Breaking Down Food Price Volatility: Key Factors and Solutions

Food prices have always fluctuated, but recent years have seen greater instability driven by a range of economic, environmental, and political factors. For both consumers and businesses, this volatility creates financial challenges that demand attention. Understanding the forces behind these unpredictable shifts can help stakeholders better prepare for what’s ahead.

The Forces Driving Food Price Volatility

Several key factors have contributed to the increasing unpredictability of food prices — some unfolding gradually and others striking with sudden impact.

One significant factor is the ongoing impact of bird flu outbreaks. The virus has devastated poultry populations, particularly among egg-laying hens. As millions of birds have been lost, egg and poultry supplies have shrunk, driving up costs. Because poultry is a staple protein for households and a key ingredient in food production, these disruptions have had widespread effects.

Another major factor is the role of food and commodity tariffs. Trade disputes and protectionist policies have heightened uncertainty in global food markets. For example, Canada’s existing tariffs on certain food products — set to remain in place until at least 2025 — continue to elevate costs for key imports. Additionally, tariffs on commodities like grains, meat, and dairy ripple throughout the supply chain, ultimately raising prices for everyday grocery items and making grain risk management strategies all the more challenging. 

These pressures are compounded by the broader economic strain facing consumers. Rising costs for essentials like energy, housing, and transportation have limited disposable income. As consumers tighten their budgets, businesses must adapt to shifting buying habits. Shoppers may trade down to lower-cost brands or reduce spending on premium products, making it harder for businesses to predict demand with confidence.

On the production side, volatility introduces another layer of financial pressure. While higher retail prices may suggest producers are earning more, the reality is often quite different. Increased costs for feed, fertilizer, and labor have placed producers in a difficult position. Many farmers and food manufacturers are absorbing these expenses without seeing a proportional increase in profits. This imbalance forces producers to make difficult choices about scaling back production or passing costs on to consumers — both of which can perpetuate instability in the market.

Navigating the Uncertainty

For businesses navigating this volatility, proactive strategies can help limit exposure to sudden cost increases. Improved demand forecasting tools allow retailers and producers to predict shifting consumer behavior more accurately, reducing the risk of costly overproduction or understocking.

Diversifying supply chains is another effective approach. By sourcing from multiple regions or suppliers, businesses can minimize their vulnerability to sudden disruptions caused by outbreaks, tariffs, or supply chain bottlenecks.

Finally, hedging strategies provide an additional layer of protection. By locking in prices for key ingredients or commodities, businesses can gain more control over costs, shielding themselves from unexpected spikes in the market.

While volatility in food prices is unlikely to disappear, businesses that take proactive steps to improve forecasting, expand supply chains, and manage costs through hedging will be better positioned to maintain stability in uncertain times.

For a deeper look at the forces shaping food price volatility and how businesses can prepare, see the accompanying resource.