Bloomberg | Bloomberg | Getty Images Global food prices fell for a third straight month, but prices still hovered near record highs in March, according to the United Nations’ Food and Agriculture Organization. A Nomura economist says Asia has yet to see the peak in food prices, which will likely come in the July to September quarter. Sonal Varma, chief economist for India and Asia (formerly Japan) at the Japanese bank told CNBC that changes in food prices in Asia tend to lag global movements as governments implement subsidies and price controls to temporarily relax prices. The FAO food price index, which tracks the monthly change in global prices of a basket of food, fell 2.3% in June compared with a month earlier. It led to a decline in international prices of vegetable oils, grains and sugar, but is still 23.1% higher than a year ago. The FAO index in June stood at 154.2 points – the base period was average values between 2014 and 2016 – slightly below the 159.7 points measured in March, following Russia’s invasion of Ukraine.
Implications in Asia
According to Nomura, countries such as Singapore, South Korea, the Philippines and India will likely see the highest increases in food prices in the second half of this year. In a note published in June, Varma and her team reported that net food imports account for more than 2% of the Philippines’ gross domestic product, the second highest in Asia (ex-Japan) after Hong Kong. Food also holds a high share—nearly 35%—of the country’s consumer price index basket. South Korea and Singapore are also at risk as they rely heavily on food imports. And while India is self-sufficient in wheat and rice, the country’s ongoing heatwave, delayed monsoons and rising prices of other foods such as meat and eggs will likely push prices higher. Instead of putting export bans in place, which distort food prices, Varma said governments should use “targeted forms of fiscal support” to help low-income people right now. “Lower-income households typically spend a large portion of their consumption on food, so it’s more important to protect them,” he said.
Wheat prices are up nearly 50% year-on-year
According to the FAO food price index, prices of cereals — in the wheat category — fell 4.1% in June compared to May, but are still 27.6% higher than a year ago. time. Wheat prices fell 5.7% in June but were still 48.5% higher than a year ago as a result of the Russia-Ukraine war. Russia and Ukraine together account for 28.47% of global wheat exports in 2020, according to the Economic Complexity Observatory. Lower wheat prices were due to better growing conditions, seasonal availability from new crops in the northern hemisphere and more exports from Russia, FAO said. Vegetable oil prices recorded the biggest drop, by 7.6% compared to the previous month. Palm oil prices fell as global supply increased, while weaker demand for sunflower and soybean oil also weighed on prices. Sugar prices fell 2.6% month-on-month as supply increased and demand contracted.
Meat prices are at record high levels
Meat and dairy consumers had less to cheer. Meat prices hit a record high in June, up 1.7% from May and 12.7% from a year earlier, as supply continued to be constrained by the war. Bird flu outbreaks in the northern hemisphere have also affected meat prices. Dairy was 4.1% more expensive than May and 24.9% more expensive than June last year. Cheese prices rose more due to stocks and the heatwave in Europe, the FAO said. The FAO warned that while food prices eased in June, “the factors that drove world prices high initially are still at play.” These include “strong global demand, adverse weather conditions in some major countries, high production and transportation costs and supply chain disruptions due to COVID-19, exacerbated by uncertainties arising from the ongoing war in Ukraine,” the chief economist said by FAO Maximo Torero Cullen. in a statement. Food prices are not likely to decline significantly over time, Nomura’s Varma said. “Demand for some of these products is relatively inelastic,” he said, adding that the downturn would not cause “a substantial drop in prices.”
