When will the Iran war hit food prices?

NPR. This is The Indicator from Planet Money. I'm Adrian Ma. And I'm Darian Woods. Gasoline and groceries. Of all the things Americans spend money on, gas and groceries are among the most volatile price-wise. Yeah, more so than other goods, the price of gas and groceries tends to fluctuate a lot. We all know by now that gas prices have soared in the past couple of months. But here's something interesting. In that same period, the price of groceries has been relatively flat. And in fact, according to the latest Consumer Price Index report, the cost of groceries actually went down a little in March. Good news, I suppose. Or what passes for good news these days? Yeah, though, there is some bad news on the horizon. And that is, it may just be a matter of time before the worst effect on gas prices also hits the grocery store. And the question is, will that effect be a big one or a little one? Today on the show, a food economist takes a crack at forecasting just how much our grocery bills could increase in the coming months. And which items in our carts will take the biggest hit. This week on Up First, gas prices just jumped 30 cents per gallon in a single week. With the Strait of Hormuz still closed, the global energy shock is only getting deeper. Listen for overnight developments on Iran, plus primaries in Ohio and Indiana as midterm election season heats up. We'll have the very latest every morning on Up First. Listen on the NPR app or wherever you get your podcasts. To help us understand how the Iran war could translate into higher grocery prices, we called up David Ortega. He's a food economist at Michigan State University. Where I studied the food system how food goes all the way from farm to our table and all the factors that can impact that journey along the way It must be impossible for you to like walk through a grocery store like a normal person Oh, yeah. You can ask my wife. I mean, a trip to the grocery store for me is never quick. I'm always talking to people. I'll, you know, call the produce manager, ask him what's happening, where costs are sort of building up. And so it's really fascinating. Never stop economizing. And David has been looking at the economics of the U.S.-Israeli war in Iran and how it will impact the cost of groceries. And he says it will in a couple of ways. So the first is the price of fuel. So things like gas and much more important, diesel prices. As we talked about before on the indicator, diesel prices are shooting up all over the world, from New Zealand to Zimbabwe. And in the U.S., since the start of the war, the price of a gallon of diesel fuel has risen about 50 percent. And food literally moves on diesel here in this country. All the way from the farm, you need diesel to operate a lot of the farm equipment, machineries, but also through transportation. A lot of the products, you have to put them often on trucks to move them across the country. So the spike in diesel prices is one factor raising the cost of food production. Another factor is the disruption to the global fertilizer markets. A lot of Gulf states are major producers of nitrogen fertilizer and liquid natural gas, which is a key component in fertilizer production. With much of those shipments unable to get through the Strait of Hormuz, fertilizer prices have jumped. When fertilizer prices go up, that can lead to lower fertilizer application rates, which could turn potentially into lower yields come harvest time. And then that would mean less food being produced, which would put upward pressure on prices. So if fuel and fertilizer are more expensive the next question is when will this translate into higher food prices and by how much As for the when David says there usually a lag of at least six months for increased input costs to actually show up on store shelves So if higher prices are on their way, we could see them late this year or even next year. As for the amount of the price increase, David recently ran some rough calculations. He says about 10 cents of every dollar you spend on at the grocery store can be tied to energy, transportation, and fertilizer. And depending on how long the war goes on, increased costs could lead grocery prices increasing anywhere from 2 to 5 percentage points. And while 2 to 5 percentage points might not sound like a lot to some folks, that's actually on top of other factors contributing to higher food prices, like bad weather, rising labor costs, and tariffs. And, you know, the reason why shocks like this are so concerning is because of the nature of prices and in particular food prices. Once they increase, they very rarely come down. And when they do, it's very short lived. And David points out that grocery prices have already gone off about 30 percent since 2020. Not to mention, David says for lower income households, even a modest increase can be a hardship. The families and the households are really having to make adjustments in order to be able to keep food on the table. A few dollars could mean the difference between, like, putting the chicken in the cart or taking it out. Exactly. Okay, so we have some idea now of when and how much grocery prices could go up. But we haven't talked about what. What food items would be hit first as the war stretches on? So to answer that, let's imagine a grocery store. I think where we're going to see this show up first is sort of around the perimeter of the store. So think like the produce aisle. Fresh fruits and vegetables, items that have to be transported fairly quickly. These are perishable items and they often have to travel long distances to get to the grocery store Keep on walking and it a similar story in the dairy aisle Dairy in particular it a perishable product and so it's that refrigerated trucking transportation that really uses a lot of energy and fuel. And rounding the corner, there's the meat and seafood counter. If you're getting fresh seafood, some of that actually gets transported via air freight on airplanes, And the price of jet fuel has really skyrocketed. Right. So you get the picture. The perishable foods that have to move quickly and over long distances, things like produce, dairy and meats. David says if higher prices are coming, we'll see them there first. Now, so far, we focused on the potential impact of grocery prices in the U.S. But it's worth zooming out to consider how the war could have an even bigger impact on other countries. Across Africa and Asia, many countries are a lot more dependent than we are on shipments of fuel, fertilizer and food going through the Strait of Hormuz. And economists at the United Nations are even raising fears about a global food crisis if those shipments can't flow freely again. One other thing that I think it's really important to keep in mind is that, you know, issues of food insecurity in the U.S. and I think globally don't arise because we don't produce enough food. We produce more than enough food in the U.S. to not only feed ourselves, but feed other parts of the world. And, you know, we have just a lot of production globally, but it's because of issues of access and affordability. So the food not being where it needs to be and at prices that individuals can afford. And David says the longer the war drags on, the greater its potential impact on our global food system. This episode was produced by Angel Carreras and engineered by Jimmy Keely. It was fact-checked by Sierra Juarez. Julia Ritchie edited this episode. Cake and Cannon edits the show in the indicators for production of NPR. Thank you.