainable agricultural policies.
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Food-related energy use includes energy for production, preparation, and transportation of food
Food fuels refer to the energy used in food production, preparation, and transportation. Food systems worldwide account for about 30% of the world's total energy consumption. This is because most food systems rely heavily on fossil fuels, which also account for 20% of global greenhouse gas emissions. The energy used in food production can be divided into four parts: agriculture, transportation, processing, and handling.
Agriculture, which includes the growth and cultivation of food crops, consumes about 21% of the total energy used in US food production. 60% of this energy is used directly in gasoline, diesel, electricity, and natural gas, while the remaining 40% is used indirectly in fertilizer and pesticide production.
Transportation of food from farms to consumers accounts for just under 14% of the energy used in food production. This is an energy-intensive process, especially when food must be transported long distances, as it often relies on refrigerated transport. For example, it takes 1.4 quadrillion Btu to ship avocados from South America, enough energy to power Romania for a year.
Food processing, which involves transforming raw ingredients into food products, makes up about 16% of the total energy used in food production. This includes turning raw corn into cereal and requires 1.6 quadrillion Btu of energy per year, equivalent to the total energy used in Nigeria.
Food handling, which includes retail, restaurants, packaging, and consumers, is the largest sector of energy in food production, accounting for nearly 50% of the total energy used. This includes the energy used to package and refrigerate milk in grocery stores and at home. At 5 quadrillion Btu, the energy used in food handling is more than enough to power Taiwan for a year.
The cost of food fuels can be reflected in food prices, which have been increasing. In 2024, food prices grew by 2.3%, while household energy prices increased by 2.4%. The increase in food prices was driven by factors such as shifting consumption patterns, supply chain disruptions, and inflationary pressures. To reduce the environmental impact and costs associated with food fuels, individuals can buy locally sourced food, reduce food waste, and invest in energy-efficient food storage.
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Frequently asked questions
In 2024, US consumers, businesses, and government entities spent a total of $2.63 trillion on food and beverages.
The cost of fuel is influenced by various factors, including the price of crude oil, taxes, and geopolitical stability. The price of gasoline, a type of fuel, is determined by dividing the number of miles driven by the vehicle's average miles per gallon (MPG) and then multiplying by the current fuel price.
Food and fuel prices are volatile and tend to rise and fall together. From 2000 to 2009, food and fuel prices moved in tandem. Food prices increased faster in 2022 than in any year since 1979 due to various factors, including the avian flu outbreak and the Russian invasion of Ukraine.
Food prices are influenced by farm-level commodity prices, processing costs, retailing costs, and restaurant menu prices. Egg prices, for example, rose by 8.5% in 2024 due to an avian influenza outbreak.
Fuel costs impact food prices through agricultural production, transportation, and energy use. Modern agriculture uses fuel for machinery, transportation, and agricultural chemicals. As fuel costs increase, food prices become less affordable.
