The Trade Zone

Food prices were expected to stabilize globally in 2026, but disruptions have materially changed that outlook. Instead of easing, risks are now skewed toward renewed food inflation.

The biggest geopolitical driver right now is the Middle East conflict, specifically disruptions to a critical artery—the Strait of Hormuz—for global energy and fertilizer trade. The World Bank now expects energy prices to jump roughly 24% in 2026. This rise in energy prices matters for food prices as energy feeds directly into transportation, processing, and refrigeration. This is a classic second-round inflation effect: food inflation lagging energy inflation by several months.

Disruptions to fertilizer supply chains is the hidden risk to food prices from conflict (and the most underpriced one). Fertilizer prices are projected to rise 31% as roughly a third of global fertilizer trade flows through Hormuz, according to the World Bank. Urea, a key fertilizer vital for boosting crop yields, is up 86% in March 2026, compared to the same time last year, with a 53% jump since February alone on Middle East troubles.

Generally, the fertilizer price shock creates a delayed but powerful effect: Farmers reduce fertilizer usage, leading to crop yields decline, a surge in food prices rise is triggered—with a lag (2026–2027).

We’re already seeing early signals of this effect with farmers expected to plant fewer acres of crops and tightening grain balances into the 2026-2027 season, according to the International Grains Council.

Layering in climate risk, this year’s food production outlook has flipped from benign to another accelerant to rising global hunger. This growing season, farmers are expected to face what projections are calling a “super” El Niño-related disruption, causing droughts across Asia and Australia, while potentially dumping the excess moisture in North and South America. These hard-to-predict weather dynamics could hinder production across the world’s biggest breadbaskets growing rice, wheat, and soybeans.

Globally, an estimated 363 million people are at risk of acute hunger in 2026—a rising number with growing conflicts and climate change effects, especially heat waves and droughts, that challenge food production and access in developing and unstable countries.

In Canada, a nation of abundance, people experiencing food insecurity are most impacted by food affordability. And global disruptions are expected to rise prices even further in 2026. The most recent estimates from Canada’s Food Price report project a 4% to 6% jump in food prices for Canadians between 2025 and 2026-that’s nearly an extra $1,000 dollars on groceries per year for an average family of four.

What to watch for: Reactive policy from food inflation could further disrupt global trade flows. Geopolitics can reset trade flows when global risks intensify through export restrictions to protect domestic food stocks and monetary tightening by central banks can suppress demand but raise global volatility in supply chains.

Bottomline: Food access and price risks have moved from moderate to accelerated. Food inflation expectations are being revised, higher, and quicker: The United Nation’s Food and Agriculture Organization’s Food Price Index is up 2.4% between February and March 2026, with notable pressures in oils, sugar, and grain prices.

—Lisa Ashton

Foreign investors’ Canadian playbook amid the trade war

Ottawa is preparing a summit later this year to attract $1 trillion in new investments over five years. The February securities data offers an early read on the foreign investors’ Canadian playbook.

Global investors are staying in Canada, but repositioning around the trade war. In February, foreign investors put $6.2 billion into Canadian securities, adding to the $106 billion accumulated over the past four months. At the same time, Canadian investors deployed $25.4 billion into foreign securities—the largest outflow since March 2024. While monthly securities data is volatile by nature, the net result was a $19.2 billion outflow from the Canadian economy. The headline, however, understates what is happening. The February data is less a single story than three simultaneous ones—foreign investors distinguishing between Canadian credit and growth, domestic capital chasing U.S. returns, and a market navigating the trade tumult.

Within equities, the rotation is structural, not random. Foreign capital is rotating hard within Canadian equities—out of energy and manufacturing, into banks. Foreign investors sold $9.2 billion of Canadian equity securities in February, even as the benchmark TSX rose 7.6%. At the sector level, credit intermediation and related services absorbed $12.1 billion in February alone, the largest single-sector inflow in the dataset. Energy and mining shed $9.4 billion  the same month, its weakest reading in the past five months. Manufacturing has posted outflows in four of the past five months. This pattern isn’t random: foreign allocators are concentrating in assets insulated from trade disruption (e.g. banks) while cutting the ones that aren’t (energy and manufacturing).

The bond market offers some comfort. Foreign investors added $22.6 billion in Canadian bonds in February, including $11.1 billion in corporate bonds, mostly foreign currency bonds issued by Canadian financial corporations—and $8.4 billion in federal government bonds. At the same time, they sold $9.2 billion in Canadian equities. It demonstrates foreign investor’s confidence in Canada’s credit, and more caution towards equities.

—Sydney Wisener

The week that was

USTR provided more CUSMA comments

• U.S. Trade Representative Jamieson Greer told an audience in Washington that “America First” will continue to guide policy, and that the Canada-U.S.-Mexcio trade deal put its two partners in the most enviable trading position with the U.S.

• Greer did signal a willingness to work with Canada on energy and critical minerals development but warned against using those as leverage in trade negotiations. Almost on cue, U.S. President Donald Trump signed an order authorizing a proposed Canada-Wyoming oil pipeline.

Top EU trade official leaving position over disagreements on U.S.-EU deal

• Sabine Weyand will step down as Director-General for Trade after raising concerns that the agreement the EU struck with President Donald Trump does not meet global trade rules.

• The President of the European Commission Ursula Von Der Leyen has repeatedly defended the deal—where the EU agreed to pay 15% tariffs on most products while reducing tariffs on most American goods to zero—as the first step towards a broader free trade agreement.

OECD reports sustained increase in critical mineral export restrictions

• Analysis shows export restrictions on critical minerals have increased fivefold since 2009, with more countries applying controls across defence, technology, and energy inputs.

• China continues to dominate supply, producing roughly 70% of rare earths and over 90% of some key materials, with recent export disruptions highlighting ongoing supply chain vulnerabilities.

China warns of retaliation over EU “Made in Europe” proposal

• China’s commerce ministry warned the EU it may take countermeasures if the bloc’s proposed Industrial Accelerator Act restricts access for Chinese firms to subsidies and procurement.

• The EU initiative is squarely aimed at reducing dependencies on China, and seeks to raise manufacturing’s share of GDP to 20% (from 14.3%) by 2035.

—Thomas Ashcroft