AFGC warns on supply chain cost spiral

The Australian Food and Grocery Council (AFGC) has warned that a convergence of Middle East conflict, energy market disruption, and domestic interest rate pressure is forcing unsustainable cost increases onto the nation’s food and grocery manufacturers.

Data from the AFGC showed 98 per cent of its members have seen input costs rise since conflict in the Middle East escalated in February 2026, with more than half reporting increases of between five and 20 per cent, and 18 per cent seeing costs rise by more than 20 per cent.

The trigger point was the February 2026 blockade of the Strait of Hormuz, a chokepoint that previously carried approximately 30 per cent of global seaborne oil trade, 20 per cent of LNG trade, and up to 30 per cent of traded fertilisers. Tanker traffic through the strait collapsed by more than 90 per cent within days.

The effect on input costs has been rapid and broad. Brent crude is up 39 per cent year-on-year to March 2026, with a 43 per cent rise recorded between February and March alone. Container freight costs have risen 22 per cent year-on-year and 30 per cent between February and March, pushing up landed costs across packaging, fertilisers, and finished goods.

Key input cost movements – year-on-year to March 2026

For manufacturers, these pressures compound across every stage of production. Petroleum derivatives are embedded in most food-grade plastic and film packaging. High-heat processing and refrigeration face record energy costs. And Australia’s position at the end of global shipping lanes limits cargo availability, amplifying freight premiums.

Fertiliser markets have been among the hardest hit. Around 60 to 70 per cent of Australia’s urea imports originate from the Middle East, leaving supply directly exposed to the Strait of Hormuz disruption. Urea prices are up 67 per cent year-on-year to March 2026, including a 39 per cent rise between February and March, and remain 26 per cent above pre-blockade levels as of early May.

AFGC CEO, Colm Maguire, said what was occurring was deeper than a temporary logistics bottleneck.

“This is a fundamental shift in the cost of doing business. From the fertilisers used on our farms to the fuel in the trucks that transport and the energy powering our factories, every single link in the chain is more expensive,” Maguire said.

The AFGC said manufacturers have absorbed increases where possible to protect consumers during the cost-of-living crisis, but that the current situation cannot continue without broader supply chain participation. A May interest rate hike has added further pressure to an already strained operating environment.

The council has pointed to regional exposure as a particular concern, noting that 30 per cent of the sector’s manufacturing workforce is based outside major cities, making those communities especially vulnerable to any contraction in domestic manufacturing capacity.

“Retailers and suppliers cannot continue to swallow these increases without a long-lasting impact on our industry. To protect jobs, livelihoods, farms, and to ensure the sustainability of Australian manufacturing, profitable operations are not a luxury, they are a necessity for Australia’s domestic sovereignty,” he said.

The AFGC said it is continuing to work with the full supply chain on the issue and is also running consumer education on how oil prices flow through to everyday grocery products, from packaging films and nappies to refrigerated goods and processed foods.