This blog is the fourth in a series of 11 blogs on commodity market developments, elaborating on themes discussed in the April 2022 edition of the World Bank’s Commodity Markets Outlook.
The war in Ukraine brought a major shock to global food markets. The World Bank’s Food Commodity Price Index, which reached a record high in nominal terms during March-April 2022, is up 15% over the previous two months and more than 80% higher than two years ago. Wheat and several edible oils led the surge (Ukraine and Russia are important exporters of these commodities). The Ukraine shock added to a broad-based rise in commodity prices that began in mid-2020 with various supply chain constraints and surging demand. Food prices are expected to rise about 20% this year before easing in 2023. Risks to outlook include further supply disruptions, higher input costs, and policy restrictions.
The global wheat and maize market is expected to tighten further in 2022-23. Global wheat supplies (beginning stocks plus production) are expected to decline by 1.5% in 2022-23, the second consecutive decline. The shortfall reflects lower projected crop yields in Argentina, Australia, and Ukraine. Maize supplies are also expected to tighten due to reduced supplies from Ukraine and the United States. Global supplies of rice and soybeans, however, are expected to increase in 2022-23, up 0.6% and 3.5%, respectively, from 2021-22.
The aggregate stocks-to-use ratio is projected to drop for the third consecutive season. Lower supply projections for maize and wheat, along with strong consumption growth, is expected to push the aggregate stocks-to-use ratio (a measure of supply relative to demand) to 28% in 2022-23. Although this is the third consecutive annual decline, the ratio (which consists of 12 food commodities) is much higher than its 2006-07 record low of 17%.
Input prices have been a key reason for the surge in food prices, and remain an ongoing concern. Energy prices, especially coal and natural gas in Europe, surged in 2021 and are expected to increase further in 2022 before easing next year. Energy market developments have been taking a toll on fertilizer markets since early 2021. Several chemical companies curtailed output or temporarily shut production facilities due to surging input prices and/or the unavailability of feedstocks. Russia has announced restrictions on fertilizer exports which, combined with sanctions on exports from Belarus, further destabilize an already tight market. If energy and fertilizer prices do not moderate next year, as expected, food prices will be subject to significant upward pressure.
Further war-related disruptions and policy restrictions present additional risks to the outlook. Russia and Ukraine together account for 25.8% and 11.4% of global wheat and edible oil exports, respectively. Any further supply and trade disruptions in these countries could push prices even higher. In addition to war-related disruptions, food export restrictions could also affect the outlook. For example, India and Indonesia recently announced export bans of wheat and palm oil, respectively. At a global level, perhaps as much as 15% of food consumption in calorie terms may be subjected to export restrictions, according to the International Food Policy Institute.
Domestic food price inflation persists across most regions. Local food prices have surged since early 2021 in response to increasing energy and fertilizer prices, pandemic-induced supply-chain constraints, and more recently, disruptions caused by the war in Ukraine. Depreciation of some currencies, along with increasing production costs, have played a role as well. The net effect is elevated food price inflation in several developing economies, especially in Sub-Saharan Africa (up 11% in 2022Q1 compared to a earlier) and the Europe and Central Asia region (10%).
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