Big threat to food supply: prices can skyrocket at any time

Agricultural experts and analysts continue to warn that global food supplies are still under threat.

According to the Financial Times, although food prices, which rose sharply in 2022, fell on international markets, low stock levels and high foreign exchange costs continue to drive up food costs in developing countries. Additionally, extreme weather events and low stock levels cause food prices to spike.

WAR EFFECT

Last year, food prices were already high before the Russia-Ukraine war, due to drought and the pandemic.

Then Moscow’s war on Ukraine as the world’s biggest fertilizer exporter pushed up food prices sharply, while the jump in natural gas prices, a critical component for nitrogenous fertilizers, also put pressure on the agricultural market.

The grain deal signed between Moscow and Kyiv during the war played an important role in lowering prices, with ample supplies from Russia, while falling natural gas prices calmed fertilizer markets.

The United Nations Food and Agriculture Organization (FAO) Food Price Index, which refers to internationally traded agricultural commodities, has fallen for nine straight months after peaking in 2022. Prices for critical nutrients were nearly 40 percent below last year’s highs.

WEATHER CONDITIONS ARE DANGEROUS

But analysts warned that the grain deal could break down, citing volatile energy prices and the impact of climate change on crop production.

World Bank agricultural economist John Baffes said: “The current situation is like flying on one engine. As long as the engine is running, it’s fine, but if the engine stalls, you’ll have a problem. “If any of the risks materialize, we will see prices rise very, very quickly,” he said.

The most immediate danger is the UN-backed grain deal, which is expected to be renewed in March. Any failure to extend the deal could hamper Ukraine’s grain exports, causing prices to soar again.

GEOPOLITICAL RISKS

While many crops and fertilizers are exempt from sanctions imposed on Russia, many banks, insurers and logistics groups are reluctant to market Russian products, according to Russian and European officials. Expectations that geopolitical tensions could disrupt supply remain strong.

Another threat is the weather. Last year there were record temperatures in Europe and other parts of the world. The UK Met Office warned late last year that “climate conditions will make global temperatures in 2023 warmer than in 2022.”

STOCK MARKET AND EXCHANGE EFFECT

In addition, low levels of cereal stocks have also raised analysts’ concerns about the global food supply.

Joseph Glauber, former chief economist at the US Department of Agriculture, said: “Prices will remain volatile due to the low global inventory situation. “If there is a drought or a major weather event this spring, prices could rise more sharply,” he said.

On the other hand, currency movements also posed a threat to food supplies in many developing countries. Despite the drop in food prices in international markets, the strength of the dollar continued to keep costs in local currencies high. That means it will take a few more quarters of food inflation for consumers.