Food Price Surge Looms as Wars, El Niño, and Oil Prices Converge

The world is bracing itself for another food price surge due to a perfect storm of factors including wars in Iran and Ukraine, El Niño weather phenomenon, and higher crude oil prices. According to Maximo Torero, chief economist at the United Nations Food and Agriculture Organisation (FAO), commodity prices will start to increase more now and food prices will follow suit by the end of this year.

The FAO warns that the calm in food prices seen so far this year is likely to be temporary. Higher crude oil prices, loss of fertiliser from the Gulf region, shortage of diesel in some parts of the world, and extreme weather are feeding through to costs and will show up in consumer prices with a delay.

Torero expects commodity prices to increase more by the end of this year and next year for sure. He notes that the transmission from commodity to final food price is around three to six months. Some commodity prices, such as wheat, maize, and rice have increased in recent months, but most still reflect relatively good harvests.

The damage inflicted by Ukraine on Russia's oil and gas infrastructure curtails the export market for diesel and natural gas, both key inputs in food production. This inflicts pain across the world, even if richer countries have more cash to buffer producers.