Highest price in 100 years ends era of cheap food

The main global food price index of the United Nations reached the highest level in 61 years in March, and the IMF (International Monetary Fund) series from 1900 points to a record in a hundred years.

The current level surpasses the marks of the period of the Second World War (1939-1945) and the first world oil crisis (1973-1974), according to the UN (United Nations). IMF data suggest that it is second only to the level recorded after the First World War (1914-1918).

Pressured by the conflict in Ukraine, food inflation had been rising since 2000 — and gained momentum before the outbreak of the pandemic in late 2019.

It has conjunctural causes behind it, such as Covid-19 and the war; and structural, such as rising incomes in Asia and Africa and climate change, which make harvests unpredictable.

Taken together, these factors mark the end of an era of relatively cheap food that helped reduce world poverty and hunger in the second half of the 20th century.

For Brazil, the explosion in food and fuel prices created a paradox: while the population became impoverished and reduced the food standard, public accounts improved and fiscal risk decreased with the increase in tax collection generated by more revenue from commodity exports. , such as grains and oil.

In March, the UN food price index calculated by the FAO (Food and Agriculture Organization) reached 159.3 points, beating the previous record of 1974 (137.4), and pressured by all its components: cereals, meats, oils, dairy products and sugar.

Together and before the war, Ukraine and Russia accounted for 25% of global wheat exports and 15% of corn exports. The conflict has also sent oil prices soaring more than 45% this year, putting pressure on freight and the food supply chain.

For André Braz, coordinator of the Consumer Price Index (CPI) of the Brazilian Institute of Economics of the Getulio Vargas Foundation (FGV-Ibre), high food prices should “be on the radar” for a long time. “It’s not just about seasonal effects. It will be very difficult to have sustained declines in the coming years.”

None of the food items in Brazil have a 12-month variation below double digits. Even without counting commodities such as grains, the set of vegetables rose 46.2% in the period, according to the IPC of the FGV.

Braz’s personal estimate for food inflation this year is 13%, well above the 7.5% to 8.5% that the market predicts for the IPCA, IBGE’s official general index.

The world is in a sequence of shocks that has pushed food prices to another level. Among them, the main ones were the trade war between the United States and China in the Donald Trump administration (2017-2021), the pandemic and the war in Ukraine.

“It’s an unimaginable chain of conjunctural shocks that ended up making the problem somewhat structural, with food inflation taking on a life of its own”, says the economist and columnist for Sheet Samuel Pessoa.

He considers that the problem would not be so serious if the world had not gone through the recent shock in fuel prices caused by the war. Western sanctions on Russia, however, could keep oil, gas and fertilizer values ​​under pressure for a long time.

On Thursday (14), the managing director of the IMF, Kristalina Georgieva, said that the world is experiencing a “crisis on top of another” that could increase inequality, increase inflation and “fragment” the global economy.

Countries that are heavily dependent on food imports and with fragile external accounts would be the most affected – and an ongoing race to increase stocks tends to put more pressure on prices.

Even before the pandemic and the war in Ukraine, the IMF was already pointing to the end of the elongated period, until the 2000s, of cheaper food.

“Since the turn of the century, food prices have been rising steadily, except for declines in the global financial crisis in late 2008 and early 2009. This suggests that the increases are a trend and not just a reflection of temporary factors,” it said. Fund report published in 2011, with data going back to 1900.

For José Eustáquio Alves, PhD in demography and professor for two decades at the National School of Statistical Sciences at IBGE, a series of structural factors should keep food prices at a high level.

Alves highlights the increase in income in populous Asian countries, such as China and India, sustaining prices (especially for grains and meat), as well as the economic and African population growth in the coming years.

According to the World Bank, the population in extreme poverty (living on less than US$ 1.90 a day) in Africa is expected to fall to 23% of the total in eight years, from 41% in 2015 — with economic growth rates on the continent. above the global average, at least until the pandemic.

Africans represent 17% of the world’s population. But unlike China and India, where the fertility rate is falling, at replacement level, Africa is expected to put much of the 1 billion more people on the planet by 2043 (and 2 billion by 2070).

Alves points out that other factors, such as soil degradation for agriculture, climate change and lack of water tend to exert increasing pressures on food prices.

For Sérgio Vale, chief economist at MB Associados, it is not certain that climate change can have a significant impact on food production, whose rising prices will continue to stimulate the increase in planting areas and productivity.

“Even global warming can open new frontiers, such as northern Russia and Canada, which are very cold today,” he says. “But it is certain that the demand for food will continue to grow, with the increase in income, especially in Asia, and the population, in Africa.”

Vale points out that commodity prices on the rise at the moment are giving Brazil a “gift” in tax collection and increased economic activity.

By his calculations, the entire agribusiness sector represents around 27% of GDP. Added to the mineral and fuel commodity sectors, the share rises to 40%.

“The problem is that the remaining 60% are doing very poorly. But there is an inflow of foreign capital and an increase in tax revenue, improving public accounts and helping to reduce the value of the dollar, the currency in which commodities, such as grains, are denominated. “

Even so, with the current pace of price increases, high unemployment and falling income (-8.8% in 12 months), Brazilians should continue to be pressured by food.

According to a Datafolha survey at the end of March, 1 in 4 Brazilians said that the amount of food available was less than what was needed to feed the family in recent months.

The poorer the poorer, the more food inflation is perceived, as housing and food consume most of the income. According to stratification by Datafolha, 53% of Brazilian households go through the month with less than two minimum wages (R$ 2,424). In them, 35% accused lack of food.

A survey by the Penssan Network at the end of 2020 (before the food boom last year and now) showed that more than half (55%) of Brazilians suffered from some type of food insecurity (severe, moderate or mild).