Global food prices fall, but food prices in Asia could still soar

A worker holds wheat grains in a storage barn in Polykastro, Greece, July 1, 2022. A truck unloads harvested wheat in heaps at a grain storage barn in Polykastro, Greece, Friday, July 1, 2022. Global food prices soared to a record high after the February 24 Russian invasion disrupted grain and vegetable oil exports through Ukraine’s Black Sea ports, adding to cost pressures from logistical problems and a rebound in consumer demand following the coronavirus pandemic. Photographer: Konstantinos Tsakalidis/Bloomberg via Getty Images

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Food prices around the world have fallen for the third month in a row, but prices remain stable near historic highs in March, according to the Food and Agriculture Organization of the United Nations.

A Nomura economist says Asia has yet to see the peak in food prices, which will likely come in the July-September quarter.

Sonal Varma, chief economist for India and Asia (ex-Japan) at the Japanese bank, told CNBC that changes in food prices in Asia tend to lag global movements, as governments put in place subsidies and price controls to temporarily lower prices.

The FAO Food Price Index, which tracks the monthly change in world prices of a basket of food products, fell 2.3% in June from a month ago.

It was driven by lower international prices for vegetable oils, cereals and sugar, but is still 23.1% above its level a year ago.

The FAO index in June hovered at 154.2 points – the base period being the average prices between 2014 and 2016 – just slightly below the 159.7 points recorded in March, following the invasion of Ukraine by Russia.

Impact on Asia

According to Nomura, countries like Singapore, South Korea, the Philippines and India are likely to see the biggest increases in food prices in the second half of this year.

In a note published in June, Varma and his team said net food imports accounted for more than 2% of the Philippines’ gross domestic product, the second highest in Asia (excluding Japan) after Hong Kong. Food also accounts for a high share—nearly 35%—of the country’s consumer price index basket.

South Korea and Singapore are also at risk as they rely heavily on food imports.

And while India is self-sufficient in wheat and rice, the country’s ongoing heatwave, a delayed monsoon and rising prices for other food items like meat and eggs will likely push prices up. .

Instead of putting in place export bans, which distort food prices, Varma said governments should use “one or more targeted forms of fiscal support” to help low-income people at this stage.

“Low-income households typically spend a lot of their intake on food, so protecting them is more important,” she said.

Wheat prices up almost 50% year on year

According to the FAO’s food price index, prices of cereals – the category to which wheat falls – fell 4.1% in June compared to May, but are still 27.6% higher than those of one year ago.

Wheat prices fell 5.7% in June, but were still 48.5% higher than a year ago due to the Russian-Ukrainian war. Russia and Ukraine together account for 28.47% of global wheat exports in 2020, according to the Observatory of Economic Complexity.

The decline in wheat prices was due to better harvest conditions, seasonal availability of new crops in the northern hemisphere and increased exports from Russia, FAO said.

Vegetable oil prices fell the most, down 7.6% from the previous month. Palm oil prices fell as global supply increased, while lower demand for sunflower and soybean oil also pushed prices down. Sugar prices fell 2.6% month-on-month as supply increased and demand fell.

Meat prices at record high

Meat and dairy consumers had less reason to rejoice.

Meat prices hit a record high in June, climbing 1.7% from May and 12.7% from a year ago as supply continued to be squeezed by the war. Bird flu outbreaks in the northern hemisphere have also had an impact on meat prices.

Dairy products were 4.1% more expensive than in May and 24.9% more expensive than in June of last year. Cheese prices rose the most, due to storage and a heat wave in Europe, the FAO said.

The FAO warned that while food prices fell in June, “the factors that pushed world prices higher are still in play”.

These include “strong global demand, adverse weather conditions in some major countries, high production and transportation costs, and supply chain disruptions due to COVID-19, compounded by uncertainties resulting from the war ongoing in Ukraine,” said FAO Chief Economist Maximo Torero Cullen. in a report.

Food prices unlikely to drop significantly over time, Nomura says Varma said.

“The demand for some of these products is relatively inelastic,” she said, adding that a recession would not cause “a significant drop in prices.”

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