TWN Info Service on UN Sustainable Development (Apr22/02)
12 April 2022
Third World Network

UN: Ukraine war drives global food prices to their highest ever level
Published in SUNS #9554 dated 12 April 2022

Geneva, 11 Apr (Kanaga Raja) -The international prices of a basket of key agricultural food commodities rose to their highest level ever in March, as a result of the war in the Black Sea region which has sent shockwaves through the markets for staple grains and vegetable oils, according to the UN Food and Agriculture Organization (FAO).

According to the FAO, its Food Price Index (FFPI) averaged 159.3 points in March 2022, up 17.9 points (12.6 percent) from February, “making a giant leap to a new highest level since its inception in 1990”.

“The latest increase reflects new all-time highs for vegetable oils, cereals and meat sub-indices, while those of sugar and dairy products also rose significantly,” said FAO.

According to an FAO news release, in an address to the 169th session of the FAO’s Council on 8 April, convened to discuss the consequences of the war in Ukraine on global food security, FAO Director-General Qu Dongyu said the war in Ukraine will impact consumers across the world as the resulting increases in the prices of food, energy and fertilizers will put the next global harvests at risk.

However, he said that a global food crisis of the scale seen in 2008 can still be averted, highlighting the importance of keeping global supply chains functioning.

“Prices for staple foodstuffs such as wheat and vegetable oils have been soaring lately, imposing extraordinary costs on global consumers, particularly the poorest,” said Mr Qu.

And with energy prices rising in parallel with food prices, “the purchasing power of vulnerable consumers and countries has further decreased,” he added.

According to the FAO chief, today’s high fertilizer prices could lead to lower fertilizer use next season and possibly beyond, with the real prospect of a drop in food productivity leading to even higher food prices.

“This would potentially result in even more undernourished people in 2022 and the months to come,” he cautioned.

Noting that Russia and Ukraine together account for nearly 30% of global wheat exports and about 80% of global sunflower exports, and that Russia is the largest exporter of fertilizers, the FAO Director-General said this means that supply disruptions in these two countries will be felt across global agri-food systems.

“The major difference from 2008 is that today we are facing the big risk that our planting season for next year will be drastically affected – in 2008, the shock was due to a drought and did not put at risk the next planting season,” Mr Qu said.

The FAO Food Price Index is a trade-weighted index that tracks the monthly change in the international prices of a basket of key food commodities.

According to the FAO, its Cereal Price Index averaged 170.1 points in March, up 24.9 points (17.1 percent) from February, marking its highest level on record since 1990.

FAO said that 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 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 percent, said FAO.

“After climbing upwards by 20.4 percent in March, international coarse grain prices marked a record high, with maize, barley, and sorghum prices all reaching their respective highest levels on record since 1990.”

Significantly reduced maize export expectations for Ukraine, a major exporter, on top of elevated energy and input costs, underpinned a 19.1-percent increase in world maize prices month-on-month, said FAO.

“Strength in maize markets influenced other coarse grains, with sorghum prices increasing by 17.3 percent, while supply uncertainties added further pressure on already tight barley markets, pushing barley prices up 27.1 percent from February,” it added.

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 percent below its year-earlier value, said FAO.

According to the FAO, its Vegetable Oil Price Index averaged 248.6 points in March, up 46.9 points (23.2 percent) from February and hitting a new record high.

FAO said that the sharp rise of the index was driven by higher sunflower, palm, soy and rapeseed oil prices.

It said that international sunflower seed oil quotations increased substantially in March, fuelled by reduced export supplies amid the ongoing conflict in the Black Sea region.

“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, FAO said that while world palm oil values received additional support from lingering supply tightness in major producing countries, soy oil prices were underpinned by concerns over reduced export availabilities in South America.

“Noticeably, volatile and higher crude oil values also lent support to international vegetable oil prices,” it added.

According to the FAO, its Dairy Price Index averaged 145.2 points in March, up 3.7 points (2.6 percent) from February, marking the seventh consecutive monthly increase and lifting the index 27.7 points (23.6 percent) above its value a year ago.

“The upward trend of dairy product prices persisted, mainly supported by the tightening of global markets due to inadequate milk output in Western Europe and Oceania to meet global demand,” said FAO.

“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.”

Meanwhile, FAO said that cheese markets were also facing a tight supply situation due to strong internal demand in Western Europe, but the index value eased marginally, reflecting the impacts of currency movements.

FAO said its Meat Price Index averaged 120.0 points in March, up 5.5 points (4.8 percent) from February, also reaching an all-time high.

It said that 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 the light of the upcoming Easter holidays.

“International poultry meat prices firmed, fuelled by reduced supplies from leading exporting countries following avian flu outbreaks, further impacted by Ukraine’s inability to export poultry meat amid the ongoing conflict.” FAO said that bovine meat prices also firmed as the tight supply of slaughter-ready cattle persisted in some key producing regions, while global demand remained solid.

According to the FAO, its Sugar Price Index averaged 117.9 points in March, up 7.4 points (6.7 percent) from February, reversing most of the previous three months’ decline and reaching levels more than 20 percent above those registered in the corresponding month last year.

FAO said 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.”

However, FAO said that the good harvest progress and favourable production prospects in India, a major sugar exporter, contributed to easing the price hike and prevented larger monthly price increases.

UPDATED FORECAST FOR CEREALS

Meanwhile, in a separate Cereal Supply and Demand Brief, FAO said this month’s revisions to its estimates for the 2021/22 season largely reflect the impact of the conflict in Ukraine on grain markets, particularly those of wheat and maize.

It said port closures in Ukraine are seen significantly limiting exports from the country, while financial and freight challenges are hindering exports from the Russian Federation. These factors are likely to remain in effect for the remainder of the 2021/22 season, it added.

FAO said the expected loss of exports from the Black Sea region is seen manifesting itself in lower shipments from and to the region, as well as higher global prices, reduced imports, slower demand growth and smaller stocks than previously expected in several countries.

Additionally, the situation has given rise to increased uncertainty in wheat and maize markets, a shift in trade flows and the application of export measures by several countries, it added.

FAO said its world cereal production forecast for 2021 is marginally higher this month and now stands at 2,799 million tonnes, up 0.8 percent from the out-turn in 2020.

FAO said that 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 wheat production is also up slightly and now stands at 777 million tonnes following an upward adjustment to Australia’s estimate.”

As for rice, production figures have been raised for Thailand based on higher official assessments of the size of the 2020 harvest and due to a strong area expansion in the 2021 secondary crop currently being harvested, it added.

On the other hand, FAO said that output has been cut for Indonesia, where officials reported that the third cropping cycle, concluded at the close of 2021, yielded less than previously anticipated due to dryness and continued area diversions.

“As a result of these changes, world rice production in 2021 is now predicted to reach 520.3 million tonnes (milled basis), up 0.7 percent from 2020 and an all-time high.”

Looking ahead, FAO said 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 percent 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.”

Furthermore, FAO said that yields are also expected to decline in 2022, as disrupted access to inputs and farmland is seen hindering the timeliness of agricultural operations.

For the Russian Federation, 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, said FAO.

However, this outlook remains preliminary particularly in consideration of uncertainties regarding the importation of some agricultural inputs, it added.

FAO said in the European Union, despite favourable conditions in most areas, persistent rainfall shortages in the south-western areas are likely to curtail yields.

“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.”

In North America, price-induced expansions in plantings in Canada and the United States of America underpin expectations of production increases, it added.

FAO has forecast wheat production for Canada at 31.2 million tonnes, a significant increase compared to the reduced out-turn in 2021, and 53 million tonnes in the United States of America, where, however, long-term dryness is impairing yield prospects.

In Asia, FAO said the forecast for wheat production in Pakistan is cut back moderately this month due to reported input shortages and localized infestations of leaf rust that are likely to curtail yields.

However, pegged at 28 million tonnes, wheat production in 2022 would still exceed the past five-year average. The wheat output in India is forecast to increase modestly in 2022, it added.

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, said FAO.

Regarding coarse grains, production prospects are still favourable in Argentina and Brazil, where maize harvests are forecast at well above-average levels in 2022, said FAO.

“Notably in Brazil, despite dryness curbing minor maize season crop output, a large output from the main safrinha crop, which has just been planted, supports a record forecast of 112 million tonnes in 2022.”

In Southern Africa, 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, it added.

FAO said that it has lowered its forecast for global cereal utilization in 2021/22 by 12.4 million tonnes from the previous report and now stands at 2,789 million tonnes, still 1.0 percent above the 2020/21 level.

“Wheat utilization in 2021/22 has been scaled down by 2.4 million tonnes due to lower feed use than previously expected, mostly in India and the European Union, on account of higher export forecasts. It is still forecast to increase by 1.2 percent from the 2020/21 level.”

Utilization of coarse grains in 2021/22 has also been lowered from the previous forecast by 10.5 million tonnes reflecting downward revisions to maize and barley utilization, said FAO.

FAO said the bulk of this month’s 6.8 million tonne downward revision to maize utilization is accounted for by lower domestic utilization in Argentina on account of the country’s higher export forecast, and in several countries driven by reduced global availability and high prices.

“Despite this month’s downward revision, maize utilization in 2021/22 is still expected to rise by 2.0 percent from 2020/21.”

FAO has forecast world rice utilization in 2021/22 to expand by 1.8 percent year-on-year to reach a record high of 520.5 million tonnes.

“This level stands some 0.5 million tonnes above March expectations, reflecting higher than previously anticipated feed uses in China and Thailand, which outweighed slight downward adjustments to food intake in Brazil and Indonesia,” it said.

FAO has forecast global cereal stocks ending in 2022 to expand by 2.4 percent from their opening levels to almost 851 million tonnes, following an upward revision of 15 million tonnes from last month’s forecast.

This month’s upward revision largely reflects higher wheat and maize stocks in Ukraine and the Russian Federation on account of lower export forecasts, resulting in upward adjustments of 4.5 million tonnes and 8.3 million tonnes to global wheat and maize stocks, respectively, it said.

However, FAO said these adjustments overshadow downward revisions made for several other countries. In some major exporters, the downward revision reflects larger exports, and, in many importing countries, especially in the Near East and North Africa, it is due to the expected loss of shipments from Ukraine and the Russian Federation.

Nonetheless, global wheat and coarse grain stocks are now forecast to rise above their opening levels by 2.3 percent and 3.1 percent, respectively, said FAO.

World rice stocks at the close of 2021/22 marketing seasons are now seen at a high of 192.7 million tonnes, up 1.2 percent year-on-year, said FAO.

It said this level stands 1.7 million tonnes above the March forecast, largely due to an upgrade to anticipated Thai reserves, which raised the major exporters’ aggregate stock forecast to a fresh peak of 55.4 million tonnes.

FAO said that its 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 percent contraction from the 2020/21 level.

“This month’s downward revision is largely attributed to lower wheat and maize export estimates for Ukraine and the Russian Federation and the resulting lower imports for several countries.”

FAO said wheat export estimates for 2021/22 have been lowered by 5.0 million tonnes for Ukraine and 3.5 million tonnes for the Russian Federation based on port closures in the former and financial and freight challenges in the later.

“The resulting shift in demand 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,” it added.

On top of near-record high prices, the reduced global availability is seen dampening import forecasts for several countries, especially in the Near East and North Africa, said FAO.

“Following this month’s 4.2 million tonne downward revision, global wheat trade is now expected to remain near last season’s level.”

Similarly, FAO said the forecast for global trade in coarse grains has been cut by 10.4 million tonnes this month on account of downward revisions to the maize export estimates for Ukraine and the Russian Federation in 2021/22 of 12.5 million tonnes and 2.0 million tonnes, respectively, based on challenges previously mentioned.

“As a result of shifting demand, greater shipments are expected for Argentina, India and the USA. However, as is the case for wheat, those exports are seen only partially compensating for the loss in exports from the Black Sea region.”

FAO said that the overall lower availability and record high prices are seen reducing imports for several countries, bringing the global maize trade forecast down to 6.6 percent from the 2020/21 level.

FAO said international rice trade in 2022 (January-December) remains forecast at 53.4 million tonnes, unchanged from March expectations and 3.8 percent above the 2021 all-time record.