As the rate of food price inflation eases in the United States and Europe, analysts are warning of a new era of volatility in global food prices, ushered in by a series of threats coming together in unprecedented ways.
A combination of calamities — extreme weather, Russia’s targeting of grain supplies in Ukraine and some countries’ growing willingness to erect protectionist barriers to food trade — has left food supplies more vulnerable and less prepared to absorb any one disruption, analysts say.
“This is the new normal now, with more volatility and unpredictability, whether that’s in commodity prices or food prices,” said Dennis Voznesenski, a commodities analyst at Rabobank in Sydney, Australia.
Even without major disruptions, food prices can be variable, and many factors play into the price of a bushel of wheat or loaf of bread.
Last month, Russia pulled out of the Black Sea grain deal that had permitted Ukrainian farm exports by sea. The United Nations’ food price index rose in July, interrupting its monthslong downward trend because of a jump in vegetable oil prices, driven in part by worries over shortages of Ukrainian sunflower seeds.
Droughts in India, Indonesia and other Asian food exporters have led to smaller harvests. Faced with consumers outraged over higher prices, governments have banned the export of critical foods, causing further disruptions. Since late June, the price of an Asian benchmark for rice has jumped 25 percent, according to the Thai Rice Exporters Association.
Other factors are pressuring prices on supermarket shelves, including higher labor costs as workers try to keep pace with inflation. And food producers are finding that in an environment of rising prices, they can lift them even higher to pad their profits.
Compared with early 2020, consumer food prices are up about 30 percent in Europe and 23 percent in the United States.
The disruptions have had a disproportionately negative impact on small farmers and people living in low-income countries, while leaving the world vulnerable to future upheaval. Last year, more than 700 million people faced hunger and 2.4 billion people lacked year-round access to sufficient and nutritious food, according to the United Nations.
“The accumulation of the last shocks in the last few years have put countries in a very, very bad situation,” said Maximo Torero, the chief economist of the United Nations’ Food and Agriculture Organization. “If another shock comes today, I honestly don’t know how they’re going to handle it.”
This year, severe weather has been the main disrupter of food prices, said Hiral Patel, the head of sustainable and thematic research at Barclays in London.
In Pakistan, where catastrophic floods in 2022 washed away much of the country’s crops, the annual rate of food price inflation reached nearly 49 percent in May, according to the United Nations’ World Food Program.
Forecasters warn that the earth could be entering a multiyear period of exceptional warmth driven by greenhouses gas emissions and the return of El Niño, a cyclical weather pattern.
“There are increased chances of simultaneous crop losses in different parts of the world,” Ms. Patel said.
The forecast for Europe’s crop yields, including soft wheat and spring barley, was revised lower recently by the European Commission because of “distinctly drier-than-usual conditions” in large parts of the continent.
Curtailed food production in one region for one year usually does not matter much in a flexible and dynamic market, said Joseph Glauber, a senior research fellow at the International Food Policy Research Institute. The issue arises when crops are knocked out for a few years running in multiple markets — for example, from droughts.
“Those could create a lot more volatility going forward — it’s one of the uncertainties about climate change,” Mr. Glauber said. Persistent droughts “could lead to regional shortfalls and, with poor countries unable to afford higher prices, food security issues.”
War in Ukraine
Last month, when President Vladimir V. Putin of Russia let the Black Sea grain deal expire and then his military attacked grain storage in Ukraine, the price of wheat rose, which in turn lifted prices of corn and soybeans. Pierre-Olivier Gourinchas, the chief economist of the International Monetary Fund, recently estimated that the end of the deal could lead grain prices to increase by 10 to 15 percent.
While that’s a significant jump, it’s smaller than the sudden surge in prices in the first weeks of the war.
That’s because Ukrainian farmers are growing significantly less today. Ukraine also has increased its ability to export grain via rail and river, but these alternative routes cost more, said Mr. Voznesenski at Rabobank. And these routes aren’t immune from attacks or severe weather, including drought.
“You can’t tell what Putin is going to do tomorrow,” Mr. Voznesenski said. “You can’t tell when a government is going to put an export restriction in.” An increase in food supply intervention by governments “is going to create a lot more unpredictability,” he added.
Volatility in food prices has encouraged some governments to turn to restricting trade in order to keep precious stores of food closer to home.
Last month, India, the world’s largest rice supplier, issued an export ban on non-basmati white rice. India had imposed a 20 percent export duty on that rice last year, but exports continued to rise because of geopolitical issues and extreme climate conditions in other countries, the Indian government said. On Friday, the U.N. Food and Agriculture Organization reported that rice prices in July were up nearly 20 percent from a year earlier, pushing its rice price index to the highest in 12 years.
India is not alone in taking such measures. Overall, the number of curbs or tax increases on food exports has jumped 62 percent since last year, according to the Global Trade Alert, a nonprofit based in Switzerland. Globally, 176 export curbs are in effect on food, feed or fertilizer.
Economists and trade experts have cautioned against these types of policies. Though they may shield local consumers from food inflation in the near term, they ultimately compound the types of global food shortages that governments are trying to mitigate.
In a recent food security summit hosted by the United Nations in Rome, Ngozi Okonjo-Iweala, the director general of the World Trade Organization, urged countries to reject protectionism and turn to more open trade as a way to address food shortages.
For many countries, the problem has been worsened by the weak value of their currencies in comparison with the U.S. dollar, which leaves them unable to buy as many dollar-denominated commodities as before.
As food producers are dealing with more supply risks, related expenses are also rising. Much of the cost of food we eat at home comes from transportation and other expenses faced by food companies — not just from the commodity cost of growing the wheat or sugar. And some of those nonagricultural costs are rising, too.
Companies are being forced to fork out money for insurance policies to deal with harsh weather and invest in new suppliers to make their business more resilient.
Persistent drought has lowered water levels on key shipping routes, including the Panama Canal and the Rhine River in Europe, requiring shippers to lighten their loads or find other routes.
And then there is the cost of sustainability efforts as countries seek to meet net-zero-emissions targets. In all, risks that food prices stay high or swing more wildly have grown.
“There’s a range of new external shocks,” Ms. Patel of Barclays said. “The range of factors make it even more challenging to predict how volatile it will be going forward.”