To See Food Inflation at Work, Look Inside Your Bag of Potato Chips

Published on
May 21, 2022

Source: The Wall Street Journal.

This time last year, Tom Lock’s British Snack Co. 40 gram bags of its potato chips were being sold in hotels, cafes and restaurants for about $1.50. This year, the price is $1.80.

Here is why: The potatoes he uses are now 20% more expensive. His cooking oil costs are up 300%. Packaging and cardboard are both up by a fifth.

“Every single input cost has risen,” he said.

The war in Ukraine has contributed to a global energy shock, driving up prices of oil and gasoline. Because Ukraine is such an important part of the global food-supply chain, the war is also sending the prices of many agricultural commodities to historic highs. A peek inside a package of potato chips shows how both dynamics are making some of the most basic grocery-store staples more expensive.

In any bag of chips, potatoes make up about 60% to 70% of the overall cost, Mr. Lock said. Cooking oil accounts for another 20% to 25%. The remaining costs are down to flavoring, cooking and packaging.

A big contributor to the soaring cost of potatoes is rising fertilizer costs, triggered in turn by higher energy costs. U.S. natural-gas prices earlier this month hit the highest level since August 2008. Gas is a feedstock for nitrogen-based fertilizers. That same gas is also used in most instances in cooking the chips.

The cost of keeping potatoes fresh for frying is also rising, thanks to energy costs. Potatoes are stored in warehouses for months after harvest, with farmers taking the burden of the costs.

“It’s not just a matter of getting [a potato crop] out of the ground. It’s also storing it,” said Aidan Wright, senior pricing analyst at Mintec, a food-focused commodity-pricing agency. “You think about the amount of electricity it takes to regulate temperature and then also think about how much electricity costs have gone up. So it’s not just a fertilizer issue.”

Usually higher potato prices provide incentives for farmers to plant more. Not this time, because of how high the costs are, said Ben Eborn, a potato-market expert who publishes North American Potato Market News.

“This year is different,” he said. “The 20% price increase may not fully cover the increase in a grower’s production costs.”

Cooking-oil prices have also soared. Ukraine is the world’s biggest producer of sunflower oil, the preferred frying oil. Shipments have all but stopped. Buyers have switched to alternative oils, driving up their prices. Mr. Lock said he used to buy sunflower oil for £500, or about $624, a ton. Now he pays more than £2,000 for an alternative, rapeseed oil.

Canola oil—a form of rapeseed oil commonly used in the U.S. and Canada—hit a record high of C$1,218.60, roughly $901, early last month.

Another soaring cost: The price of corrugated boxes, used to pack up chip bags, is up by 25%, said Amit Pandhi, chief executive of Los-Angeles based Velocity Snack Brands, the owner of chip brand Popchips.

“A lot of those raw materials come from global raw materials,” Mr. Pandhi said. “Even if you domestically source, the raw materials come from all over the globe.”

Corrections & Amplifications

Bags of potato chips sold by British Snack Co. sold for $1.80 this year and $1.50 last year at retailers. A Business article about food inflation incorrectly said the company was charging that price from the retailers it was supplying.

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