Corona Daily 068: Tomorrow’s Breakfast will be More Expensive

Last week, the United Nations issued the latest Food Price Index. Food and Agriculture organization (FAO) is UN’s specialized arm that deals with global food security. Its motto is “Let there be bread (fiat panis)”

The report analyses food prices into five groups. (a) Cereals (b) Vegetable Oils (c) Dairy products (d) Meat (e) Sugar.

Overall food prices in May 2021 were nearly 40% higher than a year ago. Rising every month during the pandemic, the price index was the highest since September 2011.

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Among the cereals, international maize prices rose most dramatically, 90% more than a year ago, and reaching their highest since January 2013. USA may be able to maintain its production, but Brazil’s weather is predicted to result in a heavy maize shortfall. Wheat prices, despite a good crop in EU and America, grew by almost 30% in a year.

Vegetable oil price inflation is driven by rising palm, soy and rapeseed oil prices. Palm oil inventories are low, thanks to the slow production in Southeast Asia. Soybean oil is becoming more expensive because in addition to food, it is now used as biodiesel.

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Dairy products also became almost 30% more expensive. Skim milk powder was the inflation leader. You may want to replace cheese with butter in your sandwich. Cheese became dearer due to lower supplies from the EU. Butter prices fell on increased exports from New Zealand.

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Cereal prices usually push meat prices higher, because animals consume a lot of vegetarian food. Meat prices have been growing for the past eight months, and are 10% higher than in May 2020. The closures of slaughterhouses during the early months, and general slowdown in production of bovine and ovine meats have shifted demand to poultry and pig meats in certain countries. As Europe and North America come out of the pandemic, and start eating out, the demand will grow further.

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Sugar prices have remained relatively calm, growing only in the past two months, and reaching the highest level since March 2017. Brazil is the world’s largest sugar exporter. Prolonged dry weather has affected the crop development. Brazilian Real became stronger (because USD became weaker), hampering exports. Fortunately, Indian sugar exports have shot up capping the international sugar prices.

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Food prices are rocketing globally. The World Bank estimates pandemic has added 120 million ‘new poor’, those below the extreme poverty line ($1.90 a day). In Nigeria, food inflation rose to 23% in March. In Indonesia, tofu costs 30% more than a year ago. In Lebanon, with half the country below the poverty line, food is five times more expensive than in 2019. In Russia, food prices rose 7.7% in 2020, forcing Putin to order his ministers to check inflation. In the UK, 10% people used food banks.   

As if this was not enough, an American survey of 4,000 consumers shows a boom in unhealthy eating. During the pandemic, Americans increased their consumption of junk snacks, desserts and sugary drinks. A 2007-2009 survey of 60,000 Americans had concluded: “dietary quality plummeted along with the economy.”

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Other than the laws of supply and demand, two factors contribute to the global food pricing. One is climate change. With global warming, drier and hotter weather, food production is projected to be affected. With population growth, the next big threat is food insecurity.

Oil price is the other key factor. On 20 April 2020, crude oil futures dropped below $zero for the first time in history. By October 2020, it had recovered to $35. Today, at $70, it is already double that. In the previous global food crisis a decade ago, oil prices were close to $150 a barrel.

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Why is the issue of Food prices important? Because beyond a certain point, they cause riots and social unrest. In 2008, the food price spike had started bread riots. Bahrain, Yemen, Jordan, Egypt and Morocco saw food demonstrations. Food prices played a major role in the Arab Spring, the political uprising three years later.

To resolve the food price crisis, the world can’t wait till the end of the pandemic.

Ravi