Global food prices are falling, but food prices in Asia can still rise

A worker carries wheat grains into a storage shed in Polikastro, Greece on July 1, 2022. A truck unloads harvested wheat into piles at the grain storage shed in Polikastro, Greece, on Friday, July 1, 2022. World food prices soar set a record after The Russian invasion on February 24 disrupted exports of grain and vegetable oils through Ukraine’s Black Sea ports, adding to cost pressures from logistical disruptions and a rebound in consumer demand after the coronavirus pandemic. Photographer: Konstantinos Tsakalidis / Bloomberg via Getty Images

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Food prices worldwide have fallen for the third month in a row, but prices are still hovering Near historic highs in March, according to the United Nations Food and Agriculture Organization.

An economist at Nomura says Asia has yet to see a peak in food prices, which is likely to come during the July-September quarter.

Changes in food prices in Asia tend to lag behind global movements as governments put in place subsidies and price controls to temporarily ease prices, Sonal Varma, chief economist for India and Asia (formerly Japan) at the Bank of Japan told CNBC.

The FAO Food Price IndexWhich tracks the monthly change in global prices for a basket of food commodities, down 2.3% in June compared to last month.

This has lowered global prices for vegetable oils, grains and sugar, but is still 23.1% higher than it was a year ago.

The FAO index in June was hovering at 154.2 points – the base period being the average prices between 2014 and 2016 – just below a reading of 159.7 points in March, after the Russian invasion of Ukraine.

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Impact on Asia

According to Nomura, countries such as Singapore, South Korea, the Philippines and India are likely to experience the highest increases in food prices in the second half of this year.

In a note published in June, Varma and her team said net food imports account for more than 2% of the Philippines’ GDP, the second highest in Asia (formerly Japan) after Hong Kong. Food also accounts for a high share – nearly 35% – of the country’s CPI basket.

South Korea and Singapore is also in danger Because it is highly dependent on food imports.

While India is self-sufficient in wheat and rice, the country’s ongoing heat wave, delayed monsoons, and higher prices for other food items such as meat and eggs are likely to drive up prices.

Instead of imposing export bans, distorting food prices, Varma said governments should use the “targeted form(s) of financial support” to help low-income people at this time.

“Low-income families usually spend a large portion of their consumption on food, so it is important to protect it,” she said.

Wheat prices increased by nearly 50% year-on-year

According to the Food and Agriculture Organization of the United Nations Food and Agriculture Organization’s Food Price Index, prices for cereals – the category of wheat they fall under – fell 4.1% in June compared to May, but are still 27.6% higher than they were a year ago.

Wheat prices fell 5.7% in June, but remained 48.5% higher than a year ago as a result of the Russo-Ukrainian war. Russia and Ukraine represent together 28.47% of world wheat exports In 2020, the Economic Complexity Observatory found.

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The FAO said the lower wheat prices were due to improved crop conditions, seasonal availability of new crops in the northern hemisphere and increased exports from Russia.

Vegetable oil prices were the most down by 7.6% from the previous month. Palm oil prices fell as global supply increased, while lower demand for sunflower oil and soybean oil drove prices down as well. Sugar prices fell 2.6% month over month as supply increased and demand contracted.

Meat prices are at a record high

Meat and dairy consumers didn’t have much to cheer about.

Meat prices hit a record high in June, jumping 1.7% from May and 12.7% from a year ago, as the war continues to squeeze supplies. The outbreak of bird flu in the northern hemisphere has also affected meat prices.

Dairy was 4.1% more expensive than in May, and 24.9% higher than in June of last year. The FAO said cheese prices rose further, driven by hoarding and a heat wave in Europe.

The Food and Agriculture Organization warned that while food prices fell in June, “the factors that drove up global prices in the first place are still at play.”

These include “strong global demand, bad weather in some key countries, rising production and transportation costs, and supply chain disruptions due to COVID-19, which have been exacerbated by the uncertainty caused by the ongoing war in Ukraine,” said Maximo Torero Colin, chief economist at FAO. “. in the current situation.

Food prices are not likely to drop significantly over time, like Nomura’s Pharma said.

“Demand for some of these products is relatively inelastic,” she said, adding that a recession would not cause a “substantial drop in prices.”

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