Monday, May 08, 2023

Food for depressing thought

 The United Nations body, The Food and Agriculture Organization (FAO) has reported that that global food prices grew in April for the first time in a year.

The price index, which tracks the most globally traded food commodities, averaged 127.2 points last month, compared to 126.5 for March.

“The slight rebound in the FFPI (FAO Food Price Index) in April was led by a steep increase in the sugar price index, along with an upturn in the meat price index, while the cereals, dairy and vegetable oil price indices continued to drop,” the FAO said.

 The sugar price index soared 17.6% from March, hitting its highest level since October 2011. The rise was reportedly linked to concerns over tighter supplies following downward revisions to production forecasts for India and China, along with lower-than-expected output in Thailand and the European Union.

The meat price index was up 1.3% from March, while dairy prices fell 1.7%. Vegetable oil prices were also down 1.3%, marking the fifth consecutive monthly decline.

The cereal price index dropped 1.7%, with a decline in world prices of all major grains outweighing an increase in rice prices.

“The increase in rice prices is extremely worrisome and it is essential that the Black Sea initiative is renewed to avoid any other spikes in wheat and maize,” said FAO Chief Economist Maximo Torero.

The FAO  indicated that international wheat prices declined by 2.3% in April to their lowest level since July 2021, principally driven by large exportable availabilities in Russia and Australia.

The UN said favourable crop conditions in Europe, along with an agreement at the end of April allowing Ukrainian grains to transit through European Union countries that had imposed import restrictions earlier in the month, also contributed to the “overall softer tone in markets.”

Meanwhile, Torero projected that as global economies “recover from significant slowdowns, demand will increase, exerting upward pressure on food prices.”

An earlier CNBC report, quoting Fitch Solutions, highlighted the global  shortage of rice in two decades,  According to the agency’s estimates, the 2022-23 crop year will see an 8.7-million-ton shortage in the global supply, the largest shortfall since 2003-04, when it was 18.6 million tons.

Data from shows that global rice production last year was 502.9 million tons, making it the third-most produced grain after corn and wheat. However, production has been dropping in recent months as a result of bad weather in rice-producing countries like China and Pakistan. 

Severe weather conditions affected China, largest global producer, which supplied over 148 million metric tons of milled rice to the market in 2021-22, s Currently, the country is “experiencing the highest level of drought in its rice growing regions in over two decades.” Both situations could be dire for the vulnerable crop, analysts say.

As  a result of severe flooding Pakistan, with nearly 8% of global rice trade, also saw its annual production drop 31%.

It is claimed that India, the world’s second-largest rice producer, may suffer from intense heat in the second and third quarters of 2023, which could also endanger its crop yield. European rice-growing countries such as France, Germany, and the UK have also been suffering from the highest level of drought in 20 years, which may further endanger this year’s supply.

Due to the shortages,  rice prices are expected to remain around their current highs – from $16-18 per cwt (50.8kg), which is more than double that of 2020 – for the remainder of the year. Apart from supply constraints, rice prices are also affected by Russia’s military operation in Ukraine. The conflict has jeopardized both Ukrainian and Russian grain supplies to the global market, driving up wheat prices, which has made rice an increasingly attractive alternative and boosted demand.

“Given that rice is the staple food commodity across multiple markets,” its price is expected to drive up global food price inflation.

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