Global food prices reached a six-year high in December and are likely to keep rising into 2021, adding to pressure on household budgets while hunger surges around the world.
A United Nations gauge of food prices has jumped 18% since May, as adverse weather, government measures to safeguard supplies and robust demand helped fuel rallies across agricultural commodities from grains to palm oil. Prices will likely climb further, the UN’s Food & Agriculture Organization said.
The spike threatens to push up broader inflation, making it harder for central banks to provide more stimulus to shore up economies, while stirring memories of food-price crises a decade ago. It’s bad news for consumers whose incomes have been hurt by the COVID-19 crisis, and adds to concerns about global food security that’s being affected by conflicts and weather shocks.
That’s especially true for the poorest countries having to contend with limited social safety nets and purchasing power, according to the FAO.
“We do at this point see more factors pushing up global food prices,” said Abdolreza Abbassian, a senior economist at the FAO. “Food inflation is a reality. While people have lost income, they are as we speak going through a tremendously difficult hardship.”
Corn and soy futures rallied to six-year highs as drought threatens crops in South America at a time of surging Chinese demand, while palm oil — used in about half of all supermarket goods — is near a 10-year high. Protectionist measures are also propping up markets, with Argentinian farmers planning a protest strike after the government suspended corn-export licenses, while wheat giant Russia will curb grain exports from mid-February to tame food inflation.
Commodities priced in dollars — often seen as a hedge against inflation — should remain supported as the greenback falls further this year, Abbassian said. Plus, an economic recovery in some parts of the world will probably fuel consumer spending and food demand, with weather risks and export restrictions from some grain suppliers aiding prices in the short term, he said.
Weather concerns, government intervention and strong exports to China could push agricultural markets higher this year, according to Rabobank International. Soy prices have become expensive enough that the world will need to ration demand, Joe Stone, head of crop merchant Cargill Inc.’s agriculture supply chain and corporate trading, said last week.
The FAO’s food price index has risen for the past seven months, with annual prices capping the highest average in three years. Still, costs remain well below peaks in 2008 and 2011, when soaring prices caused political and economic instability around the world and grain-export bans tightened supply.
“Commodity price inflation is very real, but we’re still nothing like a decade ago,” said Tim Benton, research director in emerging risks at Chatham House in London. “I am reasonably confident that it’s not going to lead to big things as per a decade ago. But still, Covid has the potential to upset things in terms of flows of goods, in terms of access to labor.”
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