The UN’s Food Price Index has fallen for the fifth consecutive month, in a sign that one of the main pressures driving up the cost of living around the world may be easing. The index fell to 138 in August and is now lower than before Russia’s invasion of Ukraine. Those countries are major exporters of crops including sunflower oil, corn and wheat. The U.N.’s Food and Agriculture Organization said a U.N.-backed July deal to reopen Ukraine’s ports had reduced the price of grain and vegetable oil.
This means that more supplies have been able to reach the international market. What do Covid, Ukraine and drought have to do with my bill? How much grain is sent from Ukraine? Ukraine war will cause ‘worst price shock in 50 years’ FAO’s Erin Collier told the BBC that “prices are down for a variety of reasons”. Cereals have been the “main driver” of food price growth this year, but Ms Collier explained supplies are now picking up because “harvests are looking a little bit better, especially in Canada, the US and Russia”. All three are major exporters of wheat.
For other food categories, “the easing of export restrictions helped lower sugar and oil prices, and weaker demand for certain products helped lower meat and dairy prices, Ms Collier added. The temporary reduction of Indonesia’s palm oil export tax means food producers have more options for the vegetable oils they use in large quantities. The cost of food has been one of the biggest contributors to inflation around the world.
This week the Eurozone reported inflation running at an annual rate of 9.1% in August. Energy was the biggest contributor with an increase of 38.3% but unprocessed food was next at 10.9%. The latest inflation figures from the UK and US paint a similar picture. The FAO index, a closely watched barometer, also shows that there has been a decline in the cost of its other food categories: dairy, meat and sugar. It said prices of beef and other beef products “declined due to weak domestic demand in several leading exporting countries, possibly reflecting that consumers are turning to cheaper alternatives.
Growing fears of a recession have led to fears that demand for food such as corn, meat, vegetable oil and other products will fall”, according to Kona Haque, head of research at agricultural commodities firm ED&F Man. However, due to ongoing supply chain issues and the time it takes for price changes to filter through, Ms Haque said that not all countries would benefit from these lower prices immediately.
The FAO index has fallen sharply from March’s record high of 159.7 but remains 10 points above a year ago. Price volatility has increased according to Ms Haque, who cited recent heatwaves in Europe and floods in Pakistan as examples of the increasing influence of extreme weather on crop prices. This week Ukrainian agriculture minister Mykola Solsky warned that the coming harvest will suffer because of the war. The area to grow wheat and barley for next year’s harvest is expected to fall by at least 20% because of the Russian invasion. The Agrarian Council of Ukraine also said the lack of funds would lower production.
Ms Collier warned that even after the recent fall, global food prices remain higher than during the 2011 peak. There are many factors at play now that are still keeping prices high,” he said. These include skyrocketing energy prices which mean fertilizer remains very expensive for farmers, as well as “supply uncertainty”. Although [some] Ukrainian ports have opened, it is still a very tentative situation, and the number is still quite small. We need to see that number increase to help lower prices even more”.