Russia-Ukraine war leads to booming food prices
The FAO Food Price Index (FFPI) averaged 159.3 points in March 2022, up 17.9 points (12.6%) from February, making a giant leap to a new highest level since its inception in 1990.
The FAO Cereal Price Index averaged 170.1 points in March, up 24.9 points (17.1%) from February, marking its highest level on record since 1990. This month’s increase reflected a surge in world prices of wheat and coarse grains, largely driven by conflict-related export disruptions from Ukraine and, to a lesser extent, the Russian Federation, the FAO said.
"The expected loss of exports from the Black Sea region exacerbated the already tight global availability of wheat. With concerns over crop conditions in the United States of America (USA) also adding support, world wheat prices rose sharply in March, soaring by 19.7%."
Significantly reduced maize export expectations for Ukraine, a major exporter, on top of elevated energy and input costs, underpinned a 19.1% increase in world maize prices month-on-month. Strength in maize markets influenced other coarse grains, with sorghum prices increasing by 17.3%, while supply uncertainties added further pressure on already tight barley markets, pushing barley prices up 27.1% from February. Meanwhile, contrasting trends across the various origins and qualities kept the March value of FAO’s Rice Price Index little changed from February levels and still 10% below its year-earlier value.
The FAO Vegetable Oil Price Index averaged 248.6 points in March, up 46.9 points (23.2%) from February and hitting a new record high. In the meantime, palm, soy and rapeseed oil prices also rose markedly, buoyed by rising global import demand in the wake of sunflower oil supply disruptions.
Moreover, while world palm oil values received additional support from lingering supply tightness in major producing countries, soyoil prices were underpinned by concerns over reduced export availabilities in South America.
The FAO Sugar Price Index averaged 117.9 points in March, up 7.4 points (6.7%) from February, reversing most of the previous three months’ decline and reaching levels more than 20% above those registered in the corresponding month last year.
The March rebound in international sugar price quotations was mainly prompted by the sharp increase in international crude oil prices, which raised expectations of a greater use of sugarcane for ethanol production in Brazil in the upcoming season.
Additional support to world sugar prices was lent by the sustained strengthening of the Brazilian real against the US Dollar, which tends to restrain producer selling due to lower returns in local currency.
The FAO Meat Price Index averaged 120.0 points in March, up 5.5 points (4.8%) from February, also reaching an all-time high. In March, pig meat prices registered the steepest monthly increase on record since 1995, underpinned by supply shortfalls of slaughter pigs in Western Europe and a surge in internal demand in light of the upcoming Easter holidays. International poultry meat prices firmed, fuelled by reduced supplies from leading exporting countries following avian flu outbreaks,
The FAO Dairy Price Index averaged 145.2 points in March, up 3.7 points (2.6%) from February, marking the seventh consecutive monthly increase and lifting the index 27.7 points (23.6%) above its value a year ago. Quotations for butter and milk powders rose steeply, underpinned by a surge in import demand for near- and long-term deliveries, especially from Asian markets, and solid internal demand in Western Europe.
In its latest Cereal Supply and Demand Brief, FAO said its wheat production forecast for 2022 has been lowered slightly since the March estimate, largely as a result of the conflict in Ukraine, but it still points to an increase of 1.1% to 784 million tonnes.
"Wheat production in Ukraine is now forecast to fall below the five-year average, primarily reflecting expectations that at least 20 percent of the winter planted area may not be harvested due to direct destruction, constrained access or a lack of resources to harvest crops," it said.
Furthermore, yields are also expected to decline in 2022, as disrupted access to inputs and farmland is seen hindering the timeliness of agricultural operations. For Russia, continued conducive weather has bolstered harvest expectations and, based on reports from the country, wheat production is forecast at a level above the five-year average.
Combined with a likely small decrease in plantings, total wheat production in the European Union is anticipated to decline year-on-year to 134 million tonnes in 2022. Wheat production in Pakistan is cut back moderately, but it is forecast to increase modestly in India. In Near East Asia, production in 2022 is forecast at average levels, while in North Africa, drought conditions in Morocco, western areas of Algeria and central Tunisia point to smaller harvests in 2022. Regarding coarse grains, production prospects are still favourable in Argentina and Brazil, where maize harvests are forecast at well above-average levels in 2022. Maize production in South Africa is likely to fall year-on-year, owing to a cutback in plantings, but at 15 million tonnes, it would still represent an above-average output.
FAO’s world cereal production forecast for 2021 is marginally higher this month and now stands at 2,799 million tonnes, up 0.8% from the outturn in 2020. Now pegged at 1,206 million tonnes, global coarse grain production has been raised marginally this month owing to a small increase in the maize production estimate in Ukraine, where recent official data point to higher than previously expected yields.
World rice production in 2021 is now predicted to reach 520.3 million tonnes (milled basis), up 0.7% from 2020 and an all-time high.
AO’s forecast for world trade in cereals in 2021/22 has been lowered by 14.6 million tonnes since last month to 469 million tonnes, now pointing to a 2.0% contraction from the 2020/21 level.
The shift in demand resulting from the Russia-Ukraine war is seen increasing wheat shipments from the European Union and India. However, those additional exports are expected to only partially compensate for the loss of exports from the Black Sea region. Greater maize shipments are expected for Argentina, India and the USA. Those exports are also seen only partially compensating for the loss in exports from the Black Sea region.
Cover photo: MTI/Zsolt Czeglédi
