Global agriculture markets jittery on worsening food inflation outlook


Civilization is only nine meals away from anarchy.

This famous line hits home in the current play as Russia’s invasion of Ukraine set open a can of worms for agriculture producers and consumers worldwide.

Supplys are coming at a crucial time when the world is in the midst of months-long energy and input cost environment, which are playing into theary pressures and forcing inflations to take policy actions such as export curbs.

Coinciding with this, prolonged unfavorable weather conditions at major grains and oilseed countries have worsened the production outlook and added pressure to the already-strained supply pipeline.

Also, increasing freight costs and vessel logjams at key global ports are not helping.

These multiple factors indicate prices of top global staple foods such as wheat, rice and corn are expected to remain at elevated levels, eventually making it more expensive to put food on the table.




Countries at risk to the stifling threat of food inflation are developing economies, mostly those which are heavily dependent on agriculture imports, such as African nations and top buyers like Egypt and India.

The UN’s Food Agriculture Organization already flashed warnings signs with its benchmark food price indicator that broke all the records in March, forcing analysts to project bleak outlook for global food markets ahead. While food index corrected slightly in April, global food prices are still up 30% from year-ago level.

Food prices are expected to remain elevated for multiple seasons, FAO Economist Monika Tothova recently told S&P Global Commodity Insights. Buyers should be “prepared to pay higher prices for imports,” she added.

“Most large importers [of wheat] are already scrambling to secure future supplies and are tapping into longer dated forward contracts, leading to further price escalation,” according to S&P Global Ratings.

The Russia-Ukraine war

Both Russia and Ukraine play a major role in agriculture markets. Besides supplying about 25% of global wheat exports, Ukraine and Russia are also key sources of sunflower oil, corn, fertilizers, barley and sorghum.

As the Russia-Ukraine war blocks out these supplies, pressure has been building up on agriculture commodity and food prices.

The war has left key agriculture ports of Ukraine devastated, but exporters are trying to push volumes through railway networks, even though they are not large enough compared to the capacity of vessels. For example, one grain cargo of train could only carry around 70 mt of grains, with the railway capacity expected to deliver 200-300 such carriages per day to neighboring countries.

Russian wheat exports, on the other hand, may not get disrupted on the scale of Ukraine’s, with key trade partners such as China are likely to continue importing, according to S&P Global Ratings. However, as major buyers such as Europe shun Russian trade, expectations remain abound of some reallocation of global wheat trade flows.

breaking bread

Egypt, the world’s largest wheat importer, has been facing challenges to secure wheat supplies at a time of record prices and unavailability of the grain from the Black Sea region.

History tells us that runaway costs of staple food such as bread have led to civil unrest across several countries.

The world found itself in a chaotic situation in 2007-08, when inflation hit consumers’ pockets hard as prices of agriculture commodities rose sharply, sparkings in countries like Egypt.

Around four years later, Egypt’s annual food inflation hit 18.9% in 2011, leading to another round of protests mirroring the “bread riots” that occurred in 1977. The protests in 2011 eventually toppled Egypt’s 30-year-old Mubarak regime.

Jumping back to 2022: barely within weeks of the Russia’s invasion in Ukraine, Platts assessed Russian wheat benchmark rose roughly 46%, reaching an all-time high of $455/mt at one point in March, according to S&P Global Commodity Insights data.

As wheat prices ballooned and supplies got throttled, Egypt for the first time in 30 years capped the prices of unsubsidized bread in March.

Global wheat stocks in 2022-23 are already projected to fall 10 million mt short than the last four-year average, according to the US Department of Agriculture.

India and Egypt in the same boat?

India, the world’s largest vegetable oil importer, is seemingly faring better than Egypt, but may not escape unscathed from the big blow-up in commodity prices.

The South Asian country has been directly hit by high energy import bills, farm input costs and protective actions from exporters, forcing its central bank to sharply hike a key lending rate earlier in May, a first such move in several years.

Predicting a gloomy outlook, India’s central bank governor Shaktikanta Das said the “jump in fertilizer prices and other input costs has a direct impact on food prices in India,” and “food inflation pressures are likely to continue.”


Related content: High natural gas prices could lead to spike in food costs through fertilizer link

India stares at growing food inflation after its vegetable oil import supplies took a major hit when Indonesia banned exports of crude and refined palm oil, an important edible oil for Indian markets.

Crude palm oil prices CFR India West Coast have shot up 224% over the past one year, S&P Global assessments data showed May 10.

With Ukraine and Russia’s sunflower oil supplies already out of the equation, Indian buyers could be in for a tiring battle to secure alternate supplies and overcome price hurdles.

On the other hand, as India takes on its inflation problems head-on, its government is also trying to make a major push into the global wheat markets as it aims to cover the wide supply gap left open by the Black Sea region. But this development could stress its inventories and eventually further aggravate food inflation.

Cairo has already signed a deal to buy wheat from New Delhi, at a time of glossier trade expectations of India making around 9-10 million mt of wheat exports in the 2022-23 season.

Elsewhere, it’s not a rosy picture either

Even the well-off economies like the US, Australia and France have been facing challenges to tackle inflation, with food price hikes playing a major role.

The US, facing the highest inflation rate in 40 years, is expected to see elevated prices of staples such as bread, meat and milk in the near term, according to analysts. Australia also took monetary measures for the first time in 11 years to tame inflation, led by a spike in food prices. Food inflation in France rose to 3.8% in April, a stark contrast from the year-ago level when it was negative. French agency INSEE is expecting food prices to remain at elevated levels from the previous month.

Global inflation is likely to continue to rise in the coming months due to the war in Ukraine, tensions in supply chains and continued upward pressure on energy, commodity and food prices, according to ING.

Meanwhile, rising farm input costs such as that of fertilizer also mean farmers in countries like Australia and Brazil would try to navigate the strong pricing environment by switching or planting crops that require lesser use of fertilizers.

A major indicator of what could be in the store for agriculture markets ahead is the forecast of wheat prospects in Australia, currently the world’s third-largest exporter. Australian wheat crop size for 2022-23 has been slashed by 4% on the year, as farmers weigh in higher energy and input costs.

Leave a Comment

Your email address will not be published.