We may be headed for global food cost crises in 2022
The past year saw significant increases in international food prices. Will extreme weather, spiralling prices of natural resources and war between Russia and Ukraine cause them to surge even higher in 2022?
According to the FAO’s Food Price Index – which tracks monthly changes in the price of commonly-traded commodities – prices in December 2021 were up by over a fifth compared to December 2020.
The price of cereals reached its highest annual level since 2012 – on average it was 27.2 per cent higher than in 2020. Vegetable oil reached an all-time high, increasing 65.8 per cent from 2020. The price of sugar rose 29.8 per cent from the previous year to its highest level since 2016. The price of meat was 12.7 per cent higher than in 2020. And the price of dairy was on average 16.9 per cent higher than in 2020.
These price rises shouldn’t be dismissed as a niche concern for food policy specialists or agricultural analysts. When the price of staple foods increased in 2007 and 2008 – which the UN rapporteur on the right to food attributed to financial speculation, and the US Department of Agriculture attributed to export restrictions – the result was food riots in numerous countries and a political shift across the Middle East.
Are consumers already being impacted?
Countries across the globe that one would not usually associate with food insecurity are already feeling everyday impacts.
In Japan, the price of Umbaio, one of the country’s best-selling snacks, was recently hiked by 20 per cent, the product’s first price increase since 1979.
In Canada, retailers have blamed increased food prices for a surge in shoplifting – particularly of meat, cheese and alcohol.
In Israel the country’s economy and finance ministers recently wrote to food companies urging them to limit further increases in food prices. It came after the cost of tinned tuna was expected to rise by up to 8 per cent and the price of dairy was expected to rise by up to 9 per cent.
So what is causing food prices to increase around the globe? Several factors – many of which were evident in 2021 and should have caused alarm bells to ring – point to the worrying potential of further global food price increases in 2022.
How extreme weather in 2021 causes higher food prices in 2022
While the Covid pandemic and its consequences understandably dominated the news agenda in the past year, the substantial impacts of climate change on agriculture have not receded.
Analysis by Refinitiv indicates that a drought and two frosts in Brazil significantly impacted the country’s coffee yields, causing the wholesale price of raw coffee beans to surge.
Analysis by Mintec indicates that heavy rainfall and catastrophic flooding in Belgium and the Netherlands caused a major decline in the EU’s potato harvest, the first time this has happened in two decades. The resulting tight supply is expected to drive potato prices up throughout 2022.
According to Eurostar Commodities, the combination of extreme heat and scarce rainfall in Canada and excessive rain in Europe led to a 90 per cent price increase in durum wheat, which is used to make pasta, polenta, couscous, breads and pizza crusts.
Parallel price rises of natural resources and agricultural inputs
Seemingly prosaic and disconnected events in 2020-21 – economies reopening after months of lockdown, a cold winter in Europe leading to low gas storage levels, a hot summer in Asia that saw more gas used for air-conditioning, fires at Russian processing plants last August and last October – have had ripple effects on the price of agricultural inputs and may in turn influence global food prices.
Shortages of natural resources matter for food because they are crucial components in the production of agricultural inputs, notably fertilisers. Rising coal prices last year slowed Chinese production of ammonia and urea, leading China to suspend fertiliser exports until June 2022. Analysis by S&P Global indicates that the fertiliser export ban will affect food production in India, and the Australian government has expressed concern that their country’s hauliers and farmers will also be negatively impacted.
As the price of natural gas rises, the price of nitrogen fertiliser rises too. Svein Tore Holsether, the CEO of Yara International, has estimated that in summer 2020 the company spent $110 to produce one tonne of ammonia, but that by autumn 2021 it cost $1000. Holsether has said, “We risk a very low crop in the next harvest. I’m afraid we’re going to have a food crisis.”
The direct and indirect consequences of warfare and sanctions
A further concern is the risk of conflict between major food producing countries. In recent years, Russia has sought to position itself as an agricultural export powerhouse, while Ukraine’s agriculture minister has highlighted the country’s ambitions to be a global food player. War between Russia and Ukraine would have a considerable and immediate effect on food supply and food prices.
Alex Smith of the Breakthrough Institute has noted that a large part of Ukraine’s wheat production comes from the country’s eastern regions – the Kharkiv, Dnipropetrovsk, Zaporizhia and Kherson oblasts. War in these areas could result in “sharp declines in wheat production and a precipitous fall in wheat exports as farmers flee the fighting, infrastructure and equipment are destroyed, and the region’s economy is paralysed,” Smith writes. This in turn could cause substantial political knock-on effects in countries such as Libya, Yemen and Lebanon, which depend on Ukraine for food.
Recent history has shown that conflict between Russia and Ukraine has the potential to impact food supplies and livelihoods. After Western countries imposed a series of sanctions on Russia in the summer of 2014 following the invasion of Crimea, Moscow implemented counter-sanctions through a complete ban on imports of beef, pork, fruit, poultry, cheeses and milk from the European Union, the United States, Australia, Canada and Norway.
The ban, which was estimated to cost European food producers and exporters more then €5 billion, had direct impacts on pig farmers in Germany, fruit and vegetable farmers in France, tomato, peach and mandarin orange producers in Spain, apple farmers in Spain and mackerel fishers in Scotland.
The Dutch bank ING has warned that an invasion would have an impact on the production and export of Ukrainian agricultural commodities, including corn and wheat, and that international sanctions against financial institutions (such as removing Russia from the SWIFT system) would have indirect effects on trade and agricultural exports.
Environmental, economic and geopolitical indicators appear to signal further increases in food prices in 2022.
In coming months policymakers will need to consider what actions might need to be taken to prevent or address a food price crisis; how any political or regulatory measures should be sequenced; what coordination may be needed across departments or between countries; and who to engage with in the food system.
