Food inflation is a growing concern for many households, with prices for basic foodstuffs rising far out of reach for many families. With rising global populations, climate change, and fluctuating commodity prices, the reality of food inflation is unlikely to go away soon. It is therefore essential to understand the causes of food inflation and its effects on the average consumer. We will also cover a strategy I have personally used to counter the effects of food inflation using US equity markets.
Food Inflation: The Reality
We are living in a time of unprecedented food inflation. The cost of food has increased significantly over the last few years, with prices rising at a faster rate than the average household’s income. In some countries, such as the US, food prices have increased by as much as 10% in the past year. As a result, people are finding it increasingly difficult to keep up with rising costs.
Impact on Household Budgets
The rising cost of food is having a significant impact on the budgets of many households. Many families are now struggling to make ends meet as they are forced to spend more of their income on food. This has a ripple effect throughout the economy as people are forced to cut back on other purchases. The situation is compounded by rising unemployment levels and low wages, making it difficult for families to cope with the additional burden of high food prices.
Unprecedented Price Increases
The rate of food inflation has been unprecedented in recent years. In many countries, food prices have risen far faster than the general rate of inflation. This is particularly true in countries where there is a large amount of price volatility in the food sector. It is also true in countries where there are supply-side issues such as drought or flooding which affect the availability of food.
Behind the Headlines: Causes
The causes of food inflation are complex and varied. In some cases, rising demand and inadequate supply are responsible. In others, it is the result of government policies or environmental factors such as drought. Commodity prices also play an important role, as do changes in the cost of energy and transport.
Mitigating the Fallout
In the face of rising food prices, there are steps that can be taken to mitigate the fallout. Governments can take action to ensure that the poorest in society are not disproportionately affected. This could include providing subsidies to farmers and food producers, as well as increasing access to nutritional food. Consumers can also take steps such as shopping around for the best deals, using coupons and discounts, and eating seasonally.
Another strategy that I’m personally using, with limited success, is to counter the higher cost of groceries at the store through the use of US equity markets. This strategy involves investing in companies who stocks are likely to rise from food inflation.
The VanEck Agribusiness ETF $MOO
The VanEck Agribusiness ETF (MOO) makes investments in businesses whose revenueThe income statement provides a summary of a company's revenue and expenses over a specified period of time, typically a year or a quarter. It shows the company's total revenue, th... comes from agriculture to a greater than 50% extent. This ETF will benefit from increased global population, which is driving up food demand and the need for effective agricultural solutions, in addition to supply constraints brought on by the pandemic and the conflict in the Ukraine.
$MOO broke above its 200 day moving average as of February 5, 2023, but it’s having trouble holding above it. The stock is in a technical uptrend.
The iShares MSCI Global Agriculture Producers ETF $VEGI
The iShares MSCI Global Agriculture Producers ETF (VEGI) follows an index of international businesses principally involved in the agriculture industry. Its two largest holdings are Deere and Company (DE) and Nutrien (NE).
$VEGI stock is trading in an uptrend channelUptrend and downtrend channel patterns are technical analysis tools used to identify potential future price movements. They are formed by two parallel lines on a chart and can be u... but it recently broke below its 50 day moving average as of February 5, 2023. The stock is in a technical uptrend.
Invesco DB Agriculture Fund $DBA
Invesco DB Agriculture Fund (DBA) seeks to reduce contango by investing in futures on ten well-known agricultural commodities. The fund has $2.2 billion in assets.
$DBA stock is trying to break out of its 6-month downtrend channelUptrend and downtrend channel patterns are technical analysis tools used to identify potential future price movements. They are formed by two parallel lines on a chart and can be u... but has yet to do that as of February 5, 2023. The stock is in a technical downtrend.
Ways Forward for Consumers
The reality of food inflation is unlikely to go away in the near future. It is therefore important for consumers to be aware of the causes and effects, and to take steps to ensure they are not unduly affected. Shopping around, taking advantage of discounts and coupons, investing in stocks and ETFs that are likely to benefit from food inflation, and eating seasonally are all ways in which consumers can make their money go further. With the right strategies in place, the impact of food inflation can be minimized by consumers who live within the United States. For consumers outside the United States, it is a different matter entirely.
Food inflation is a reality that is likely to remain with us for some time. It is therefore essential that governments and consumers alike take steps to mitigate the fallout and ensure that no-one is unduly affected. By understanding the causes and taking proactive steps, consumers can ensure they are not unduly affected by rising food prices.
