Why Australian Grocery Prices Could Soon Surge Again
Synopsis
The Australian Food and Grocery Council has warned grocery prices are set to rise significantly as the US-Iran war pushes oil costs through the entire food supply chain. Oil has jumped from US$56 a barrel in January to over US$100, raising costs on fertiliser, packaging, transport, and factory energy. AFGC chief executive Colm Maguire said manufacturers have been absorbing price increases for months to protect consumers — but that buffer is running out. The council warns this is a fundamental shift in the cost of doing business, not a temporary blip, with price rises expected across a wide range of products.
Food prices are about to go even higher in Australia, and not just because of fuel. Even those crops aren’t immune: the Middle East war has pushed oil into every part of the food supply chain, from fertiliser on farms to plastic wrapping around bread. The Australian Food and Grocery Council is now warning that this is a permanent shift, not a short-term blip.
Key Highlights
- The US-Iran war is creating a perfect storm for grocery prices.
- Oil prices per barrel have risen from perhaps US$56 a barrel in January to between US$100 and US$110, driving up costs through every step of the food supply chain.
- Manufacturers and suppliers have been soaking up cost increases for several months.
- There is no clear answer on the extent of price rises,AFGC members are going through the implications item by item.
Australian Grocery Prices To Rise
The Australian Food and Grocery Council issued a dire warning that grocery prices will rise rapidly as oil and energy costs across the food supply chain continue to climb amid the ongoing US-Iran war. “The crisis has now spread to every link in the chain, from fertilisers used on Australian farms to transportation fuel for delivery trucks and energy costs driving food manufacturing facilities,” AFGC chief executive Colm Maguire said. “There is no simple answer to how much prices will rise, it is a very complex scenario,” he added.
Oil sat at around US$56 a barrel back in January before the Middle East conflict broke out. Since then, it has risen to the current US$100–US$110 a barrel, after March saw the effective closure of the Strait of Hormuz, which carries almost one-fifth of daily global oil use.
Why This Goes Way Beyond Just Grocery Prices in Australia
When oil is higher, fuel costs pump, and every $10 rise in oil, rises the vehicle’s fuel cost to somewhere around 10 cents. However, according to Maguire, the effect on grocery items extends well beyond transportation costs. Oil and petrochemicals are at play all over the grocery supply chain: in the plastic that holds milk, in wrapping on bread, tissue boxes (for coughs), nappies and packaging across thousands of product lines.
Fertilisers that are also commonly derived from oil are used in farms. Factory energy costs are rising. “It is difficult for even the average consumer to comprehend how much of what we consume has oil and petrochemicals touch it,” Maguire said. Grocery manufacturers are tackling the effects per product rather than categorically.
Impact on the Industries
Australian manufacturers, suppliers, and retailers have been trying to absorb as much of the increase in costs as possible for months so they do not pass on all the cost during a cost-of-living crisis which was already acute before this latest escalation of conflict in the Middle East. However, Maguire said they could not swallow those costs indefinitely. He then added, “This is a fundamental cost of doing business change. Because we are going to be living with this for a while”. The squeeze from mortgage repayments, energy bills and higher rents for Australian households could also come at a worse time.
FAQs
- Why are grocery prices increasing in Australia?
Due to Iran war against the US, which sent oil prices above $100 a barrel from US$56, costing fertilizer, transport, packaging and factory energy.
- When will prices rise?
AFGC members are working through the impacts on each policy one by one. Hikes will feed through progressively as companies run out of room to absorb rising costs.
- Is this all just driven by the costs of fuel?
No, oil and petrochemicals affect packaging, plastic wrap, bottles, fertilisers & energy for factories.
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