FAO report flags risks to food security from high food and agricultural input prices. It says that real prices for farmers are low and are falling, despite the higher prices faced by consumers.
The global food import bill is on course to hit a new record of US$1.8 trillion this year, but higher prices and transport costs rather than volumes account for the bulk of the expected increase, according to a new report released today by the Food and Agriculture Organization of the United Nations (FAO).
“Worryingly, many vulnerable countries are paying more but receiving less food,” FAO says in its latest Food Outlook.
The global food import bill is projected to rise by $51 billion from 2021, of which $49 billion reflects higher prices. Least Developed Countries (LDCs) are anticipated to undergo a five per cent contraction in their food import bill this year, while sub-Saharan Africa and the group of Net Food-Importing Developing Countries are both expected to register an increase in total costs, despite a reduction in imported volumes.
“These are alarming signs from a food security perspective, indicating that importers will find it difficult to finance rising international costs, potentially heralding an end of their resilience to higher prices,” the report notes.
“In view of the soaring input prices, concerns about the weather, and increased market uncertainties stemming from the war in Ukraine, FAO’s latest forecasts point to a likely tightening of food markets and food import bills reaching a new record high,” said FAO economist Upali Galketi Aratchilage, lead editor of the Food Outlook.
Animal fats and vegetable oils are the single biggest contributor to the higher import bills expected to be reached in 2022, although cereals are not far behind for developed countries. Developing countries, as a whole, are reducing imports of cereals, oilseeds and meat, which reflects their incapacity to cover the increase in prices.
Report’s takeaways
FAO has proposed a Food Import Financing Facility to provide balance-of-payment support to the low-income countries most reliant on food imports as a strategy to safeguard their food security.
World production of major cereals is expected to decline in 2022 for the first time in four years, while global utilization is also seen down, for the first time in 20 years. However, the use of cereals for direct food consumption by humans is not anticipated to be impacted, as the decline in total use is expected to result from lower feed use of wheat, coarse grains and rice.
World wheat stocks are set to increase marginally in the year, mostly due to anticipated build-ups of inventories in China, the Russian Federation and Ukraine.
Word maize output and utilization are forecast to hit new records, associated with greater ethanol production in Brazil and the United States of America as well as industrial starch production in China.
Global consumption of vegetable oils is predicted to outpace production, despite expected demand rationing.
While meat production is expected to decline in Argentina, the European Union and the United States of America, global output is forecast to expand by 1.4 per cent, led by an 8-per cent foreseen increase in pig meat production in China, reaching and even exceeding the level before the dramatic spread of the African swine fever virus in 2018.
World milk production is forecast to expand more slowly than in previous years, constrained by falling dairy herd numbers and lower profit margins in several major producing regions, while trade may contract from the elevated level of 2021.
World sugar production is expected to increase after three years of decline, led by gains in India, Thailand and the European Union.
Rising inputs costs
Along with rising food prices – with the FAO Food Price Index (FFPI) near its all-time high and prices of several staples having registered large runups in the past year – the agricultural sectors are exposed to supply limitations due to rising input costs , in particular for fertilizers and fuels, that could spur further food price rises.
High food prices are typically a boon for producers, as farm profits rise. However, rapidly rising input costs – associated with rising energy costs and export restrictions on key fertilizers imposed by major players in the sector – are more than offsetting that, and if protracted, this would raise concerns about whether supply responses can be both quick and sufficient. “The spike in the price of inputs raises questions about whether the world’s farmers can afford to buy them,” Josef Schmidhuber and Bing Qiao of FAO’s Markets and Trade Division note in their special chapter on the dynamics of high input prices.
Falling prices for farmers
Farmers may reduce input applications or switch to crops that are less input-intensive, which would not only lower productivity but also have negative effects on exports of key foodstuffs to the international markets, adding to the burden faced by countries highly reliant on imports to meet their staple food needs. This also applies to major exporting countries, the report adds, noting that, for instance, some North American farmers are shifting from maize to soy, which requires less nitrogen fertilizer.
The Global Input Price Index (GIPI), a new tool introduced by FAO in 2021, is now at an all-time high and has risen even faster than the FAO Food Price Index over the past 12 months.
This points to low (and falling) real prices for farmers, despite the higher prices faced by consumers. That, in turn, stymies incentives for them to step up production in the future. For that to happen, however, either the GIPI has to fall or the FFPI has to rise even further – or a combination of the two.
For now, and based on current conditions, the situation does “not augur well for a market-led supply response that could conceivably rein in further increases in food prices for the 2022/23 season and possibly the next,” the report says.
