Μake us preferred on Google Climate change, rising production costs, pressure on the agricultural economy and stronger demand are creating a new and more persistent food-price environment, according to UBS, which says the historical average food inflation rate of around 2.5% may now be a thing of the past.
Although global food inflation has eased considerably from the highs recorded after the pandemic, the Swiss bank argues that the conditions are now in place for a structurally higher level of prices.
Severe heat episodes recorded around the world in 2026, combined with the development of El Niño, are increasing pressure on supply and bringing food security back into focus.
Five Factors Are Permanently Changing the Outlook
UBS identifies five main forces that it believes will keep food inflation elevated over the medium and long term.
First, climate disruptions and extreme weather are causing increasingly frequent production problems and could, on their own, add roughly 0.9 to 3.2 percentage points to food inflation.
Second, low farm profitability is limiting investment, making it more difficult to improve productivity.
Third, stricter animal-welfare rules are increasing production costs in the livestock sector.
Fourth, labor costs have risen faster over the past five years than their long-term average.
Fifth, global demand for food continues to grow faster than supply.
UBS says businesses are increasingly shifting their priorities away from securing the lowest possible prices and toward ensuring reliable access to supplies.
Most Higher Costs Will Be Passed on to Consumers
The bank acknowledges that intense competition in food retail and the development of new agricultural technologies, known as AgTech, can absorb some of the pressure.
However, UBS estimates that profit margins across the supply chain have been squeezed to such an extent that most of the higher costs will eventually be passed on to consumers, keeping food inflation elevated, although the impact will vary from country to country.
UBS also expects food consumed at home to regain some of the market share it lost in recent years, creating a more favorable outlook for organized food retail.
By contrast, discretionary spending categories are expected to come under greater pressure as consumers devote a larger share of disposable income to basic food needs. That means greater vulnerability for restaurants and nonfood retailers.
Impact Varies by Region
UBS notes that although the same structural pressures affect almost all economies, their impact differs significantly by region.
The United Kingdom is seen as the market in the strongest position. It faces all five major pressure points, but more rational competition in food retail allows a greater share of higher costs to be passed through to final prices.
In Europe, by contrast, the more fragmented market structure limits companies’ bargaining power and makes it harder to raise prices.
In the United States, structural cost pressures are largely offset by intense competition, meaning food inflation is expected to remain close to historical levels.
In Latin America, Brazil appears relatively protected because it is less affected by rising labor costs and animal-welfare standards, while technological improvements are supporting the supply outlook.
By contrast, in ASEAN countries, high production costs and the possible strengthening of El Niño in the second half of the year are expected to keep inflationary pressures elevated.
In China, UBS forecasts a gradual rise in food inflation as higher international costs are increasingly passed through to the domestic market.
In Australia, stricter regulations and animal-welfare requirements are increasing operating costs, although retailers may absorb part of the burden themselves.
India is the exception, with government intervention and improving productivity expected to keep food inflation below historical levels.
Technology Is Part of the Solution, but Not Yet
UBS believes new technologies could significantly improve agricultural productivity and reduce costs over time, but it does not see them as an immediate solution.
The bank highlights five main areas of innovation: precision agriculture, improved seeds, biotechnology and crop protection, controlled-environment agriculture, automation and robotics in farming, and precision livestock farming.
Investment in the sector has accelerated sharply. According to UBS, AgTech companies raised about $14 billion between 2020 and 2025, compared with just $6 billion between 2005 and 2019, with seeds, biotechnology and controlled-environment agriculture attracting the largest share of capital.
However, widespread adoption remains constrained by high upfront investment costs, operational complexity and uncertainty over investment returns.
Which Sectors Stand to Gain — and Lose
At the industry level, UBS sees the strongest positioning among agrochemical and fertilizer companies in the United States and Brazil, as well as companies involved in agricultural and livestock production in Brazil.
By contrast, it sees a more negative outlook for U.S. food, personal care and beverage companies.
In retail, UBS expects grocery chains in the United Kingdom, European Union, Australia, ASEAN countries and India to benefit from the gradual increase in household spending on basic goods, while maintaining a more neutral view on the United States.
