Food prices are rising due to the conflict in Iran, Russia's invasion of Ukraine, China's export bans on critical inputs, and the Trump Administration's tariffs. So, how is the Administration responding? Instead of addressing the problem head-on, the bureaucrats at the Federal Trade Commission launched an antitrust investigation into fertilizer companies.
Perhaps this approach makes good politics, but it won't provide families or farmers with any relief from rising costs.
The geopolitical conflicts contributing to the cost increases are complicated, and there is undoubtedly more at stake than just economics. The economic consequences, however, are straightforward.
Approximately 20% of the world's oil supplies were sourced from the currently closed Strait of Hormuz. This lost production is in addition to Russia's lost capabilities, which are estimated to be 40% of its export capacity. When oil supplies decline relative to demand, gas prices spike.
We are all too familiar with the pain at the pump caused by $6.00 gas here in California. Rising prices increase the costs of transporting all sorts of goods and services, including food. Thus, costly oil raises the costs of our grocery bills.
Higher energy prices also drive up the costs of producing food. Diesel fuel is used by the tractors, harvesters, and irrigation pumps farmers heavily rely on. Higher diesel costs increase farmers' expenses, ultimately raising food prices further.
It's not just the indirect impact from rising gasoline prices that is burdening food consumers either. Middle Eastern countries are major providers of petrochemicals used to create fertilizers and pesticides that are essential to produce our food.
Approximately one-third of the globally traded fertilizers and 50 percent of the world's seaborne sulfur (an essential fertilizer input) were passing through the Strait of Hormuz before the current Iran conflict. These reduced supplies are driving up prices for some fertilizer components by as much as 50%. Worsening the global shortage, China—a major fertilizer producer—has banned exports, creating additional pricing pressures.
Higher fertilizer costs and lower supply impede farmers' food production capacity, which reduces the global food supply and creates another price pressure point. These impacts will likely be more severe in lower- and middle-income countries, but we will not be spared from the increase in food insecurity.
Petrochemicals are also used to create the plastic used in food packaging. The petrochemical shortage increases plastic's production costs, which adds to the inflationary pressures on groceries.
However, it's a mistake to blame the whole cost impact on the geopolitical conflicts. Starting in February 2025, President Trump has been imposing higher taxes on the food U.S. families consume through his erratic and piecemeal tariff policy.
According to the Tax Foundation, 52% of U.S. food imports still face a tariff even after the Supreme Court ruled that the majority of President Trump's tariffs were unconstitutional. As an analysis from the New York Federal Reserve confirmed, nearly 90% of the costs of the tariffs are passed through to U.S. consumers, further increasing food costs.
Then there are long-standing problems associated with ill-advised regulations that have been increasing consumer costs for decades. For instance, the federal permitting process is notoriously long and costly, discouraging the development of domestic production capacity. The Jones Act, which requires all ships transporting goods between U.S. ports to be built, owned, and operated by U.S. citizens, adds $200 million a year in unnecessary shipping costs. These higher costs inflate the prices for a wide variety of goods, including food.
The good news is that policy changes can provide significant relief. Resolving the largest problem—the conflict in the Middle East—is difficult, especially as the considerations go well beyond the economy.
Regardless of whether the conflict ends soon, the adverse impacts on food prices will persist because it could take many months (if not longer) to get production and transportation back to pre-Iran conflict levels. However, the sooner the conflict can be sustainably resolved, the sooner the recovery process can begin.
Beyond resolving the conflicts, there are other helpful policies the Administration can take, including repealing the tariffs that inflate food costs and removing the regulatory barriers that create delays and increase the costs of producing oil and petrochemicals in the U.S. Specific regulatory changes include comprehensive permitting and regulatory reforms and repealing the Jones Act.
These reforms will shorten regulatory delays and lower companies' compliance costs. Reduced compliance costs will directly lower the prices for key inputs—such as oil and fertilizers. Reducing production costs will lower the prices consumers pay. Amplifying the benefits, the lower regulatory burden will incentivize increased domestic production, which will create additional downward pressure on prices.
Launching a bureaucratic federal investigation is a distraction from the geopolitical conflicts and harmful federal policies driving the food affordability problem. While resolving the Iran conflict is complex and there are many non-economic considerations, those realities do not excuse political theatrics. The federal government can, and should, help families struggling with rising food costs by reforming the ill-considered regulatory policies that are meaningfully inflating the price of food.
Wayne Winegarden is a senior fellow in business and economics and director of the Center for Medical Economics and Innovation at the Pacific Research Institute. You can reach Wayne at: wwinegarden@hotmail.com
