Australia’s food and grocery sector is facing a new wave of supply chain disruption, with the Australian Food and Grocery Council (AFGC) warning that escalating geopolitical tensions, rising energy prices and mounting domestic cost pressures are creating long-term challenges for manufacturers, suppliers and retailers.
The AFGC said the sector is experiencing a “perfect storm” that is driving up production costs and putting pressure on the viability of local manufacturing operations, which it attributes to surging oil, freight and fertiliser costs caused by the ongoing conflict in the Middle East and significant disruption through the Strait of Hormuz.
According to AFGC data, Brent crude oil prices were up 39 percent year-on-year to March 2026, while container freight costs rose 22 percent over the same period.
Sharp increases in commodity and packaging inputs were also recorded, with polyethylene prices up 25 percent between February and March 2026, and polypropylene up 33 percent since late February, directly impacting food containers, bottle caps and takeaway packaging.
Meanwhile, wheat was up 8 percent year-on-year and 11 percent between February and March 2026, while soybean oil prices were up 52 percent year-on-year, driven by both energy-linked biodiesel demand and supply constraints.
The council has warned that procurement and supply chain leaders across the sector are now operating in an environment where virtually every stage of production has become more expensive, from agricultural inputs and packaging through to manufacturing, transport and refrigeration.
Colm Maguire, Chief Executive Officer of the AFGC, said the current crisis has hit harder and is expected to last longer than the COVID-19 pandemic.
“What we are seeing now is deeper than a temporary logistics bottleneck. This is a fundamental shift in the cost of doing business,” he said.
“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.”
The AFGC said petroleum-derived products remain deeply embedded in food and grocery manufacturing, influencing factory energy consumption, food-grade plastics and films, and household essentials such as nappies and tissue boxes.
Australia’s geographic position at the end of many global shipping routes is also compounding freight pressures and cargo availability challenges, which are often reflected in container and freight prices.
Fertiliser markets have emerged as another key risk area, with the council reporting that urea prices rose 67 percent year-on-year to March 2026. As of early May, urea remains 26 percent higher than pre-blockade levels.
This has had a significant impact on Australia, which receives around 60-70 percent of its urea imports from the Middle East.
Suppliers, retailers and Australian manufacturers have absorbed significant cost increases for months to shield consumers during the cost-of-living crisis, the AFGC said, but it warns the current trajectory is unsustainable without broader cooperation across the entire supply chain.
“Retailers and suppliers cannot continue to swallow these increases without a long-lasting impact on our industry,” added Maguire.
“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.”
According to the AFGC research, if the industry fails to maintain a level of viability, the impact will be felt most heavily in regional communities where 30 percent of the sector’s manufacturing workforce is based.
“Our sector has the lessons of COVID-19 to shape decisions when major, lasting disruption hits and we have proven how resilient and dynamic we can be,” concluded Maguire.
“The sector, and the community at large, is rightly proud of the food and grocery manufacturing sector we have in this country – now more than ever we can all play a part in keeping it going.”
