GLOBAL – Global food prices reached a six-year high in December last year and are likely to keep rising into 2021, according to the UN’s Food & Agriculture Organization.
FAO in its report said that adverse weather, government measures to safeguard supplies and robust demand helped fuel rallies across agricultural commodities from grains to palm oil.
The spike threatens to push up broader inflation, making it harder for central banks to provide more stimulus to shore up economies, while stirring memories of food-price crises a decade ago.
This is an unwelcome consumer whose incomes have been hurt by the Covid-19 crisis, and adds to concerns about global food security that’s being affected by conflicts and weather shocks.
According to FAO, concerns for food security are especially true for the poorest countries having to contend with limited social safety nets and purchasing power.
“We do at this point see more factors pushing up global food prices,” said Abdolreza Abbassian, a senior economist at the FAO.
“Food inflation is a reality and while people have lost income, they are as we speak going through a tremendously difficult hardship.”
Corn and soy futures rallied to six-year highs as drought threatens crops in South America at a time of surging Chinese demand, while palm oil — used in about half of all supermarket goods — is near a 10-year high.
Protectionist measures are also propping up markets, with Argentinian farmers planning a protest strike after the government suspended corn-export licenses, while wheat giant Russia will curb grain exports from mid-February to tame food inflation.
Commodities priced in dollars — often seen as a hedge against inflation — should remain supported as the greenback falls further this year, Abbassian said.
Abbassian however noted that an economic recovery in some parts of the world will probably fuel consumer spending and food demand, propping food prices even further.
Rabobank International notes that weather concerns, government intervention and strong exports to China could also push agricultural markets higher this year.
Joe Stone, head of crop merchant Cargill Inc.’s agriculture supply chain and corporate trading, on the other hand, noted that soy prices have become expensive enough that the world will need to ration demand.
The FAO’s food price index has risen for the past seven months, with annual prices capping the highest average in three years.
Still, costs remain well below peaks in 2008 and 2011, when soaring prices caused political and economic instability around the world and grain-export bans tightened supply.
A more optimistic Tim Benton, research director in emerging risks at Chatham House in London noted that although commodity price inflation is very real, it’s still nothing like a decade ago.
Brenton adds that he is reasonably confident that it’s not going to lead to big things as per a decade ago, although “Covid has the potential to upset things in terms of flows of goods and in terms of access to labour.”
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