WEF 2022: Why are global food commodity prices near an all-time high?

Global food commodity prices went down slightly in April following an all-time high the month before, according to the UN Food and Agriculture Organization (FAO). The drop was led by a slight dip in the prices of vegetable oils and cereals. The FAO Food Price Index averaged 158.5 points in April 2022, down 0.8 per cent from March. But the Index, which tracks monthly changes in the international prices of a basket of commonly traded food commodities, remained 29.8 per cent higher than in April 2021.

The FAO Vegetable Oil Price Index decreased by 5.7 per cent in April, shedding almost a third of the increase registered in March, as demand rationing pushed down prices for palm, sunflower and soy oils. Uncertainty over exports out of Indonesia, the world’s leading palm oil exporter, contained further declines in international prices.

“The small decrease in the index is a welcome relief, particularly for low-income food-deficit countries, but still food prices remain close to their recent highs, reflecting persistent market tightness and posing a challenge to global food security for the most vulnerable,” said FAO Chief Economist Máximo Torero Cullen.

Upward pressure on food prices

But global prices for other foodstuffs like rice, meat, dairy and sugar have continued to go up.

The FAO Sugar Price Index increased by 3.3 per cent, buoyed by higher ethanol prices and concerns over the slow start of the 2022 harvest in Brazil, the world’s largest sugar exporter.

The Meat Price Index increased by 2.2 per cent from the previous month, setting a new record, as prices rose for poultry and other meat. Poultry prices were affected by disruptions to exports from Ukraine and rising avian influenza outbreaks in the Northern hemisphere.

Dairy prices were also up by 0.9 per cent, on the back of persistent global supply tightness as milk output in Western Europe and Oceania continued to track below seasonal levels. World butter prices rose the most, influenced by a surge in demand associated with the current shortage of sunflower oil and margarine.

Soaring cost of living

Higher global food prices are part of a wider trend of cost-of-living increases already at work in both advanced and emerging economies. The annual rate of inflation worldwide is 9.2 per cent driven by a surge in energy as well as food prices.

This has been exacerbated by Russia’s invasion of Ukraine. The Russian Federation and Ukraine, combined, supply around 30 per cent of global wheat exports and around a fifth of the world’s maize. Shortages of these and other commodities have destabilized global supply chains, sending food prices soaring.

Rising protectionism

Droughts and Covid-19 restrictions had already driven international food prices higher before the war in Ukraine. But the increased chaos in global food markets triggered by the conflict has also led to a new problem: food protectionism.

Some governments have been clamping down on exports of staples including grains, cooking oil and pulses. Soaring food prices and, in some cases, the threat of social unrest have led to an increase in exporters banning overseas sales or imposing taxes and quotas. These steps are severely impacting the developing countries that depend on international markets for food imports.
Republished from World Economic Forum-Agenda