A drop in the price of oil won’t undo the damage. Add in the federal industrial carbon tax hike and affordable food may be a thing of the past
When news broke that the Trump administration and Iran had agreed to a two-week ceasefire, markets reacted instantly. Oil prices plunged within minutes, wiping out days of gains and triggering a wave of optimism. For many consumers, the assumption seemed obvious: lower oil prices should mean lower food prices.
That assumption is fundamentally flawed.
What matters for food prices is not the direction of oil markets in a given moment. It is volatility. And right now, volatility is acting as a hidden tax on the entire food supply chain.
Since Jan. 7, when West Texas Intermediate (WTI) crude was trading at roughly US$55 per barrel, oil markets have experienced extreme swings. Prices surged as high as US$116 this week amid geopolitical tensions, with some forecasts suggesting a potential spike to US$200. Then, almost instantly, prices fell back below US$100 following the ceasefire announcement.
At first glance, such a drop appears to be good news. In practice, it creates a more complex, troubling dynamic for food distribution.
Food logistics systems do not operate on daily spot prices. They operate on risk. Oil prices affect food costs through diesel fuel for transportation, fertilizer production, food processing and long-distance distribution.
Transportation companies responsible for moving food across vast distances must anticipate future costs, not react to temporary dips. When markets become unpredictable, these firms adjust by embedding risk premiums into their pricing. Fuel surcharges increase and contract rates rise to absorb uncertainty.
And those costs do not disappear when oil prices fall.
This is the key issue often overlooked in public debates: see-saw oil markets drive sustained increases in food distribution costs, even when prices decline in the short term.
A carrier negotiating rates today is not pricing fuel based on a temporary drop below US$100. It is pricing based on recent peaks of US$116, and the credible risk of even higher spikes.
That uncertainty does not stay in the system. It gets passed on.
By the time food reaches store shelves, those risk-adjusted costs are already built in. In effect, consumers are paying for volatility.
In Canada, this dynamic is now being intensified by policy. As of April 1, the federal industrial carbon price rose to $110 per tonne. While the consumer carbon charge on fuels has been removed, the industrial system remains firmly in place. For food producers, processors and distributors, this matters. The industrial carbon price applies to large emitters such as fertilizer producers, food processors and major industrial facilities, meaning energy-intensive activities from fertilizer production to processing and freight are still subject to carbon pricing.
Layered onto volatile oil markets, this creates a compounding effect. Businesses are managing not only unpredictable fuel costs, but also a steadily rising carbon cost embedded in operations. Volatility sets the floor; carbon pricing raises it.
Canada is particularly exposed, with a food system that depends heavily on long-distance trucking across provinces and cross-border supply chains with the United States. When fuel costs become unpredictable, the entire chain from farm to shelf absorbs higher operating costs.
And once those costs move through the system, they rarely come back down quickly.
Compounding the issue is the stickiness of food prices. Retail prices rise quickly when costs increase but fall slowly, if at all. There is also a lag effect. Energy shocks typically take six to nine months to filter into retail food prices. What is happening in oil markets today will not show up immediately at the checkout, but it will show up.
The recent ceasefire, while geopolitically significant, does little to change this trajectory. A short-term pause does not eliminate uncertainty; it prolongs it. Markets remain cautious, and businesses continue to price defensively.
For food distribution, that means higher costs remain locked in, regardless of short-term movements in oil prices.
Too often, the conversation around food inflation focuses narrowly on grocery margins. While retail dynamics matter, they overlook the structural drivers upstream: energy, logistics and global instability.
If policymakers are serious about food affordability, they must look beyond the checkout aisle. Energy markets, and increasingly carbon policy, play a foundational role in determining the cost of food.
Oil may have dropped sharply on news of a ceasefire, but that does not mean relief is coming.
In today’s food economy, it is not the price of oil that matters most. It is the unpredictability surrounding it.
Dr. Sylvain Charlebois is senior director of the Agri-Food Analytics Lab at Dalhousie University and co-host of The Food Professor Podcast.
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