2023 was a year of ups and downs for the agriculture and food markets. Geopolitical events and climate change have started to reshape how food trade is conducted on a global scale.
Food affordability
The issue of food affordability remained on the agenda. This meant that massive injections of money into the economy created more demand than supply. It pushed prices up.
Food prices rose as a result of the distortions between supply and demand. But in 2023, the money stopped flowing. Many states faced high levels of food inflation. Grain prices remained high for most of 2023.
Inflation
Food inflation reached 7.4% in the OECD in October, but in many countries, it was much higher. In Japan, food inflation was 9.8 percent, while in the UK food inflation was over 10 percent. In Türkiye, food inflation rose by 67.16% yoy in November.
The situation was not much better for emerging economies. The US dollar strengthened due to interest rate hikes. This meant countries buying food in US dollars paid more in local currencies.
Climate challenge
The second challenge of 2023 was climate change. Extreme weather events continued throughout the year. They jeopardized food production in many markets. Heatwaves in Europe and high rainfall in India jeopardized tomato supplies, pushing up prices for Moroccan tomatoes, a major supplier to the EU.
Meanwhile, drought in Louisiana affected sugarcane production, tightening this year’s supply outlook. The US has also been unable to rely on Mexico, its largest supplier, as production and yields have suffered due to El Nino-induced drought.
At the same time, dry conditions in Asia, also caused by the El Nino weather event, threatened rice production.
Transportation
Low levels in the Panama Canal and the Mississippi River caused some restrictions. It created logistical difficulties. Gatun Lake is the feeder of the Panama Canal beds. Water levels are at very low levels.
But overall, the other supply chain issues seen in 2020 and 2021 have eased on their own. Strike activity has been largely resolved. Port congestion has reduced. Freight rates fell due to increased availability. Low demand in China has become a concern for the shipping industry.
In fact, according to the New York Fed’s Global Supply Chain Stress Index, supply chains are less stressed than they have been in the last 25 years, including in late 2008 when global demand plummeted due to the Great Recession.
Food markets have been relatively unaffected, even as the global conflict between Russia and Ukraine continues, even escalating in Israel and Palestine. But Israel is a fertilizer exporter and fertilizer prices have been high since the Russian invasion of Ukraine.
Protectionism on the rise
The last theme of 2023 was the rise of protectionist measures in food producing countries, especially India. The South Asian giant banned the export of non-basmati rice in July. In October, it expanded limits on sugar exports. India had already banned wheat exports in 2022. Already the price of rice is rising globally, which is worrying as rice is a staple food in low-income developing countries.
Meanwhile, Türkiye banned the export of edible oil. It imposed export licenses on grains and oilseeds. Pakistan and Algeria banned sugar exports, and Algeria banned pasta, wheat and vegetable oil exports.
Many other countries have imposed export bans or restrictions. Most of these bans are scheduled to be revised by the end of 2023.
What awaits the market in 2024?
It will largely be more of the same. As global conflicts continue to rage, we should see food prices begin to stabilize and food inflation will likely fall. Analysts largely expect central banks, including the Fed, to cut interest rates by mid-2024. This will likely lower food costs significantly.
But weather issues will continue to plague food producers. El Nino is likely to create challenging growing conditions in South America and Asia Pacific. South American farmers will have to contend with wetter weather. Countries in Asia-Pacific will face drier conditions, which is bad news for rice.
At the same time, weather conditions will complicate processes further down the supply chain. If dry weather persists at key trade transit points such as the Panama Canal, the Mississippi River and the Rhine, journeys will take longer, food will be more expensive, and eventually freight prices may get some support.