Aldi Food Chain has increased prices by 20 to 50 percent in one day! The German Retail Federation (HDE) has warned that the price hikes are likely to continue in the coming days, not just at Aldi but in all supermarkets, due to Russia’s war on Ukraine and the increase in energy costs. Meanwhile, the US has confirmed that it will announce additional sanctions on Russia in coordination with its allies in Europe. Russia’s major exports by value in 2021 were crude oil, refined petroleum oils, coal, gold, and goods made from semi-finished iron or non-alloy steel. Russia is also a significant exporter of fertilizers. Interruption in the fertilizer trade will significantly decrease agriculture productivity and significantly increase the price of food in the retail market. Sanctions against Russia are equivalent to setting explosives in the basement of a tall building, the building being the world economy.
The primary goal of a democratic republic should be to feed its people while upholding the rule of law and free and open markets, and yet governments are doing the opposite. When Germany ignores the rule of law and nationalizes the Russian gas company Gazprom, when it refuses to tap into the gas that sits in the Nord Stream 2 Pipeline, it undermines its democratic foundation. Before the war, forty percent of Germany’s gas came from Russia. All countries are adversely affected by the Ukraine war, particularly countries that import most of their food, gas, oil, and basic supplies. Meat, sausage products, butter, and 400 other items are more expensive amid rising production and energy costs due to the Russia-Ukraine war. Countries that export basic materials are cutting back because of increased costs and the lack of raw materials, including the United States. World trade is in a deep dive. Russia and Ukraine account for a quarter of the world’s wheat exports, and these exports have ceased to western countries. Wheat prices have hit record highs as war halts key exports from Ukraine and Russia. How worried should we be with fractured supply chains, rising costs, and failing agriculture production? Could this lead to depression and more government control?
Food faces a perfectly inelastic demand curve. That is, it is perfectly vertical. Because food is a necessity with no substitutes, when the price of food increases, people will cut back on other purchases and buy the same amount of food. Food quality may change, hamburgers over steak, but the quantity will not vary. Meanwhile, the demand for non-necessities will decrease, causing more unemployment. An increase in costs, what a business pays to produce, will cause the supply curve to shift to the left because a farmer cannot grow as much food with increased costs. Any shift to the left of the supply curve will have a pronounced effect on food prices due to the vertical demand curve for food. For example, if a farmer faces a five percent increase in costs, food prices may increase by twenty percent. America’s sanctions against Russia will cause depression and undermine our freedom. Is this the end game of the war in Ukraine?
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