The Impacts of $100 Oil on Food Supplies

The Sustainable Development Commision has released a report entitled $100 a Barrel of Oil: Impacts on the Sustainability of Food Supply in the UK which asked, at the time of writing, what the impact of the price of oil rising to $100 per barrel would be. Ironically, in the time that took the SDC to produce the research report, the price of oil has indeed reached that level.

The objective of the research is to “provoke greater debate on the potential impact of increased energy prices on the ability of UK agriculture to be a successful market-based industry” (Report), and by considering the (then hypothetical) situation of oil prices reach $100 per barrel. The research illustrated the central importance of energy prices in agricultural production, and modelled the changes that might occur both in houeshold food expenditure and in relative agricultural production in various sectors (cereals, meat, dairy, etc.) as the price rises. (The expansion of biofuel production complicates the situation, and were not considered in this study.)

Other key findings include:

• Northern Ireland, Scotland and Wales are likely to hardest hit by price rises due to reliance on livestock and distance from processing facilities and markets.
• Extensive and organic production will be less severely impacted, but have lower output per unit area so will need to retain low costs or market premiums to prosper.
• Across the food chain, famers are most vulnerable to rising costs.
• Energy use is food processing is second highest, after agricultural production, so food processors will be pressed to adapt.
• Food retailers have the most power, being well positioned to pass on costs, either to consumers or to producers.

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In the preface to the report, SDC Commissioner Tim Lang observes:

“cheap food has been deemed a sign of a successful economy: the less money spent on food, the more there is to fuel other sectors of the consumer economy. Keeping food prices down has been one of the benchmarks of the post World War II production-oriented policy”

However, rising energy prices are one factor which has stalled this policy, and now:

“the large food retailers who take pride in their consumer products being good value-for-money and affordable, are now under pressure. They in turn are putting pressure back down the supply chain, to logistics,  processors, growers and traders.”

The recogition of these knock-on effects is behind both this report, and another recently published by the SDC, examining the role of the supermarkets in more detail – see discussion here.

And for anyone interetsed in keeping tabs on oil prices, it seems you can do so here.