The food price index for the Food and Agriculture Organization of the United Nations is lower than it was when Russian forces entered Ukraine. However, food prices continue to rise, contributing disproportionately to painfully high inflation rates from the United States and Europe to developing countries.
A restaurant on the outskirts of Nairobi is reducing the size of its chapatis, crisp, fluffy Kenyan flatbread, to save cooking oil. Cash-strapped Pakistanis reluctantly became vegetarians, cutting beef and chicken from their diets because they could no longer afford meat. And in Hungary, a cafe is removing burgers and fries from its menu, in an effort to avoid the high cost of oil and beef.
Food prices around the world continue to rise excruciatingly. In world markets, the prices of cereals, vegetable oils, dairy products and other agricultural products have fallen steadily. But reassurance is still absent from the real world, not felt by shopkeepers, street vendors, and families trying to make ends meet.
“Most days, we can’t afford lunch and dinner, because we have to pay rent and school fees,” says Lina Mooney, a Kenyan mother of four.
She points out that a 2-kilogram package of cornmeal costs twice what she earns a day selling vegetables at a stall.
Food prices were already high when Russia invaded Ukraine in February last year, disrupting grain and fertilizer trade and driving up prices. But globally, this price shock has long since ended.
Reasons for the continued rise in commodity prices?
The United Nations says food prices have fallen for 12 months in a row, thanks to crops secured from elsewhere such as Brazil and Russia, and a shaky wartime deal to allow grain shipments from the Black Sea.
The food price index for the Food and Agriculture Organization of the United Nations is lower than it was when Russian forces entered Ukraine.
However, food prices continue to rise, contributing disproportionately to painfully high inflation rates from the United States and Europe to developing countries.
“Food markets are so interconnected that you can feel the impact of higher prices wherever you are in the world,” explains Ian Mitchell, an economist and co-director of the Europe Program at the Center for Global Development in London.
But why does food inflation remain so intractable, if not on global commodity markets, then on supermarkets, grocery stores, and kitchen counters around the world?
Food inflation “will come down, but slowly, because those other factors are still very high,” says Joseph Glabour, a former USDA economist.
In the US, food prices rose 8.5% last month compared to the year before, he says. “75% of costs come after you leave the farm. It’s energy, processing, transportation and labor expenses.”
Many of these costs are an integral part of core inflation, which excludes fluctuations in food and energy prices, and has proven very difficult to extract from the global economy. Food prices increased by 19.5% in the European Union last month compared to the year before and by 19.2% in the United Kingdom, the largest increase in nearly 46 years.
Others, including US President Joe Biden, see another reason: a wave of mergers that, over the years, has reduced competition in the food industry.
corporate dominance
Last year, the White House complained that just four meatpacking companies control 85% of the US beef market. Similarly, only four companies control 70% of the pork market and 54% of the poultry market. Critics say these companies can use their market power to drive up prices.
The expert, Joseph Glabour, is not convinced that agribusiness consolidation is to blame for continued high food prices.
Of course, the big agricultural companies can make profits when prices go up. But things usually recover over time, and their profits dwindle in tough times.
“Right now, there are a lot of market factors, fundamentals, that can explain why there is such inflation,” Glabour says. “I couldn’t help but point to the fact that we only have a handful of meat producers. Outside the US, the strong dollar is to blame for keeping prices high. During recent food price crises, as in 2007-2008, the dollar has not been particularly strong.
“This time we had a strong dollar rising,” he adds. Corn and wheat prices are priced in dollars per ton. It is dealt with in the local currency, and because of the strength of the dollar, this means that they did not see the lower prices that appear in the commodity markets and the United Nations Food Price Index.”
