An article by Emiko Terazono in The Financial Times reported on February 4th that global food prices have reached their highest level in almost seven years. It claims that analysts are starting to get concerned. “It could become a big issue for less prosperous countries which depend on imports for food,” it quotes Abdolreza Abbassian, Senior Economist at the Food and Agriculture Organisation (FAO) of the UN, as saying.
The article suggests that there are a number of reasons for the price rise, not all of them directly related to the current pandemic. China, for instance, is seeking to restore its grain reserves and rebuild a hog herd that was decimated by African swine fever. This is an illustration of the way in which an increased demand for meat can lead to increased demand for grain as feed. There are factors to do with the climate, like dry weather in South America. There’s the effect of export tariffs imposed by Russia in order to keep its home-grown grain within the country for the domestic market, of positive sentiment in equity markets and rising oil-price forecasts, not to mention factors that are clearly affected by the pandemic and the level of international stability, such as shipping costs. If the Financial Times article does one thing, it shows how many different considerations influence even the price of a particular commodity such as grain. And that in itself suggests the likelihood of volatility in years to come.
In such circumstances, one would obviously expect countries to take precautionary measures. Indeed, the article talks about the way the pandemic has prompted countries reliant on imports of food staples to boost government-held inventories in grains and oilseeds such as soyabeans, as well as sugar. Yet the same article refers to a warning from the FAO that grain inventories are at their lowest level in five years, making markets ‘more vulnerable to production shortfalls.’ Which brings us back to Abdolrezza Abbassian’s comment about “less prosperous countries which depend on imports for food.” In other words, we’ll be in a situation where some countries desperately need to import food, can’t afford to pay for it and while their citizens go hungry rely on emergency food distribution organised from afar and often ineffective.
Grain prices may go down just as they’ve gone up. China, which has historically bought about 3m to 5m tonnes of corn a year, imported a record 11m tonnes in 2020, but this large increase may not be sustained. If it isn’t, demand will fall and the price may stabilise. But on the other hand, China may want even more grain in 2021. It is noteworthy that in the case of China the Financial Times article does not talk about ‘inventories.’ It talks about ‘reserves.’ In other words, China goes for a ‘Just-in-case’ approach rather than ‘Just-in-time’. The rest of the world seems prepared to muddle through and fly to emergency measures if there’s a crisis. What is the sense of that, when a system of buffer stocks could help to iron out the bumps that are bound to be a characteristic of food prices in times to come?