More is likely to come since international food prices are expected to increase by about 25 per cent in 2021 from 2020, wrote IMF’s Christian Bogmans, Andrea Pescatori and Ervin Prifti in a new blog. They are expected to stabilise later this year.
The recent sharp increase in international food prices has already slowly started to feed into domestic consumer prices in some regions as retailers, unable to absorb the rising costs, are passing on the increases to consumers.
However, food price inflation started increasing before the pandemic. In the summer of 2018, China was hit by an outbreak of African swine fever, wiping out much of China’s hog herd, which represents more than 50 per cent of the world’s hogs.
This sent pork prices in China to an all-time high by mid-2019 creating a ripple effect on the prices of pork and other animal proteins in many regions around the world. This was compounded by the introduction of Chinese import tariffs on US pork and soybeans during the US-China trade dispute.
At the start of the pandemic, food supply chain disruptions, a shift from food services (such as dining out) towards retail grocery and consumer stockpiling (coupled with sharp appreciation of US dollar) pushed up consumer food price indices in many countries.
Consumer food inflation peaked in April 2020 even though producer prices of primary commodities, including food and energy, were declining sharply as demand for primary food commodities was disrupted.
By early summer 2020, however, various consumer food prices had moderated, pushing down consumer food inflation in many countries.
At the same time, wrote the IMF economists, ocean freight rates have increased two to three times in the last 12 months while higher gasoline prices and truck driver shortages in some regions are pushing up the cost of road transport services. Higher transport costs will eventually increase consumer food inflation.
From their trough in April 2020, international food prices have increased by 47.2 per cent attaining their highest levels on May 2021 since 2014. Between May 2020 and May 2021, soybean and corn prices increased by more than 86 and 111 per cent respectively.
Finally, wrote the IMF economists, for emerging markets and developing economies an additional risk factor is the currency depreciation against the US dollar — possibly due to falling export and tourism revenues and net capital outflows.
Since most food commodities are traded in US dollars, countries with weaker currencies have seen their food import bill increase.