Low Oil Prices Boost Food Security, Benefit Major Players
Oil prices have been on a rollercoaster ride, with a dramatic drop in recent years affecting various sectors, including food. In January 2021, oil prices plummeted to under £20 per barrel, a significant fall from the £80 high in 2014. This decline has had a ripple effect on the food industry, with major players like Nestlé, Hilton Food Group, and The Kraft Heinz Company benefiting.
The oil market's influence on food is substantial. Farm machinery and distribution costs are heavily dependent on oil prices. When oil prices fall, as they have over the last 18 months, these costs decrease, leading to lower food prices. Conversely, when oil prices inflate, so does the cost of food. This clear correspondence between oil and food prices has been evident in recent years.
The transmission of cost savings through the supply chain is slow, with international commodities traders being the first to lower prices. However, the benefits eventually trickle down to consumers. Additionally, the demand for biofuels has plateaued, refineries have hit the 'blending wall', and farmers are growing more, leading to substantial stockpiles of grain. This oversupply further contributes to lower food prices.
The sustained period of low oil prices in 2021 has had a positive impact on food prices and, consequently, food security. It is estimated that a prolonged period of low oil prices could lead to a 14% decrease in malnourished people compared to 2011. Major food companies like Nestlé, Hilton Food Group, and The Kraft Heinz Company have benefited from these lower production and distribution costs, allowing them to potentially pass on savings to consumers.
