Food Price Surge Looms as Oil Prices Rise and Weather Disrupts Crops
The world is on the verge of another food price surge, according to the chief economist of the United Nations Food and Agriculture Organization (FAO). Maximo Torero warns that higher crude oil prices, fertilizer shortages, and extreme weather will feed through to costs and show up in consumer prices with a delay. He expects commodity prices to start increasing more now, leading to food price increases by year-end and next year for sure.
Torero points out that the Strait of Hormuz is affecting all agricultural inputs, including Brent oil used for pumping, packaging, processing, and transportation, as well as natural gas used for fertilizers. The damage inflicted by Ukraine on Russia's oil and gas infrastructure also curtails the export market for diesel and natural gas, key inputs in food production.
Even self-sufficient countries like the US may struggle with tight margins putting stress on planting decisions. According to the American Farm Bureau Federation, farmers growing nine principal crops may lose $32 billion in 2027 without federal assistance. Global wheat and corn planting was already cut in the first three months of the Iran war, while some US producers have shifted to soybeans due to lower fertilizer inputs.
El Nino weather phenomenon is likely to be especially strong, significantly shifting rainfall patterns that could impact commodity prices and push tens of millions into acute food insecurity. The monsoon in India is already delayed, and below-average rainfall is expected this month, which could hit rice production and global commodity costs.