Europe is likely to face a new round of food inflation towards the end of the year, driven mainly by a prolonged period of high energy prices..
According to a new report by RaboResearch, the recent rise in energy costs caused by escalating geopolitical tensions in the Middle East will impact the food supply chain that relies heavily on energy.
This, in turn, will affect production, packaging, logistics and agricultural inputs.
Although consumers may not experience the full effects immediately, food price inflation is expected to increase throughout 2026 and intensify in 2027.
Geopolitical conflict and rising energy prices
Energy markets have been shaken since the initial attack on Iran five weeks ago.
The conflict has severely disrupted shipping through the Strait of Hormuz, a critical route for global oil and liquefied natural gas (LNG) flows.
As a result, Brent crude prices rose by 61% and TTF gas prices by 68% compared to pre-war levels, according to a RaboResearch report.
Fuel prices at pumping stations also jumped sharply.
RaboResearch’s baseline scenario assumes that the war will continue until mid-April, followed by a gradual reopening of the Strait of Hormuz.
Until then, energy prices are expected to remain high: oil above US$100 per barrel and gas at €60-65 per megawatt hour in the coming months, according to the research.
Prices should fall back in the summer, but forecasts for 2027 show project numbers well above pre-crisis levels, with Brent at around US$83 and TTF gas at €42.
Food prices
The food sector is one of the most energy-intensive industries.
Basic activities, such as cooling, heating, milling, transportation, packaging, and production of agricultural inputs, rely heavily on electricity and fuel.
While many companies have learned from the 2022 energy crisis and improved risk management strategies, they cannot fully protect themselves from continued price increases, according to RaboResearch.
Energy inputs often occur early in the value chain, and futures or inventories delay their passage, meaning that today’s energy shock will affect costs several months down the road.
Economic inflation
Because food manufacturers and retailers in much of Europe typically negotiate prices annually, most companies cannot pass on current peak energy prices to customers immediately.
However, structurally higher cost expectations are expected to dominate 2027 year-end negotiations.
Because energy represents between 5% and 50% of food producers’ costs, the industry is unable to absorb these increases internally.
Consumer food prices in Europe are already 33% higher than in early 2021, but there is more to come, according to this latest report.
Research shows that a 50% increase in gas prices leads to approximately 10% higher food prices after two years.
Under the current baseline scenario, RaboResearch expects food price inflation of at least 5% to 10% in 2027.
In the most severe energy scenario, food inflation could easily rise above 10%.
It is likely that high diesel prices – which have risen by more than 30% since the start of the war – have already trickled down to consumer prices due to logistical contracts associated with the fuel.
Consumer response and market expectations
The research indicated that consumers had already spent three years trading to manage their grocery bills, switching to private-label products and cheaper proteins.
EU supermarket volumes in early 2024 were 6.6% below 2019 levels.
Food services also struggled, as rising menu prices and rising costs for households reduced discretionary spending.
With little room left for further downward trading, another bout of inflation could prompt consumers to buy less or eat out less.
This puts retailers and foodservice operators in a difficult position – sandwiched between rising input costs and growing consumer wariness – setting the stage for particularly difficult price negotiations in the coming months.
