A new combination of calamities are being ushered into the food production industry, leaving experts warning towards a new era of food inflation. Extreme weather, the war in Ukraine, trade protection, and the rise of invisible costs are the factors that may be the reason for the new volatile rise in food prices. These factors have pushed food suppliers to become vulnerable and less prepared towards any one of these entities.
According to Hiral Patel, head of sustainable and thematic research at Barclays in London, extreme weather was recorded as the main disruptor in food production this year. Disrupted food production normally does not harm the overall chain or connecting areas due to flexibility, but when natural factors like drought come into play, there can be years of steady disruption, altering various markets and production chains.
China had record heat waves; Europe, South Africa, and Canada experienced devastating wildfires; Pakistan had catastrophic floods in 2022 that left areas still unstable. And on top of all that, Forecasters believe we will be entering an extended period of warmth due to GHG emissions.
War In Ukraine
Ukrainian farmers are growing significantly less wheat, corn, and soybeans as a result of entering a multiyear war with Russia. When Putin let the Black Sea grain deal expire, the price of wheat rose exponentially, causing a domino effect to corn and soybeans as well. Prices will soon hit 10 to 15% higher than the original rate. In turn, Ukraine has increased its efforts to export grain via rail and riverways, but these modes of transportation are not immune to extreme weather or human-conflict attacks.
Due to the increase in food prices, many countries such as India have reduced their trade in order to keep foods closer to home. India is the world’s largest rice supplier and last month they issued a ban on exporting non-basmati white rice. Last year, before the ban, they issued a 20% export increase on that rice, but because of geopolitical and extreme weather issues, exports continued to rise. On Friday, the UN Food and Agriculture Organization reported that this past July saw the highest increase in export percentage, pushing rice prices to be the highest they have been in 12 years.
India is not alone, according to the Global Trade Alert, the overall total of curbs and tax increases on food exports across the globe have jumped 62% since last year .
Besides the rise in exports and at-home growth expenses, food production related expenses are being thrusted upon companies and agricultural businesses. Many are being forced to pay insurance costs for the harsh weather conditions, and persuaded to invest in new suppliers to gain more production resilience. For example, persistent global droughts have caused a major reduction in water levels on key shipping routes, causing shippers and suppliers to find alternate routes, or even lighten their porting loads.
Due to all of these interconnecting factors, food prices will either stay at high rates, or swing vigorously over the next few years. Going forward, these challenges have made the production chain more unreliable and unpredictable.