Risks in global food markets in six charts

This blog post is based on the April 2024 Commodity Markets Outlook, a flagship report published by the World Bank.

Global food commodity prices stabilized in April 2024, following six consecutive quarterly declines. The World Bank’s food price index is projected to decrease by 6 percent in 2024 and 4 percent in 2025. However, several risks underpin these price forecasts, including energy and fertilizer costs, potential maritime chokepoints, and weather-related supply shortfalls. In the longer term, biofuel policies could affect food prices.

Energy and fertilizer costs are easing. Energy and fertilizer prices are expected to decline by 3 and 22 percent, respectively, in 2024, with further declines projected in 2025. However, escalations of geopolitical tensions in the Middle East can push up energy prices and adversely affect fertilizer production—pushing food prices higher than forecast. Moreover, fertilizer producers in the Black Sea region, the Middle East, and North Africa heavily rely on the Suez Canal for exports, and this route could become unviable if Red Sea shipping disruptions intensify, raising the cost of transporting fertilizers to end-users.

Rerouting of grain shipments from Suez to Cape of Good Hope intensifies. In 2023, more than 14 percent of global seaborne grains and oilseeds trade passed through the Suez Canal, a considerably higher share than for crude oil and metals. Recent attacks on commercial vessels in the Red Sea prompted significant rerouting from the Suez Canal to around the Cape of Good Hope. During December and January, an estimated 4.3 million tons of grains and oilseeds were diverted in this manner, mostly affecting U.S. soybean exports and EU wheat exports to Asia. Thus far, however, grain and oilseed prices have not been significantly affected, partly because ships originating from the Black Sea region—a major source of grain and oilseeds—have continued to take the Red Sea route. If the conflict intensifies, however, prompting vessels from the Black Sea to also divert, substantial delays, increased shipment costs, and higher prices could materialize.

Emergence of La Niña. The U.S. National Oceanic and Atmospheric Administration forecasts a weakening of El Niño weather conditions, with an 85 percent chance of transitioning to neutral conditions by April-June 2024. The probability of a subsequent La Niña onset between June and August 2024 has increased to 60 percent. La Niña conditions typically result in wetter than normal conditions in Australia, northern Brazil, India, Indonesia, Malaysia, the Philippines, and southeastern Africa, while bringing unusually dry weather in Argentina, southern Brazil, and the United States Gulf Coast. The weakening of El Niño and the likely emergence of La Niña is anticipated to alleviate price pressures on commodities like cocoa, food oils, natural rubber, rice, and sugar in 2025. If these weather forecasts fail to materialize, prices may surpass expectations.

Diversion of food commodities to biofuels. Production of biofuels is expected to increase  considerably in the medium to longer term. For example, the International Energy Agency expects a 30 percent increase in biofuel demand from 2023-28 relative to the previous five years. Emerging and developing economies such as Brazil, India, Indonesia, and Malaysia are expected to drive over 60 percent of demand growth through supportive policies, rising demand for transport fuel, and the ample availability of feedstock, even though the majority of current production occurs in advanced economies. The share of biodiesel demand in total palm oil production in Indonesia and Malaysia is projected to rise from 19 percent in 2022 to 30 percent by 2028. Additionally, in the United States, eight midwestern states will be permitted to sell gasoline blended with 15 percent ethanol year-round from April 2025. The forecasts assume that this policy-derived support for biofuel demand will continue. However, if these policies do not unfold as planned (or they are intensified), there may be downward (or upward) pressure on prices of key food commodities, including some grains, vegetable oils, and sugar.

Despite easing of global food prices acute food insecurity increased. Although food prices have stabilized during the past few quarters, should any of the risks discussed above materialize, it could further exacerbate the number of people experiencing acute food insecurity in food crisis countries, which has already increased from 113 million in 2018 to 282 million in 2023.