The Middle East energy crisis is wreaking havoc on local food manufacturers, with rising costs and supply chain disruptions threatening to push up food prices. For soya sauce maker Thomas Pek, the impact is far more severe than during the Covid-19 pandemic. The crisis has led to increased costs for packaging, transportation, production, delivery, freight, and shipping insurance, with Mr. Pek absorbing these higher costs so far. However, he may have to raise prices by 10-15% from May, as the PET resin shortage and high diesel prices persist, with the damage to energy infrastructure in the Middle East taking years to fix.
The energy crisis is affecting the entire supply chain, from the cost of crude oil to the price of nitrogen fertilizers. Local vegetable, egg, and fish farms are also feeling the pinch, with increased costs for feedstock and diesel. The Middle East accounts for about 30% of global fertilizer trade, and shipment disruptions have led to a 35% rise in global prices of urea, a key fertilizer. Trade restrictions by China and Russia are further tightening the supply.
The impact on food prices is uncertain, with some crops using more fertilizer than others. However, the higher freight costs are likely to be marginal, as the imported price of agri-commodities is only a fraction of the final retail price. Local food manufacturers are also looking at ways to save on costs, such as consolidating deliveries and sharing transportation costs, as well as adopting energy-efficient equipment through grants.
The broader trend of rising input costs continues to hurt local food producers, with Meod's spokesperson noting that the company has been absorbing these costs as much as possible. However, the supply and cost of plant-based feed are likely to be impacted by higher fertilizer costs, and food price inflation is a real possibility if the conflict is not resolved soon.
In my opinion, the Middle East energy crisis is a wake-up call for the food industry to reevaluate its supply chains and adopt more sustainable practices. The crisis has highlighted the vulnerability of global supply chains and the need for greater resilience. It is also a reminder of the interconnectedness of the global economy and the impact of geopolitical tensions on everyday life. As an expert, I believe that the food industry must take a step back and think about how it can adapt to these challenges, and how it can build a more sustainable and resilient future for consumers.
