Inside Financial Markets
Global food prices jump with the highest rise in a decade

Global food prices jump with the highest rise in a decade

– The News

Global food prices surged by the biggest margin in a decade in May as one closely watched index jumped 40 percent, raising fears of further food inflation later in the year.

The year-on-year leap in the UN Food and Agriculture Organization’s monthly food price index was the largest since 2011 and signalled that inflation initially stoked by pandemic disruption is accelerating.

China’s soaring appetite for grain and soyabeans is adding to upward pressure on prices, along with a severe drought in Brazil and growing demand for vegetable oil for biodiesel.

The index is an important benchmark for internationally traded agricultural commodities and the increase brings it to its highest level since September 2011.

The rise in world market prices will further increase food price inflation in poorer countries reliant on imports for staples. For richer countries, the cost of raw ingredients accounts for only part of the overall price paid for products at the supermarket or in restaurants.

But the surge in commodity prices is feeding into food prices, with companies such as Nestlé and Coca-Cola announcing they will pass on the price increases, while economists and analysts warn that the return of consumers eating out will add to price pressure.

“The decline in eating out wasn’t totally compensated with eating at home, but as people start to go to restaurants again, you will see food prices rise,” said Abdolreza Abbassian, senior economist at the FAO.

The cost of labour, transport and shipping is expected to push prices higher in the coming months. “The rise in the transport cost base with oil price increases and shipping bottlenecks, there is a lot of upward price pressure in the system,” said Caroline Bain at Capital Economics.

In the UK and Europe, food inflation has been relatively contained, but the British Retail Consortium this week warned that prices would rise in the second half of the year.

The upward pressure will add to food price inflation already affecting many countries. In 2020, the world’s consumer price inflation for food jumped to 6.3 percent, up from 4.6 percent in 2019, according to the FAO.

The pandemic disrupted food supply chains, affecting the production and distribution of food. South America, with 21 percent in food price inflation, Africa and South Asia with 12 percent and Oceania with 8 percent, were among the most affected regions.

The bad weather in Brazil, a big exporter of corn and soyabeans, and rising demand for soyabean oil for biodiesel have pushed prices higher, said analysts. “China has continued to buy, but with Brazil’s drought proving to be more severe than expected, everyone has to pray that the weather in the US is going to be good,” said Abbassian.

Syed Zaki Hussain

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Inside Financial Markets was a joint publication of Pakistan Stock Exchange (PSX)and Society of Technical Analysts Pakistan (STAP)