By Balazs Koranyi
FRANKFURT, Aug 5 (Reuters) – The world is on the verge of another bout of food inflation as wars in Iran and Ukraine along with El Nino create a perfect storm of higher costs and lower crop yields, the chief economist of the United Nations Food and Agriculture Organization said.
Food prices were a key driver of the 2022 global inflation surge but have been relatively benign so far this year, even tempering in some places the surge caused by high energy costs.
This calm is likely to be temporary, however, as higher crude oil prices, the loss of fertiliser from the Gulf region, the shortage of diesel in some parts of the world and extreme weather are feeding through to costs and will show up in consumer prices, even if with a delay.
COSTS SEEN ACCELERATING BY YEAR-END, NEXT YEAR
“I expect that commodity prices will start to increase more now … and food prices will start increasing by the end of the year, and next year for sure they will increase more,” Maximo Torero told Reuters in an interview.
“The transmission from the commodity to the final food price is around three to six months,” he said.
Although some commodity prices, such as wheat, maize and rice have increased in recent months, most still reflect relatively good harvests, rather than likely difficulties in the coming year.
“The Strait of Hormuz is a problem that affects all the inputs of agricultural commodities, agricultural systems,” Torero said. “Brent oil, because it’s used for pumping, packaging, processing, and transportation. And natural gas because it’s used for fertilisers.”
Meanwhile the damage inflicted by Ukraine on Russia’s oil and gas infrastructure curtails the export market for diesel and natural gas, both of them key inputs in food production.
Since commodity prices are global, this inflicts pain across the world, even if richer countries have more cash to buffer producers.
“You’re hearing this in Europe, in the U.S., Brazil and in Asia,” Torero said. “Tight margins are putting stress in planting decisions.”
Indeed, even in the U.S., which is self-sufficient for most key inputs, without federal assistance farmers growing nine principal crops may lose $32 billion in 2027, the American Farm Bureau Federation, an industry lobby group, said.
On a per-acre basis, every crop analysed is projected to remain below breakeven in 2027, it said.
Global wheat and corn planting was already cut in the first three months of the Iran war and some U.S. producers have shifted to soybeans, because they require lower fertilizer inputs.
Australia, one of the world’s top crop exporters, recently said that winter crop production is seen down by 21% in part because of a significant increase in both fuel and fertiliser prices and uncertainty over the availability of key inputs.
Meanwhile this year’s El Nino weather phenomenon is likely to be especially strong, significantly shifting rainfall patterns, likely impacting commodity prices and potentially pushing tens of millions into acute food insecurity.
The monsoon in India is already delayed and below-average rainfall is seen this month, a potential hit for rice production that could impact global commodity costs.
(Editing by Mark John and Tomasz Janowski)
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