New Era of Volatility in Global Food Prices: Threats and Challenges Ahead
An Unprecedented Confluence of Factors
Analysts are warning of a new era of volatility in global food prices, as a combination of calamities unfolds. These include extreme weather events, Russia’s targeting of grain supplies in Ukraine, and the growing willingness of some countries to implement protectionist barriers to food trade. The vulnerability of food supplies has increased, leaving them less prepared to absorb any disruption. Dennis Voznesenski, a commodities analyst at Rabobank, describes this as the “new normal” characterized by more volatility and unpredictability in both commodity and food prices.
The Role of Various Factors
Food prices can be variable even without major disruptions due to numerous factors influencing the price of agricultural commodities. Recent events such as Russia’s withdrawal from a Black Sea grain deal that allowed Ukrainian farm exports by sea and droughts in India, Indonesia, and other Asian food exporters have contributed to increased food prices. Governments banning the export of critical foods in response to consumer outrage over higher prices have caused further disruptions. Rising labor costs and the ability of food producers to raise prices to enhance profits in an inflationary environment are also pressuring prices on supermarket shelves. In Europe and the United States, consumer food prices have increased by about 30 percent and 23 percent, respectively, compared to early 2020.
Impacts on Small Farmers and Low-Income Countries
These disruptions disproportionately affect small farmers and people living in low-income countries. According to the United Nations, more than 700 million people faced hunger and 2.4 billion people lacked year-round access to sufficient and nutritious food in the past year. The accumulation of the shocks in recent years has left countries in a precarious situation, with limited capacity to handle future upheavals.
Extreme Weather as the Main Disrupter
This year, severe weather has been the primary disrupter of food prices. Heat waves, wildfires, and floods caused by extreme weather events have taken a toll on crop yields worldwide. Forecasters warn that these events could be part of a multiyear period of exceptional warmth due to greenhouse gas emissions and the return of the El Niño weather pattern. The cumulative effects of such events on crop yields could lead to more volatility and regional food security issues.
War in Ukraine and Trade Protectionism
The war in Ukraine has further contributed to rising food prices. Russia’s action in ending the Black Sea grain deal and attacking grain storage in Ukraine led to a spike in wheat prices. Trade protectionism has also played a role, as some governments have restricted food exports to keep supplies within their borders. India, for example, banned the export of non-basmati white rice, causing rice prices to rise globally. However, economists and trade experts caution against such policies, as they exacerbate global food shortages.
Invisible Costs and Challenges Ahead
Food producers are facing increasing supply risks, which come with rising expenses. Transportation costs, insurance policies to manage weather risks, and sustainability efforts to meet net-zero-emission targets are all adding to the overall cost of food production. The weak value of certain currencies compared to the US dollar has also limited the purchasing power of some countries, further contributing to food price challenges.
The combination of these factors has created a challenging environment where predicting the volatility of food prices becomes even more difficult. As countries navigate these complexities, finding sustainable solutions and maintaining open trade will be crucial in addressing food shortages and ensuring global food security.