Global supply crunch

Food prices will remain elevated in the near term

The world is staring at one of its worst food crises in recent decades due to poor harvests in many regions and an acute supply crunch triggered by the Russia-Ukraine conflict, and exacerbated by precautionary export cuts by food exporters. About 15 countries are reported to have imposed curbs on food and fertiliser exports, shoving global food inflation to record highs and causing food shortages in many countries. Indonesia’s ban on the shipments of palm oil and India’s restrictions on wheat exports are the latest instances of the cautious approach adopted by various nations to safeguard their domestic interests.

Strong economic recovery following the slackening of the Covid-19 pandemic, an inflationary impulse from monetary policies of some key economies, and a relentless spike in energy costs have also contributed to the steady uptrend in the prices of farm goods. Besides, unfavourable weather in many countries has adversely affected crop yields, further tightening the supplies. The US Department of Agriculture has announced that the wheat exports this year would be the lowest since 1973, owing to crop loss due to drought. The overall global food production is anticipated to be below par this year, mainly due to a hefty 35 per cent dip in Ukraine’s wheat output. Russia and Ukraine together account for about one-third of the wheat and two-thirds of the sunflower oil traded in the world. Russia is also one of the largest suppliers of fertilisers.

The United Nations Food and Agriculture Organisation (FAO) data indicates a 20 per cent increase in the prices of cereals, 28 per cent in vegetable oils, and 8 to 10 per cent in other food items like sugar, meat and dairy products in the current year. The increase over the corresponding period last year works out to some 34 per cent in cereals and 46 per cent in vegetable oils. Although the FAO’s overall food price index fell marginally in April 2022 from its highest-ever level in March, it is still 36.4 points (29.8 per cent) higher than its May 2021 level. A recent World Bank report has projected wheat prices to swell by more than 40 per cent in 2022. India is not a significant player in the global wheat bazaar, but in the case of rice, the other most consumed staple cereal, it is an established supplier. It exported over 21 million tonnes of rice in FY22. Though its wheat exports also bounced to over 7 million tonnes last year, the bulk of these shipments went to Bangladesh alone.

This year, however, India was expected to play a role in mitigating the current food crisis with Prime Minister Narendra Modi telling US President Joe Biden that it could supply foodgrains if the World Trade Organisation allowed it to do so. But the sudden promulgation of a ban on wheat exports, even if conditional, soon after such a proclamation took the world by surprise, evoking flak from many quarters. This hastily-taken decision has been questioned in the domestic circles as well because, going by the government’s own foodgrain availability data, the country has ample stocks to meet its domestic needs and yet export some to the needy countries. It would have been better for New Delhi to avoid putting contentious curbs on grain exports.