Volatile markets costing farmers as Middle East conflict continues

Rising energy costs are squeezing producers, pushing up farm expenses and rippling through feed, transport and processing as oil markets remain volatile.

That pressure is already moving through the food system in uneven ways, with economists saying the impact depends not just on fuel prices themselves, but on how quickly businesses are forced to adjust pricing decisions, contracts and supply arrangements.

Hog producers are already paying more for diesel on farm, and costs for propane and natural gas are expected to climb as well if unrest in the Middle East keeps oil markets volatile, said Cam Dahl, general manager of the Manitoba Pork Council.

“That will lead to increased transportation costs for things like feed and processing and will impact the price that processors can afford to pay as they face increased shipping and trucking costs, along with increased processing costs.”

However, producers have little ability to shield themselves from these price spikes because energy inputs are essential to how farms operate and there are no real alternatives, Dahl added.

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“The impact of energy spikes is only going to grow over time.”

While producers are feeling the immediate cost pressure, economists say the way those increases show up further down the chain is less straightforward.

Moshe Lander, a senior lecturer in economics at Concordia University, says companies are weighing a tough choice between absorbing higher costs for now or passing them on to consumers, with the risk they may have to reverse those price changes if markets settle later.

The other option is to absorb the costs themselves.

Many companies initially did so, expecting the disruption to be short-lived, but that approach has shifted as higher energy prices have shown no sign of easing.

“Now that we’re heading into a third month, I think the realization is this is not ending any time soon,” Lander said.

“So, businesses slowly, over the last few months, have been reaching that tipping point.”

How quickly fuel costs show up in prices depends on the product and the type of supply agreements in place. Perishable goods that move quickly tend to reflect changes sooner, while products tied to longer-term contracts or slower turnover often lag behind.

That means higher fuel costs don’t hit all consumers at once, even though transport and production costs are shifting immediately. What looks like fuel-driven price pressure is often tied to broader market volatility, which complicates long-term pricing decisions, Lander said.

“The more volatility there is, whatever contract we agree to exposes one side or the other or both to that volatility.”