Food for thought

Global food prices posted the biggest annual drop since 2015, amid signs that lower wholesale food prices are starting to feed through to supermarket shelves.

An index of food-commodity prices created by the United Nations’ Food and Agriculture Organisation fell about 10 per cent in 2023, according to data released recently.

The FAO Food Price Index (FFPI) stood at 118.5 points in December 2023, down 1.8 points (1.5 per cent) from its November level, as decreases in the price indices for sugar, vegetable oils, and meat more than offset increases in dairy products and cereals. The index stood 13.3 points (10.1 per cent) below its corresponding level one year ago. For 2023 as a whole, the index recorded 124.0 points, 19.7 points (13.7 per cent) lower than the average value in 2022.

The FAO Cereal Price Index averaged 122.8 points in December, up 1.8 points (1.5 per cent) from November, but still 24.4 points (16.6 per cent) below its December 2022 value. After falling for four consecutive months, wheat export prices increased in December, supported by weather-related logistical disruptions in some major exporters and tensions in the Black Sea amidst solid demand. World maize prices also strengthened in December, underpinned by concerns about Brazil’s second crop plantings, and logistical constraints hindering shipments from Ukraine. Among other coarse grains, world prices of barley increased, while sorghum prices decreased slightly. In December, the FAO All

Rice Price Index rose 1.6 per cent above its November level. Indica quotations underpinned this increase, rising in response to purchases by some Asian buyers and reduced competition among exporters owing to India’s export restrictions and tight availabilities in Vietnam.

According to the rice index, international rice prices registered a 21 per cent annual increase in 2023, largely owing to concerns about the impact of El Niño on rice production and in the aftermath of export restrictions imposed by India.

For the year as a whole, the FAO Cereal Price Index stood at 130.9 points in 2023, down 23.8 points (15.4 per cent) from the 2022 record annual average, reflecting well-supplied global markets.

While the index tracks raw commodity costs rather than retail prices, the steep drop could indicate potential relief on the way for consumers, as food prices ease from a 2022 peak that followed Russia’s invasion of Ukraine and contributed to a cost-of-living crisis in countries across the world.

Corn and wheat futures prices saw their biggest annual declines in a decade last year, as supply concerns faded. Futures prices for hogs and palm oil also posted big declines.

While the UN’s index is now at the lowest level since February 2021, lower wholesale costs have been taking some time to percolate down to supermarkets and consumers. However, there are signs that food inflation is cooling.

The indicator fell sharply in the UK last month to the lowest since June 2022, while food, fuel and alcohol price rises have also slowed in New Zealand.

Food prices increased 2.1 per cent in the 12 months to February 2024, the smallest increase since May 2021, according to figures released by Stats NZ this month.

The 2.1 per cent increase is noticeably lower when compared with the 12.0 per cent increase in the 12 months to February 2023.

The lower annual increase was due to cheaper fruit and vegetable prices, down 9.3 per cent in the 12 months to February 2024.

“Cheaper prices for fresh produce such as tomatoes, broccoli, and lettuce drove the decrease in fruit and vegetable prices,” consumer prices manager Will Bell was quoted as saying.

All other broad food groups increased in the 12 months to February 2024. Price movements, in order of their contribution, were: restaurant meals and ready-to-eat food prices – increased by 6.7 per cent, grocery food prices – increased by 3.9 per cent, non-alcoholic beverage prices – increased by 4.3 per cent, meat, poultry, and fish prices – increased by 0.2 per cent.

“Going out for a meal or grabbing takeaways was more expensive in February 2024,” Bell is said to have added. Monthly food prices fell 0.6 per cent in February 2024 compared with January 2024.

The biggest contributor to this fall was fruit and vegetables, driven by cheaper prices for apples, kumara, and tomatoes. Other items that have contributed to the monthly fall include boxed chocolates, yoghurt, and lamb.

The FAO grain index fell more than 16 per cent compared to this time last year, despite increasing slightly last month due to weather-related disruption in shipments from key exporters.

In December, falls in the price indices for sugar, vegetable oils and meat “more than offset increases in dairy products and cereal” according to the organisation.

For December, the index of food-commodity prices was 1.5 per cent lower from a month ago.

Meanwhile, Indian annual retail inflation in February rose at a faster-than-expected pace due to elevated food prices, recent government data showed.

Annual retail inflation eased slightly to 5.09 per cent in February from 5.10 per cent in January but was higher than the 5.02 per cent forecast by a ‘Reuters’ poll of 42 economists.

Food inflation, which accounts for nearly half of the overall consumer price basket, rose 8.66 per cent in February, compared with an 8.30 per cent rise in January.

Despite retail inflation being within the mandated band of 2 per cent-6 per cent, uncertainties in food prices have worried policymakers.

Last month, the Reserve Bank of India (RBI) left its rates unchanged and signalled it would not lower interest rates until it achieves inflation of 4 per cent on a durable basis.

It expects inflation of 5.4 per cent for the current fiscal year that ends on March 31 and has projected 4.5 per cent for the next fiscal year.

“It will take a few more months before it reaches the RBI’s 4 per cent long-term target,” Thamashi De Silva from Capital Economics was quoted as saying. “We think that food price inflation will drop back only slowly over the coming months.”

Prices of cereals were 7.60 per cent higher year-on-year in February compared to 7.83 per cent in the previous month, while vegetable prices rose 30.25 per cent compared to 27.03 per cent in January, data showed. Pulse prices rose nearly 19 per cent year-on-year in February.

Core inflation, which strips out volatile food and energy prices, is estimated at 3.3 per cent-3.37 per cent in February, compared with 3.6 per cent in January, according to two economists.

According to several reports, core inflation has been falling despite strong growth in the Indian economy.

The economy expanded 8.4 per cent in the final three months of December, its fastest pace in one-and-a-half years. The government revised its growth estimate for the current fiscal year to March 31 to 7.6 per cent from 7.3 per cent.

With lower sugar production, the likelihood of a ban on sugar exports has also increased.

The government could also step up its response with further measures going ahead, analysts say. For instance, since the consecutive export restrictions on rice have not yet lowered domestic rice price inflation, the government could seek a more comprehensive ban.

Rice is part of the staple diet accounting for a large share of the caloric consumption of millions across Asia and Africa. And, India is a major supplier to these markets.

Forty-two countries in Asia and Sub-Saharan Africa get 50 per cent of their total imports from India, going up to 80 per cent in some countries according to IFPRI, and its share cannot be “easily substituted with imports from other large exporting countries such as Vietnam, Thailand or Pakistan”.

Economists opine that weak core inflation at a time of strong growth is a conundrum — the only reason could be the weak input price growth.

In the past year, international agencies worldwide have continued to sound an alarm over surges in food insecurity that are plunging millions of people into extreme hunger, malnutrition and threats to their overall health. The UN’s World Food Programme (WFP) calls it “a hunger crisis of unprecedented proportions.”

This worrying trend has been exacerbated by the COVID-19 pandemic, climate shocks and conflicts, including the ongoing war between Russia and Ukraine and the crisis in the Middle East.

According to the FAO 2023 report on global food security and nutrition — released in July, months before the conflict in Gaza — some 735 million people faced hunger in 2022, an increase of 122 million people compared with 2019 pre-pandemic levels. The Caribbean, Western Asia and all sub-regions of Africa experienced the most alarming increases in these hunger levels. Worldwide, more than 3.1 billion people could not afford a healthy diet, according to the report. That’s 42 per cent of the world’s population and a significant increase over pre-Covid levels.

Since the Russia-Ukraine crisis began in February 2022, many countries that had relied substantially on Ukrainian grains for years have since borne the brunt of food price inflation due to significant supply shortfalls. Russia is a major exporter of wheat, and Ukraine is a significant producer of corn; prices for both crops spiked with the Russian invasion, and the destruction of ports sent further shocks throughout global markets. The war prompted other countries producing large amounts of staple foods to either restrict or ban their exports to satisfy domestic demands.

For Asian countries that rely on food exports and imports, the potential consequences are worrying. Those that produce and export food may experience shrinking profit margins prompting lower wages for workers, while those that import food could suffer higher prices due to increased transportation costs and greater price volatility, leading to changes in consumption.

Countries across Asia, many of whom are net food importers, are hit particularly hard by food chokepoint disruptions because they rely on European and Black Sea markets for key agricultural products such as soybeans, corn, wheat and edible oils. Notably, Singapore and Hong Kong, who have limited natural resources, import more than 90 per cent of their food and are already vulnerable to export restrictions and global food price fluctuations. There is also ongoing concern about stable food supply in Japan, where more than 60 per cent of food is imported.

In poorer countries, disruptions to food imports and subsequent food and energy price inflation could bring about a cost-of-living crisis, increase poverty and stall socioeconomic growth. This would be a heavy blow for those already rocked by crises such as Pakistan (extreme weather events), Bangladesh and Myanmar (conflict) and Sri Lanka (economic turmoil). It would also disproportionately affect households in the Philippines who spend 31 per cent of their income on food, and low-income families in Indonesia who spend up to 64 per cent of their budget on food, increasing the risk of undernutrition and malnutrition.

Sustained disruptions to supply chains and key trade routes could exacerbate geopolitical tensions across Asia, where fears of countries weaponising food and fertiliser supplies against each other, as demonstrated by the Ukraine-Russia conflict, are already amplifying food insecurity concerns. This makes it imperative for governments across the region to implement significant reforms to build resilience in supply systems and be better prepared for food shortages.

Views expressed are personal