The UN Food and Agriculture Organization’s (FAO) food price index reached its highest level ever shortly after Russia’s March invasion of Ukraine, driving up consumer prices worldwide.
Bread and eggs both increased by 18% and milk by 30% in the year to December, respectively, in the United Kingdom, where inflation was well ahead of the price increases for many common household goods.
These increases posed a threat to food security, particularly in low- and middle-income nations that heavily rely on Russia and Ukraine for grains and plant oils. This included numerous nations in Africa and Asia, which will account for 95% of Ukraine’s wheat exports in 2021—roughly a tenth of the world’s supply.
Global food price inflation
As a result, there was a lot of talk in the media about the possibility of famine. The FAO food price index, on the other hand, has reverted to pre-invasion levels nearly a year after the invasion.
So, why has price pressure decreased, and what are the prospects for the upcoming year?
Food and COVID cannot be considered apart. Due to pandemic restrictions that squeezed supplies, many people in the energy and food industries were either too ill to work or prevented from doing so. Food and energy prices also increased as a result of increased demand and the opening up of the world.
People were more susceptible to the events in Ukraine as a result of this. The markets were uncertain about whether production and exports would be affected and how global supply chains would adapt after the war began, which is why food price inflation reached its highest point.
After a deal was made in July by the United Nations to build a humanitarian corridor through the Black Sea, grain exports from Ukraine resumed. Even though large portions of the front line remain unharvested, the larger-than-anticipated wheat harvest helped.
Another reason why a lot of Ukraine’s corn hasn’t been harvested is that the drying process uses a lot of energy and farmers couldn’t afford the higher prices. Grain exports from Ukraine decreased by approximately 30% year-over-year in 2022.
Typically, Russia is a larger exporter of wheat than Ukraine, meeting about 15% of global demand. Since the Russians stopped providing data, it’s harder to tell what happened to these supplies. However, Moscow’s policy of only dealing with “friendly” countries will undoubtedly have affected availability for many countries as well.
Countries that rely a lot on grains from Ukraine and Russia have had to shop elsewhere. Yemen and Egypt, for instance, have paid more than usual for grain imports from India and the EU.
The global food supply has been further squeezed by a number of additional farmer-related pressures. Over the past two years, the cost of fertilizer has skyrocketed. Russia, a significant supplier to the world, has been stockpiling for domestic use.
Higher energy costs have reduced output elsewhere. In 2022, the largest nitrogen fertilizer plant in the UK ceased production. The price of fertilizer for farmers in the UK is now 18% higher than it was in the winter before the invasion of Ukraine and 66% higher than it was two years ago.
Another issue was extreme weather in the summer of 2022, including heatwaves, drought, flooding, and drought in northern Europe, the United States, and China.
In areas that rely on irrigation, it has become more difficult, and drought conditions in Europe have made it harder to grow crops for animal feed and harvest grass for silage. As a result, prices for vegetables and meat have both increased.
The World Food Programme of the United Nations says that inflation, war, and extreme weather have all restricted food access for many people around the world. Since the war began, 20% more people now face severe food insecurity.
The entire food supply chain will benefit from the fact that wholesale prices for gasoline and oil have at least decreased from their highs in 2022. In many nations, this is one reason why inflation eased slightly in the fall.
Prices for gas and oil
The global food price index will have felt the effects of this, at least in part. The prices of cereals, meat, and vegetable oil, in particular, all decreased toward the end of the year, while the prices of sugar and dairy products decreased in the opposite direction. Inflation in the price of food as a whole remains historically high.
It is anticipated that crop planting in Ukraine will decrease by 17 percent in the coming year. To make up for the shortage, farmers in other nations are planting more wheat and maize, but the overall supply will still be under pressure from higher farming costs and possibly more extreme weather.
Due to the limited availability of supplies, fertilizer prices are likely to remain high. It’s possible that farmers in wealthier nations will continue to apply normal amounts to their crops, just as they did during previous price increases. However, in less developed nations, they may reduce production, putting yields and quality in jeopardy and increasing food insecurity for smallholder communities.
In conclusion, price pressures will continue because many staples will likely remain in short supply in 2023. Either the costs will be borne by retailers themselves or they will be passed on to customers. The governments will need to think about how to help struggling consumers and farmers maximize their output.
To minimize disruptions and prioritize access for vulnerable communities in developing nations, an urgent fertilizer supply agreement is required at the international level. In the long run, farming must develop techniques that maximize the nutrient cycle in order to reduce its reliance on fertilizers.
This includes making better use of manure and getting nutrients out of sewage, using more legume crops in rotations to take advantage of the fact that they make the soil have more nutrients, and using manures and nutrients out of sewage more effectively. Additionally, more precision farming methods are required to direct resources within fields to the areas where they will be used most effectively.
Western nations are well-versed in these practices, but other parts of the world, particularly developing nations, lag behind. Fertilizers will always be a part of the farming system, but if we can get these things right, we can make food production more sustainable.
Source: Reuters