Night View 18.11.2021

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Agricultural products Prices hike: a potential issue for Foods Security

The main subjects for media are inflation, the shortage of industrial goods (chips) and energetic prices hikes. Inflation is a consequence of the previous shortage and mainly due to energy prices, as we can read in many reports. However, these prices hike also affect the agricultural sectors and then made pressure on agrifoods products strengthening inflation.

  • Foods prices and Global Supply chains disruptions

Disruptions of the Global Supply chains due to the pandemic are the main drivers of Foods prices hikes as the freights costs strongly increase during recovery.  However, some countries are dependent to Foods imports it is the case of Asia (especially China, Japan and Indonesia) and are facing both Foods Prices hikes and Freights prices increase leading to a strong increase of retail prices of imported crops. This effect is called the Double Whammy”. However, some developing countries of the Middle-East and Sub-Saharan African facing a ‘’ Triple Whammy’” effect as the purchasing power strongly decrease during the pandemic. Country with an extractive resource (oil, gas and metal) based economy can power their macroeconomic conditions as current prices hikes in raw material support their foods imports. However, a main part of developing countries are facing mitigated macroeconomics conditions leading to a depreciation of local currency … reinforcing the increase of foods imports.

The foods inflation is a big issue in low- and middle-income countries as the Engel’s Law appears. When people saw a decrease in their income or purchasing power, then they spend a greater share of their revenue in Foods while reducing their level of consumption.  According to the Engel’s Law, agrifoods prices increase disproportionally affect people depending on their income level. The effect will be greater for ‘’poors” than for the ‘’richs’’ by significantly reduce the real incomes of “poors” compare to “rich”.  In this case, the results of poverty alleviation policies establish in some countries can be severely affected while reinforcing inequalities within country.

  • The Demand increase and what about the Supply ?

As major economies strongly recover their demand of agri-foods products strongly increased especially for meat and feed grain (maize and soybeans).  As previously indicated China and Japan are top worlds foods importers. As example, the situation in China and the swine fever who kill an important part of hog herd reinforce the global demand of the country for hog and crops. In addition, the US and Europe economies are asked more and more biofuels to support their transportations sectors recovery and ecological transition.

On the Supply-Side, the weather is still the main variable to gauge the production and the harvest. Production tends to decrease or stabilize as drought, floods, etc… destroy plantations in US, Canada, Brazil. In addition, in Malaysia the labor shortage strongly affect the palm oil output.  Reasonable expectations tend to expect a stable production of foods in a short and medium term while more pessimistic anticipations stay on a reduction of some kinds of products considering the climate changes effects.

The FAO food price index indicate for different kind of agricultural products the global average level of price. (source FAO stat)

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