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A Major Threat to Food Supplies: Prices Could Skyrocket at Any Time

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Agricultural experts and analysts continue to warn that global food supplies are still under threat. According to the Financial Times, food prices, which rose sharply in 2022, have fallen in international markets, but low stock levels and high foreign exchange costs continue to increase food costs in developing countries. In addition, extreme climate events and low stock levels cause food prices to sound the alarm.

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Invasion of Ukraine

Food prices were already high last year before the Russia-Ukraine war, due to drought and the pandemic.

Then, Moscow’s involvement in the war in Ukraine as the world’s largest fertilizer exporter pushed food prices sharply higher, while a jump in the price of natural gas, a critical ingredient for nitrogen fertilizers, also put pressure on the agricultural market.

The grain deal signed between Moscow and Kiev during the war played an important role in lowering prices, with abundant supplies from Russia, while falling natural gas prices calmed fertilizer markets.

The UN Food and Agriculture Organization’s (FAO) Food Price Index, a reference index of internationally traded agricultural commodities, has fallen for nine consecutive months after peaking in 2022. Prices of critical nutrients hovered around 40 percent below last year’s highs.^

Climate conditions

But analysts warned that the grain deal could break down, citing volatile energy prices and the impact of climate change on crop production.

World Bank agricultural economist John Baffes said, “The current situation is like flying with one engine. As long as the engine is running, there is no problem, but if the engine stops, you have a problem. If any of the risks materialize, we will see a very, very rapid increase in prices.”

The most immediate danger is the UN-backed grain deal, due for renewal in March. Any failure to extend the deal could block Ukrainian grain exports, sending prices skyrocketing again.

Last year saw record-breaking temperatures in Europe and other parts of the world. “Weather conditions will lead to global temperatures in 2023 being warmer than in 2022,” the UK Meteorological Office warned late last year.

STOCK AND FOREIGN EXCHANGE IMPACT

Low grain stock levels have also raised analysts’ concerns about global food supplies. Joseph Glauber, former chief economist at the US Department of Agriculture, said: “Prices will continue to be volatile due to the low global inventory situation. If drought or a major weather event occurs this spring, prices could rise more sharply.”

Meanwhile, currency movements have also posed a threat to food supplies in many developing countries. Despite the fall in food prices in international markets, the strength of the dollar has kept costs in local currencies high. For consumers, this means that food inflation will continue for several more quarters.

 

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