High input prices to trickle through entire food chain
Surging food prices contributing to rising inflation, potential unrest
Rising food prices to worsen food security issues in some countries
The historically high food and agriculture commodity prices are likely to sustain for multiple upcoming seasons driven by various factors like the Russia-Ukraine conflict and high farm input prices, economist with United Nations Food and Agriculture Organization, Monika Tothova said in an interview with S&P Global Commodity Insights.
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“It is very likely that food prices are going to stay elevated, given the supply and demand shock but also by the higher cost of agriculture inputs,” Tothova said.
“It is difficult to say how long the high food prices can last because we need to see how long the Russia-Ukraine conflict is going to last, but even if the goal was to end immediately, it will take some time for the exports to go back to pre-war levels, and we will still have the high input prices, “said Tothova. “It is likely to be for a while – we are talking about seasons rather than months of high prices,” she added.
At present, food prices are at levels never seen before. The FAO Food Price Index averaged 159.3 points in March, up 34% year on year, registering the highest level since its inception in 1990.
Prices for food commodities have been high for the past few years due to supply-chain disruptions stemming from the COVID-19 pandemic, unfavorable weather events around the globe and high global demand, and Russia’s invasion of Ukraine has propelled the prices higher. “Even before the start of the war in Ukraine, we were in an environment of pretty high prices, so when the shock came it created an additional imbalance sending prices even higher,” said Tothova.
Russia is the top exporter of wheat and fertilizers, while Ukraine is a leading exporter of corn and sunflower oil. The war created uncertainty over production and exports from the region, propelling prices. The FAO has warned that the ongoing Russia-Ukraine war can further push global food and feed prices by 8% -22% from the already-elevated levels.
“What happens now will depend on how long the war is going to continue – how much crop Ukraine is able to produce and how much of that is actually able to go to the world markets – but all in all, it is very likely that prices are likely to be very high compared to historical levels, “said Tothova. “With the seasonality of agricultural commodities, things naturally take a bit longer,” she said.
Impact on food chain
The Russia-Ukraine war will have an impact on the whole sector of agriculture commodities and not the just ones exported by the Black Sea, said Tothova.
Additionally, high fertilizer and input prices will also reflect in the food prices, she added. “At this point, there are some increases, but I don’t think it has made its way through yet,” Tothova said.
“The increase in feed prices will lead to an increase in the prices of meat, poultry and dairy, and this will have to go through the whole food chain. The livestock sector is very energy-intensive so higher cost of energy is also going to add to the higher livestock prices and poultry products, “she said.
As horticulture products typically require higher fertilizer usage, the prices of those will be affected too, Tothova said.
The impact would be bigger in countries with lesser developed financial systems, she said. “Farmers in countries where there are financial institutions are better equipped to deal with the high fertilizer prices, while farmers with lesser developed financial aid systems might be more hesitant to buy inputs,” she said, adding that it is likely to happen in countries where fertilizer use is already very low compared to other countries.
Inflation, food insecurity
Although higher food cost is not the primary factor, it is still adding to the inflationary pressure, she said.
“As we are seeing in Peru and Sri Lanka, there is a possibility of unrest driven by this inflationary pressure. It’s a combination of everything – the burden of recovering from the pandemic, the macroeconomic environment, issues like unemployment – but high food prices could be the straw that breaks the camel’s back, “she said.
The higher food cost is threatening food security in various countries and is also making humanitarian efforts more challenging and expensive, Tothova added.
The food protectionism policies by some exporting countries are certainly not helping either, she said.
“The importing countries have to be prepared to pay higher prices for imports. While some countries are in a better position to do so, other countries might not have such resources, and they might need to rely on some payment programs,” Tothova said.
For countries like South Sudan and Yemen that were already in crisis before the pandemic, the situation will be even dire, triggering negative coping mechanisms such as choosing cheaper food over nutritious food, pulling children out of schools and malnutrition, she added.