Rising raw material prices hit the food industry

Following the inflation peak of 2023, supermarket prices stabilized at a higher level. Leading indicators now point to mounting price pressure. ABN AMRO expects food inflation to rise again in late 2026 and throughout 2027. Not all food manufacturers can pass higher costs on to retailers in full. This is putting pressure on margins across the food industry.

Raw materials become more expensive

Within the European Union, agricultural commodities account for around 40 percent of food production costs. The remaining 60 percent consists of energy, transportation, packaging and labor.

The FAO Food Price Index rose 7 percent during the first eight months of 2026. Europe and the United States again recorded extreme heat and drought last summer. According to the European crop forecasts published in August, expected yields remain 7 percent below the five-year average.

The sugar price index rose 12 percent in August. The European sugar beet harvest is disappointing, while Asian crop forecasts are deteriorating. In addition, more Brazilian sugarcane is being used to produce ethanol. Meteorologists expect El Niño to strengthen considerably by the end of 2026.

Energy and labor add to the pressure

The war in Iran is driving up energy prices. This directly affects food production and indirectly raises transportation and packaging costs. Natural gas still accounts for around 70 percent of the sector’s energy mix. Long-term energy contracts shield companies from higher prices. Cost pressures increase when those contracts expire.

Container shipping rates and fuel prices also remain high. Low water levels made inland waterway transport in Europe more expensive last summer. Labor accounts for around 15 percent of total production costs. In the second quarter of 2026, collectively bargained wages in the food industry rose 4 percent year over year.

Negotiations grow tougher

Historically high global inventories of grains, wheat and rice are softening the impact of unfavorable weather. A large share of agricultural commodities is purchased in advance through contracts. As a result, price fluctuations feed through to purchasing costs only partially and gradually.

According to ABN AMRO, food manufacturers will feel the higher costs toward the end of 2026. Retailers remain reluctant to accept a full pass-through of these costs. The previous peak in food inflation is still having an impact. Negotiations between manufacturers and retailers are therefore expected to grow tougher. Not every manufacturer can pass on all higher costs, increasing the pressure on margins.

Abnamro.nl