‘Food prices have surged more than 20% this year, according to the UN Food and Agriculture Organisation. About 345 million people are experiencing acute food insecurity, according to the World Food Programme, compared with 135 million before the Covid-19 pandemic.’ — An excerpt from a recent Guardian article ‘Record profits for grain firms amid food crisis prompt calls for windfall tax’ by Fiona Harvey.
An article ‘Russia’s invasion of Ukraine is causing record-high food prices’ carried by Economist on April 8, highlighted the fact that ‘Global food prices, rising even before the war in Ukraine, are now soaring. According to an index compiled by the Food and Agriculture Organisation (FAO), a UN agency, in February they reached a historic high. In March they blew past it. The index surged by about 13%, the biggest increase since the FAO began counting in 1990.’
A more recent analysis by an Economist article ‘Against expectations, global food prices have tumbled’ on August 22, pointed out that while food prices of some of the essential-natured commodities like wheat, rice, corn, and palm oil saw a downward trend from around June, prices of these commodities began to rise again more recently around the beginning of August, pointing towards the high level of uncertainty with regard to how war in Ukraine, and climate change plays out, and how quickly better regulation of reported speculative activity could be put in place.
The article pointed out: ‘Prices were extremely high by historical standards even before the war, and there is no guarantee they will not rise again. Droughts across much of the world will affect crop yields. Meanwhile, fertilisers are still extremely expensive. Urea, a compound used in the production of nitrogen-based ones, currently runs to $680 per tonne – down from $955 in mid-April, but still considerably more than the $400 it cost a year ago.’
Food inflation is still very high. As per FAO Food Price Index, which saw an overall steep upward trend since August 2020, and got accentuated in the wake of the war in Ukraine, saw a falling trend around June. Even so the Index is still at a very high level of around 140 points, while it was around 50 points – around which it was hovering for a number of years – when Covid-19 first appeared around December 2019.
FAO in its August 5 information release pointed out in this regard: ‘The FAO Food Price Index (FFPI) averaged 140.9 points in July 2022, down 13.3 points (8.6 percent) from June, marking the fourth consecutive monthly decline. Nevertheless, it remained 16.4 points (13.1 percent) above its value in the corresponding month last year.’
Moreover, an August 1, a Guardian article ‘Food prices soaring in developing world amid Ukraine crisis, World Bank finds’ highlighted the fact that high food inflation in many developing countries, whereby during the current year, most rise in food inflation (year-on-year) up till June 2022 has been seen in the case of Lebanon (332%), followed by Zimbabwe (255%), Venezuela (155%), Turkey (94%), Iran (86%), Sri Lanka (80%), Argentina (66%), Suriname (55%), Ethiopia (38%), and Moldova (34%), as the top ten countries. Food inflation for July 2022 (year-on-year) in Pakistan for urban and rural areas stood at high levels of 27% and 30%, respectively.
A high level of food inflation since the start of the pandemic, accentuated in the wake of the war in Ukraine, and still in very uncertain environment, especially both because oil prices – which significantly feed into food prices – are likely to remain elevated in the short to medium term at the back of lack of supply capacity, and given high level of speculative activity as a result of years of neoliberal assault that kept regulation weak.
In the same Guardian article by Fiona Harvey likely over-profiteering concerns were highlighted as ‘Companies at the centre of the global grain trade have enjoyed a record bonanza amid soaring food prices around the world, raising concerns of profiteering and speculation in global food markets that could put staples beyond the reach of the poorest, and prompting calls for a windfall tax.
The world’s top four grain traders, which have dominated the global grain market for decades – have seen record or near-record profits or sales. They are forecasting demand to outstrip supply at least until 2024, which is likely to lead to even higher sales and profits in the next two years.’
There is another very important determinant feeding into the food prices and food availability crisis: climate change. Rising global temperatures have not only increased frequency and intensity of floods, droughts and heatwaves but have also consequences for global sea levels, which is dangerous in this case for the global food supply chain that mostly travels by sea.
An August 17, Financial Times (FT) article ‘Climate is a supply chain problem that can’t be ignored’ highlighted concerns in this regard as follows: ‘The Intergovernmental Panel on Climate Change is clear that extreme weather events, like drought, flooding or powerful storms, will become more common and more severe as the climate changes.
The implications for the production, manufacture and distribution of food and goods around the world are almost bafflingly wide-ranging and complex. …this year’s drought highlights the danger that the waterborne infrastructure of global trade itself will dry out or shut down as climate change intensifies. …About 80 per cent of global trade is carried at some point by ships, with seaborne trade up nearly threefold in the 30 years to 2020.’
Rising food prices have meant increasing strains on import bills for food, especially for developing countries, many of which are struggling with high level of imported inflation, balance of payments pressures, and difficult debt situation.
The same Guardian published ‘Food prices soaring in developing world amid Ukraine crisis, World Bank finds’ pointed out in this regard: ‘Food inflation has soared across much of the developing world since Russia’s invasion of Ukraine and has trapped several richer countries in a cycle of rising prices, a report by the World Bank has found.
The Washington-based development organisation said ‘the war in eastern Europe would hit many countries with an increase in food bills worth more than 1% of their annual national income (GDP), while others would fail to contain the impact and be plunged into a full-blown debt crisis.’
Copyright Business Recorder, 2022
The writer holds a PhD in Economics degree from the University of Barcelona, and has previously worked at the International Monetary Fund. His contact on ‘X’ (formerly ‘Twitter’) is @omerjaved7
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