Global food prices jump with highest monthly rise in a decade

Global food prices surged by the biggest margin in a decade in May as one closely
watched index jumped 40 per cent, raising fears of further food inflation later in
the year.

The year-on-year leap in the UN Food and Agriculture Organization’s monthly food
price index was the largest since 2011 and signalled that inflation initially
stoked by pandemic disruption is accelerating.

China’s soaring appetite for grain and soyabeans is adding to upward pressure on
prices, along with a severe drought in Brazil and growing demand for vegetable oil
for biodiesel.

The index is an important benchmark for internationally traded agricultural

commodities and the increase brings it to its highest level since September 2011.

The rise in world market prices will further increase food price inflation in
poorer countries reliant on imports for staples. For richer countries, the cost of
raw ingredients accounts for only part of the overall price paid for products at
the supermarket or in restaurants.

But the surge in commodity prices is feeding into food prices, with companies such
as Nestlé and Coca-Cola announcing they will pass on the price increases, while
economists and analysts warn that the return of consumers eating out will add to
price pressure.

“The decline in eating out wasn’t totally compensated with eating at home, but as
people start to go to restaurants again, you will see food prices rise,” said
Abdolreza Abbassian, senior economist at the FAO.

The cost of labour, transport and shipping is expected to push prices higher in the
coming months. “The rise in the transport cost base with oil price increases and
shipping bottlenecks, there is a lot of upward price pressure in the system,” said
Caroline Bain at Capital Economics.

In the UK and Europe, food inflation has been relatively contained, but the British
Retail Consortium this week warned that prices would rise in the second half of the
year.

The upward pressure will add to food price inflation already affecting many
countries. In 2020, the world’s consumer price inflation for food jumped to 6.3 per
cent, up from 4.6 per cent in 2019, according to the FAO.

The pandemic disrupted food supply chains, affecting the production and
distribution of food. South America, with 21 per cent in food price inflation,
Africa and South Asia with 12 per cent and Oceania with 8 per cent, were among the
most affected regions.

The bad weather in Brazil, a big exporter of corn and soyabeans, and rising demand
for soyabean oil for biodiesel have pushed prices higher, said analysts.

“China has continued to buy, but with Brazil’s drought proving to be more severe
than expected, everyone has to pray that the weather in the US is going to be
good,” said Abbassian.

Countries that depend on overseas producers for their staples have been hit by
higher global food prices. The issue has become a political concern in some
developing countries such as Ethiopia and Nigeria.
Some exporting countries have introduced an export tariff, such as Russia for its
wheat sales, while others including Argentina are discussing a controversial ban on
beef exports.