Economic fallout from the war in Ukraine is already being felt in New Zealand, with soaring fuel and food prices, a rising New Zealand dollar and widespread supply chain disruption, with worse expected in the coming months.

Chris Edwards​, who is managing director of international air and sea freight logistics business Go Logistics, says supply chain disruption is even worse than when Covid-19 first hit.

“This is probably the worst single point we’ve been at over the past two years in the supply chain,” Edwards says.

Russia is traditionally a big player in the air cargo sector, but international sanctions against Russia have removed its aircraft as a freight option, he says.

“Because of the embargoes on those aircraft there’s now a huge push to try to find air freight capacity from Europe into the rest of the world,” Edwards says.

Air freight costs are already high because of the pandemic, and now they are increasing even further, he says.

He says a customer who sends airfreight from Germany to Hong Kong is now having to pay five times what it cost before the war.

“That’s one demonstrable affect.”

He says a large Russian and Chinese owned rail network from China to Europe is also being affected by embargoes on some rail movements of containers.

That is causing European seaports to become congested as people look to put containers unable to move by rail, on to ships, he says.

“Although there’s not an official embargo yet on that rail network we are expecting to see it.”

Congestion and rising fuel costs are translating into supply chain price inflation, he says.

If congestion worsens, which is expected, it will lead to significant delays and congestion surcharges being added, he says.

“Again that translates to higher prices for New Zealand imports.”

Those importing from Europe will be the most affected by the war in Ukraine, he says.

Unlike fuel costs, which are immediately felt, the impact of shipping disruptions on the price of consumable goods may take months to be felt in New Zealand, he says.

The war is also expected to hit food prices, with Ukraine and Russia both large producers and exporters of corn and wheat.

Danny Schlierike, a spokesman for breakfast cereal maker Hubbards, says the war has had an immediate impact on its business.

Wheat pricing has been quoted as being up 60 per cent, he says.

Rising fuel costs will affect all major commodities as freight pricing and production costs increase, he says.

In mid-March, it was notified of a 30 per cent increase to the fuel adjustment factor (freight rates to cover the cost of fuel), he says.

Sugar pricing rallied as a direct impact of the unrest, as rising oil prices prompt mills to switch to ethanol production, which will likely lower sugar production output, he says.

Ukraine and Russia sunflower, which is used in most of Hubbards’ cereal range, is predicted to increase by 33 per cent, he says.

The tightening supply of sunflower has also caused immediate increases of 11 per cent to other oil products, he says.

“This added to current global supply chain issues everyone is already feeling will see a real impact in months to come.”

“Although our product is not derived from Russia or Ukraine we are going to see the knock-on effect as demand increases from alternative markets,” Schlierike says.

Isabel Pasch​ started Auckland organic bakery Bread and Butter in 2013.

Originally from Berlin, Germany, Pasch says the war in Ukraine feels close to home for her.

With Russia and Ukraine being big wheat exporters she has been following developments to see what impact the war may have on wheat prices, she says.

“I’ve been very aware of that,” Pasch says.

One of the first things she did when she heard of the sanctions against Russia was call her flour supplier to ask about the flour price, she says.

Bread and Butter has a flour price which is agreed on every six months. She was told that there was no immediate price change in the organic flour market, she says.

“I can relax for the next few months.”

But if there’s a big price spike in the market for regular flour, the organic price will also likely change, she says.

She sources wholemeal and rye flour from New Zealand, but most of her white flour is imported from New South Wales.

Ingredients had been increasing in price even before war broke out, especially chocolate and dairy, she says.

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“International shipping costs have gone through the roof.”

There has also been a big jump in labour costs over the past four months, and wages now made up 50 per cent of overall costs, whereas in normal times wages accounted for a third, she says.

“Combined with all of that our turnover is through the floor because of the current Omicron outbreak.

Most of its revenue comes from the bakery wholesale side of the business which sells to other hospitality businesses, she says.

In September, Bread and Butter increased prices by 5 per cent in response to rising costs and now another price rise is on the cards, she says.

“We will do another one probably after Easter.”

Those price increases will come at a difficult time for its wholesale hospitality customers, who are also struggling in the current environment, she says.

“It’s pretty tough times in hospitality, I’ve never seen it like this.”

Meat exporter Greenlea Premier Meats managing director Tony Egan​ says there hasn’t been “a runaway” of beef prices, but it is still early days and the market is yet to settle.

“We haven’t seen significant upward movement in the market at this stage,” Egan says.

“However, grain price movement and oil price movement will certainly change food price dynamics.”

Having predominantly grass-feed animals is an advantage for New Zealand farmers, he says.

“Our industry doesn’t rely on grain as much as it does in the Northern Hemisphere.”

Greenlea exports Waikato-raised beef as chilled and frozen cuts to more than 40 countries, but very little to Russia or Ukraine, he says.

“That area of the world is not a big market for us because we’ve become very Asia and US-centric in our business.”

About 90 per cent of its production is exported and any increase in international meat prices will be good for its farmer suppliers.

“But it’s early days, and it remains to be seen how the global food system is going to settle down from this disruption.

“Essentially there’s a positive story for New Zealand as a grass-based protein producer who can do that efficiently with current resources.”

Costs are inflating and the increasing price of oil will add to its export costs, he says.

The price of imports into the United States tends to be a barometer for meat prices, he says.

But there are so many markets and products, pricing depends on demand from each market, he says.

He says he factors in the New Zealand dollar on a weekly basis.

“We buy it at a price from the farmer, and we sell at a price into the market and the exchange rate’s in the middle. We just try to modulate that activity.”

Marlborough airline Sounds Air chief executive Andrew Crawford says it has seen a 56 per cent increase in the aviation fuel it used, Jet A1, over the past year.

“It was a dramatic increase before Ukraine, but now it’s just got worse.”

Price increases will have to be passed onto customers in the way of higher airfares, he says.

That might mean a $100 fare is $10 or $15 more than it would have cost before oil prices spiked, he says.

“We can’t absorb it at the moment. We’re in serious crisis anyway because of Covid.”

He says a stronger New Zealand dollar is helping keep down the price of aviation parts, most of which come from overseas and are traded in US dollars.

“Aviation parts are not cheap, so that makes a marked difference.”