Food Prices at Risk

Energy markets and geopolitical events are pushing the risk for food price inflation higher through 2027

Elevated and volatile energy prices are pushing up costs throughout the food supply chain. These pressures affect fertilizer manufacturing, on-farm operations, processing facilities, refrigerated storage, transportation and packaging. The energy effect is less of a one-to-one pass through to the consumer price index but instead raises the food price inflation floor by increasing the costs across so many steps of the food supply chain.

The food price outlook analysis is complicated by the fact that the effects can be delayed due to the mechanisms that companies use to manage volatility, like hedges for energy and freight and longer-term supply contracts. These mechanisms can make food price inflation appear muted during periods of market stress, but as those hedges roll off and contracts reset, the energy cost effects are felt and food prices start to rise.

Food price inflation has only recently cooled after the 2021-2022 increases in food prices that followed COVID-era disruptions. During that inflationary period, consumer demand stayed relatively strong. Consumers had a cushion of significant savings that helped them absorb price increases. This time around, consumers no longer have that savings cushion and inflation may have a different effect in the grocery store.

U.S. Consumers and the K-Shaped Economy

Rabobank expects consumer spending on food and beverages to respond to inflationary pressures by following the K-shaped economy trend. Cost increases for food at home and food away from home weigh heavily on lower and middle income consumers. Higher income consumers are better able to maintain their spending even if they adjust within premium tiers. Lower income consumers, when confronted with higher average prices are quicker to trade down, shift to private-label, migrate to value channels and look for deals.

This divergence leads to a sorting of demand toward the extremes for both food at home and food away from home. For the food away from home market, on the trade down end, consumers move toward cheaper, trusted value options like reliable quick service restaurants and value meals, bundle deals and familiar chains. On the selective trade up end, consumers still splurge but do so more deliberately.

In the food at home market, similar trends emerge. Shoppers trade down to lower price options like smaller pack sizes, private label and value tiers and cut back on discretionary add-ons. However, they often still hold space for a smaller set of high-conviction premium purchases.

Other Factors Challenge Demand

Energy volatility and price increases also weigh on consumers. Consumers often react to price increases for fuel and power by tightening spending elsewhere. This can mean stricter adherence to shopping lists, fewer trips, deal seeking and trading down within proteins. Consumers trim their restaurant expenses when gas prices rise, either by dining out less or limiting their spending when they do go out.

There are other challenges for food demand as well. GLP-1 adoption is reshaping consumption patterns. Dietary guidance has changed, slowing population growth is reducing baseline volume tailwinds and reductions to SNAP are putting pressure on the most price-sensitive consumers.

Rabobank expects food inflation to be structurally different in 2026 and 2027 than in 2021 and 2022. This cycle is cost-driven and will likely put pressure on food company margins. You can read more about Rabobank’s inflation rate forecast in the paper: Energy shock waves: US food inflation risk in 2026-2027.