Commodity Shuttle: World food prices change levels and there is no prospect of going down

The pressure on food prices should not be temporary, but will continue for years to come. Even with high world grain production, trade dynamics have changed.

The difficulties imposed by the pandemic, further accelerated by the war between Ukraine and Russia, have raised food prices to another level. The return will take time.

The rise in food prices is not so much because of a lack of product, but because of a breakdown in world trade. The FAO (United Nations Food and Agriculture Organization) estimated the total production of cereals for this harvest at 2.8 billion tons, a volume 1% higher than the previous one.

International grain transactions, however, dropped 3%, to 469 million tons in this harvest. Another data that should make prices fall are the stocks, which rise 2%, to 851 million tons.

The average prices of a basic basket of products (meat, grains, cereals, vegetable oils and sugar) monitored by FAO are, however, up 21%, discounting inflation, in relation to 2008, the period, until then, of increased pressure on food.

In the last 14 years, cereals had a real evolution of 5%, and vegetable oils soared, accumulating a high of 42%. The acceleration of prices began in the pandemic, with demand growing intensely, due to the formation of food stocks by large consumers.

The bottleneck in world production and trade of inputs brought costs to the sector that had not been seen for a decade.

The war between Ukraine and Russia further complicated this relationship of costs and production, increasing agricultural spending worldwide.

The increase in world stocks reported by FAO is due to the permanence of a large part of these food products in the two countries in dispute. The circulation of these foods is very difficult; in some regions of Ukraine, impossible.

Food prices will remain high, due to the absence of Ukrainian and Russian grains, these to a lesser extent, on the international market.

The same goes for costs. Fertilizers, which were expensive due to strong international demand before the war, rose even further with the difficulty of marketing these products by Russia and Belarus, large producers.

Even if these countries resume exports, the reduction in world production of some inputs, the high cost of energy, and high commodity prices will not allow prices to fall in the short term.

Food prices have changed levels. FAO shows that the main product that affects the consumer’s pocket all over the world is vegetable oils.

The largest exporter of sunflower oil, Ukraine maintains a good internal stock, but is unable to export. The absence of sunflower oil in the international market has driven up the prices of palm, rapeseed, corn and soybean oil – this one already had a tight supply, due to the shortfall in the soybean crop in the United States in 2019/20. The break has now taken place in Brazil. The production of the oilseed, this year, was at least 20 million tons below the potential initially forecast.

According to FAO’s calculations, vegetable oils are up 42% in real terms since 2008. The increase in food prices in 2008 was caused by the fall in corn and soybean production in the 2007 and 2008 crops in the United States. In 2009, prices retreated a little, but were pressured again for five years in a row.

Brazil gains from this rise in commodities, which generates record revenues. The Brazilian consumer, however, pays prices equivalent to international ones, despite having a weak currency.

This Monday (11), Fipe (Fundação Instituto de Pesquisas Econômicas) announced that soybean oil has accumulated an increase of 8% in the last 30 days alone. Food inflation rose 3.1% in the period, and 7 of the top 10 pressure products in the index came from the countryside. Bun and wheat flour rose 3.5% and 3.3%, respectively.

​In the first four weeks of this month, the most recent data from Fipe, food participated with 47% in the formation of the CPI (Consumer Price Index). In the same period last year, the percentage was 14%.