Geopolitics, climate pressures and rising energy costs are reshaping the global food system. As fertiliser prices rise and supply chains become more fragile, food inflation is reflecting a broader shift towards a more fragmented and volatile world.
For many years, food prices were relatively stable across most developed economies. Global supply chains became more efficient, energy was abundant and agricultural productivity continued to improve. Consumers began to spend a smaller share of their household wallet on food than other goods.
That backdrop is beginning to change. The wars in Ukraine and the Middle East have highlighted how closely connected energy, geopolitics, and food security have become. Rising oil and gas prices do not just affect fuel bills or transport costs. They also feed into the global food system through fertilisers, farming inputs and agricultural supply chains.
The result is that food inflation reflects more than temporary shortages or poor harvests. It is becoming part of a broader structural shift towards a world shaped by geopolitical fragmentation, supply-chain resilience and volatile inflation.
“The wars in Ukraine and the Middle East have highlighted how closely connected energy, geopolitics, and food security have become.
Food inflation is rarely driven by one factor alone – weather patterns, geopolitics, labour shortages and trade tensions all interact within a long and highly complex supply chain.”
One of the clearest examples of this transmission mechanism is nitrogen fertiliser, which is heavily dependent on natural gas and accounts for a large proportion of farm production costs. When energy prices rise sharply, fertiliser prices usually follow. Farmers then face higher input costs for planting crops such as corn, soybeans and wheat.
These effects are not immediate, however. Farmers often hedge purchases and buy fertiliser months in advance, meaning the impact can take time to work its way through the system. That lag effect is one reason food inflation can remain elevated even after energy prices begin to stabilise. When fertiliser prices rise sharply, farmers may delay purchases or reduce application rates, potentially lowering crop yields further down the line.
This dynamic is already attracting attention from policymakers – for example, the Bank of England recently warned that higher energy and fertiliser costs could push UK food-price inflation higher through the remainder of 2026 and into 2027.
Climate pressures also continue to build. Droughts, flooding and extreme heat are becoming more frequent in key agricultural regions. There is also a near-term risk of a ‘Super El Niño’, which threatens to add further volatility to crop yields and commodity prices. Indeed, food inflation is rarely driven by one factor alone – weather patterns, geopolitics, labour shortages and trade tensions all interact within a long and highly complex supply chain.
Changing investment backdrop
In today’s environment of geopolitical tension and less flexible supply chains, there are higher chances of inflationary spikes occurring more often.
Countries are increasingly prioritising resilience, strategic supply and food security alongside efficiency. Governments are becoming more sensitive to strategic dependencies in energy, agriculture, and critical supply chains. Trade flows are evolving as geopolitical relationships change.
The rise of Brazil as a major agricultural exporter, for example, has altered global grain and soybean markets over the past two decades and given countries such as China greater flexibility in sourcing agricultural imports.
At the same time, agricultural inflation shocks are occurring more frequently and often taking longer to unwind. This creates a more supportive backdrop for businesses linked to food security, agricultural productivity and supply-chain resilience.
Production and productivity
One area of focus is fertiliser production – for example, CF Industries provides exposure to nitrogen fertilisers. The company is one of North America’s largest producers and benefits from access to relatively low-cost US natural gas.
Fertiliser markets are highly sensitive to geopolitical disruptions and regional energy prices. Around half of global urea exports pass through the Middle East, including key shipping routes linked to the Strait of Hormuz. When conflict or energy shortages disrupt supply, fertiliser prices can move sharply higher. Producers with lower-cost operations may therefore benefit from widening margins and stronger cash generation.
While fertiliser markets can be volatile, they also illustrate how food security and energy security are becoming increasingly interconnected.
Rising input costs and climate pressures are increasing the need for farmers to produce more food using fewer resources.”
A second area of focus is agricultural productivity. Rising input costs and climate pressures are increasing the need for farmers to produce more food using fewer resources. This is accelerating investment in precision agriculture, automation and data-driven farming technologies.
John Deere is one example of a business exposed to this trend. The company has expanded beyond traditional agricultural equipment into areas such as automation, digitalisation and precision-spraying technology. These tools can help farmers reduce fertiliser use, improve yields and manage costs more efficiently.
Over time, technologies that improve productivity and resilience are likely to become increasingly important as the agricultural sector adapts to tighter resource constraints and greater climate variability.
While short-term commodity prices will always fluctuate, the long-term challenge of producing sufficient, affordable and sustainable food is becoming more significant. For investors, that means food security is increasingly moving from the margins of portfolio discussions towards the centre of them.
Jeneiv Shah is global equities portfolio manager at Sarasin & Partners
