Food inflation to remain a dominant feature even in 2023

As food inflation is affecting hundreds of millions across poor nations and developed nations, farm production won’t reach the required level even in 2023.

It is a vicious circle involving higher inputs cost [energy, seeds and fertilizers among others] but the climate-change induced droughts or heavier rains are also complicating the situation.

And then add Ukraine – one of largest wheat exporters in the world – to the equation as the war-ravaged country can’t produce the desirable amount of grains due to a reduced area of cultivation.

Even exporting the stored wheat and other agricultural produce is a huge challenge thanks to the Russian presence in the Black Sea albeit an agreement between Ukraine and Russia, which also involves the UN and Turkey – resumed exports from the Ukrainian ports earlier this year.     

Current estimates says production of staples such as rice and wheat is unlikely to replenish depleted inventories, at least in the first half of 2023, while crops producing edible oils are suffering from adverse weather in Latin America and Southeast Asia.

Wheat, corn and palm oil futures have from dropped from the record or multi-year highs but prices in the retail market remain elevated and tight supplies are forecast to support prices in 2023.

With food prices climbing to record peaks this year, millions of people are suffering across the world, especially in poorer nations in Africa and Asia already facing hunger and malnutrition.

Food import costs are already on course to hit a nearly $2 trillion record in 2022, forcing poor countries to cut consumption.

Benchmark Chicago wheat futures jumped to an all-time high of $13.64 a bushel in March after Russia’s invasion of key grain exporter Ukraine reduced supplies in a market already hit by adverse weather and post-pandemic restrictions.

Corn and soybeans climbed to their highest in a decade, while Malaysia’s benchmark crude palm oil prices climbed to a record high in March.

Wheat prices have since dropped to pre-war levels and palm oil has lost around 40 percent of its value, amid fears of a global recession, China’s COVID-19 restrictions and an extension of the Black Sea corridor deal for Ukrainian grain exports.

On the other hand, floods in Australia, the world’s second-largest wheat exporter, in recent weeks has caused extensive damage to the crop which was ready for harvest, a severe drought is expected to shrink Argentina’s wheat crop by almost 40 percent. This will reduce global wheat availability in the first half of 2023.

A lack of rainfall in the US Plains, where the winter crop ratings are running at the lowest since 2012, could dent supplies for the second half of the year.

For rice, prices are expected to remain high as long as export duties imposed earlier this year by India, the world’s biggest supplier, remain in place, traders said.

The outlook for corn and soybeans in South America looks bright for its harvest in early 2023, although recent dryness in parts of Brazil, the world’s top bean exporter, has raised worries.

US domestic supplies of key crops including corn, soybeans and wheat are expected to remain snug into 2023, according to the US Department of Agriculture.

The agency is forecasting US corn supplies to fall to a decade low before the 2023 harvest, while soybean stocks were seen at a seven-year low and wheat ending stocks are forecast at the lowest in 15 years.

Palm oil, the world’s most consumed edible oil, is taking a hit from tropical storms across Southeast Asia where high costs have resulted in lower use of fertilizer.

Still, higher prices of grains and cereals have encouraged farmers to plant more crops in some countries including India, China and Brazil.

Figures from developed UK are a guide

A day after encouraging data released by the US, a similar trend was witnessed in the UK where inflation slowed down by 0.4 percent in November when compared with the previous month.

The data from Office for National Statistics on Wednesday showed that inflation in the UK came in slightly below expectations at 10.7 percent in November, as cooling fuel prices helped ease price pressures. However, high food and energy prices continued affecting the households and businesses.

Meanwhile, the Office for National Statistics said the largest upward contributions came from “housing and household services (principally from electricity, gas, and other fuels), and food and non-alcoholic beverages.”

On a depressing note, the Office for Budget Responsibility projected that the UK would suffer the largest fall in living standards since records began, as real household income is expected to decline by 4.3 percent in 2022-23.

Although the dip in Wednesday’s figures is a step in the right direction, the persistent problem of rising food prices and household energy bills remains a thorn in the side of the British economy, experts say.

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