4. Food Prices.pptx

Food Prices Romy Chammas, M.Sc. Summer 2024  Food Prices Food prices are affected by several factors. Weather and temperature Crops are affected by the weather during their growing season: too wet, too dry, too cold, or too hot => crops c...

Food Prices Romy Chammas, M.Sc. Summer 2024  Food Prices Food prices are affected by several factors. Weather and temperature Crops are affected by the weather during their growing season: too wet, too dry, too cold, or too hot => crops cannot thrive. A scarcity or shortage of a crop may increase its price to consumers. Good growing season results in a surplus, therefore food prices may drop. Pests and disease  Food Prices Transportation costs When the price of oil and gas are high, it costs more to transport from farm to plate (for example: to the processing facility or to the store etc…) Labor costs The agri-food system requires a lot of working people ( farmers, packers, processors, and retailers.) Other factors ◦ Political and Economical situations can influence food prices, either by increasing or decreasing them. ◦ Conflicts ◦ War ◦ Economic Crisis ◦ Inflation ◦ Import/Export Restrictions …  Global Food Prices Trends & Prospects Chapter 1: Agricultural and food markets: Trends & prospects OECD/FAO (2023), OECD-FAO Agricultural Outlook 2023-2032, OECD Publishing, Paris, https://doi.org/10.1787/08801ab7-en.  Global Food Prices Continuing a decade-long increase, global food prices rose 2.7% in 2012, reaching levels not seen since the 1960s and 1970s. Between 2000 and 2012, the global food price index increased 104.5%, at an average annual rate of 6.5%.  The FAO Food Price Index (FFPI) is a measure of the monthly change in international food prices. For 2023, the index recorded 124.0 points, (13.7%) lower than the average value in 2022.  Global Food Prices Some price volatility (instability) is strongly influenced by weather shocks. However, the recent upward trend in food prices and volatility can be traced to additional factors including:  Climate change  Rising energy and fertilizer prices  Poor harvests  National export restrictions  Rising global food demand  Increasing demands for biofuel production  COVID-19 impact (disruptions in supply chains, labor shortages, and changes in consumer behavior) As the effects of these shocks are largely unpredictable and cannot be incorporated into the projections, prices in the Outlook are assumed to return to their long-term trends, which  Global Food Prices International food price trends vary by commodity. Global cereal and dairy prices have shown significant volatility in recent years, whereas meat prices have fluctuated less. All food categories except for sugar and sweets experienced smaller price increases through the first half of 2023 compared with the same period in 2022. All food categories increased in price in the first 6 months of 2023 compared with 2022, but the increases for meats (0.4%), fresh fruits (0.4%), fish and seafood (0.7%), and fresh vegetables (0.9%) were below their historical average price increases.  Cereal Prices Due to the ubiquity of wheat, corn, and rice in global diets, changes in the price of cereal grains generally affect consumers more than fluctuations in other foods. High cereal price volatility can have devastating consequences for the world’s poor. The food price spike, drove 44 million people into extreme poverty. High and volatile cereal prices can reduce income and increase income instability. High cereal prices are also associated with rising malnutrition as poorer people are forced to eat cheaper, less-nutritious food, as well as less quantities overall.  Cereal Prices Since food prices began increasing in the early 2000s, cereal prices have jumped more than 80% and exhibited significant volatility due to unfavourable weather conditions, including severe drought in the U.S. and Eastern Europe, drove cereal prices up. The grain price spike continues due to the COVID-19 pandemic restrictions and prices  Monthly prices for wheat, maize and barley In 2022, the world wheat price averaged USD 319/t, the highest recorded in the past 20 years. Prices increased sharply when Russia’s war against Ukraine started in February and remained high for several months mainly driven by the uncertainty about supplies to international markets. With increased seasonal supplies from harvests in the northern hemisphere and an agreement reached on the Black Sea Grain Initiative, prices started to fall before the agreement was signed in late July 2022. By early 2023, international wheat prices had fallen to their pre-war levels but remain elevated.  Cereal Prices As cereal prices revert to their projected long-term trend, the co-movement of wheat and rice prices will maintain or return to their historic ratio. Prices for cereals in real terms are expected to decline over the next decade  FAOCereal Price Index stood at 130.9 points in 2023, down 23.8 points (15.4 percent) from the 2022 record annual average, reflecting well supplied global markets.  Cereals in Lebanon?  The silos, which were hit by the blast and then gradually collapsed, had the capacity for 120,000 tons of wheat and grains used to hold enough reserves for 6 – 12 months.  As a result, Lebanon is now unable to import large quantities of wheat as it has nowhere to store it, posing a growing threat to Lebanon’s food security.  The reconstruction of the silos (*port) costs $10 billion  After Russia’s invasion of Ukraine, the nation agreed deals with Romania, Turkey and Egypt to help meet its demand. WFP, August 2020  Meat Prices Global meat prices have fluctuated less than cereal prices. Meat prices increased slightly (5.5%) between July 2012 and January 2013 due to higher grain, and thus animal feed prices. Beef prices, are less affected by cereal prices, since most global beef production is pasture-based. Pig meat and poultry prices show a strong link to feed costs as their production uses more grain and protein meal-based feed. Meat prices rebounded in 2021 and 2022, reflecting higher demand following the economic recovery from the COVID-19 pandemic as well as increased transportation and marketing costs.  Medium-term evolution of animal-based commodity prices, in real terms The FAO meat price index rose to average 118.8 in 2022, an increase of 10% from the previous year. But In 2023, the FAO Meat Price Index averaged 114.6 points, down 4.2 points (3.5 percent) from 2022, due to increased export availabilities from leading exporting regions. As markets recover from these disruptions, supply chains stabilize, feed costs decrease, consumer spending on meat in middle-income countries resumes, prices are expected to return to their long-term trend decline in real terms over the next decade. Pig meat prices are expected to decline more than prices for other meats due to the recovery following the ASF (ASF: African Swine Fever) outbreak, especially in China, Viet Nam, and the Philippines.  Dairy Prices International dairy prices exhibited significant volatility, more than doubled in the period of 2006-2013 compared to those between 1990-2005. Total dairy trade increased, and per capita dairy consumption increased as well. Higher international prices in 2021 and 2022 were driven by: small trade share, the dominance of a few exporters, and a widely restrictive trade policy environment The international market remains sensitive to sudden changes in milk production because of low government stores in the European Union and U.S.  Dairy price ratios International dairy prices are expected to fall in the short-term and return to the longer-term pre-COVID-19 trend as supply chain disruptions ease and marginal costs decline. In 2023, the FAO Dairy Price Index averaged 118.8 points, down 23.6 points (16.6 percent) below the average for 2022, supported by lesser import demand, reflecting price declines across all dairy products.  Factors Affecting Global Food Prices The level and volatility of food prices in the last decade have been influenced by various forces affecting global food supply and demand.  Population growth and increasing affluence –predominantly in Asia– have led to rising food demand since 2000, which in turn has triggered higher global food prices. Between 2000 and 2010, Asia’s population grew 12%, from 3.7 billion to 4.2 billion people. Asians accounted for 60% of the world’s population in 2023. Meanwhile, salaries nearly doubled in Asia from 2000 to 2011. However, salaries increased only 18% in Africa and 15% in Latin America and the Caribbean.  Factors Affecting Global Food Prices  Rising energy and fertilizer prices drove up food prices as well.  They added the costs of production, processing, transportation and storage. The average price of energy during 2000-2012 was 183.6% higher than the average price during 1990-1999, while the average price of fertilizer increased 104.8% in the same period.  Biofuels Perhaps one of the most significant factors affecting global food prices has been an increase in biofuel production in the last decade. Biofuels are produced through modern biological processes like agriculture. This is in contrast to the fuel produced by geological processes which form fossil fuels (like petroleum and coal) from decomposed plants and animals that have been buried in the ground for millions of years. When the source of the biofuel can regrow quickly, biofuels are considered a form of renewable energy (unlike fossil fuels).  Biofuels Biofuels have been around for a very long time. At the start of the 20th century, Henry Ford planned to fuel his Model T with ethanol, and early diesel engines were shown to run on peanut oil. However, discoveries of huge petroleum deposits kept gasoline and diesel cheap for decades, and biofuels were largely forgotten. With the recent rise in oil prices, along with growing concern about global warming caused by carbon dioxide emissions, biofuels have been regaining popularity. Much of the gasoline in the U.S. is blended with a biofuel:  Biofuels and Global Food Prices Using food crops for fuel (demand for biofuels) has led to an increase in global food prices due to a significantly high demand for some agricultural commodities. The high demand for some agricultural commodities, such as sugar, maize, oilseeds and palm oil, has the potential to affect food security at both the national and household levels mainly through its impact on food prices. There has been a surge in the production of biofuels in Europe and the U.S. since the early 2000s, backed by policies designed to cut use of fossil fuels. An estimated 93 million tons of wheat and coarse grains, more than half of their production, were used for ethanol production in 2007, double the level used in 2005. If biofuel production continues to expand, the price of biofuel crops (particularly maize, oilseed crops, and sugar cane) will continue to increase.  Biofuels and Global Food Prices Not only is biofuel production leading to rising food prices, but there is also an association between biofuel production and deforestation (removal of trees). Agriculture is the largest cause of deforestation. The removal of trees without sufficient reforestation has resulted in damage to habitat, biodiversity loss, extinction of species, climatic change, and dryness. Deforestation also has adverse impacts on the biosequestration of carbon dioxide.  Biofuels and Global Food Prices Due to the negative impacts associated with biofuels, the European Union agreed to limit the use of food-based biofuels at 7% in 2015. A new research study has shown that if the European Union cut the use of biofuels to zero, then global vegetable oils would be 8% cheaper by 2030. Cutting the use of biofuels would lead to modest reductions in global food prices, global poverty rates, and net global welfare improvements.  Conclusion Food commodity prices were both higher and more volatile in the last decade. Food prices were driven up by climate change, extreme weather events, production shocks, population growth, increasing global affluence, and higher agriculture and energy cost. In recent years, recovery following the COVID-19 pandemic, tight global supplies because of higher production costs and Russia’s war against Ukraine reduced harvests of key crops. Therefore, the high food prices tend to aggravate poverty, food insecurity & malnutrition.