Ocean freight rates increased around 2 to 3 times over a year
Sierra Leone, Freetown: An article published by senior Economists of the International Monetary Fund (IMF) titled “Four Facts about Soaring Consumer Food Prices” has indicated that ocean freight rates as measured by the Baltic Dry Index (a measure of shipping costs) have increased around 2 to 3 times in the last 12 months.
Soaring shipping and transport costs was referenced as one of the reasons why higher gasoline prices and truck driver shortages in some regions are pushing up the cost of road transport services. Higher transport costs they say will eventually increase consumer food inflation.
Another fact is that, global food producer prices have rallied reaching multi-year highs. From their trough in April 2020, international food (producer) prices have increased by 47.2 percent attaining their highest (real) levels in May 2021 since 2014 (highest level ever in current dollar terms). Between May 2020 and May 2021, soybean and corn prices increased by more than 86 and 111 percent, respectively.
There are three main factors behind the recent rally in producer prices: (1) Demand for staples for both human consumption and animal feed has remained high, especially from China, as countries have stockpiled food reserves due to pandemic-related worries about food security.
The recent 2020-2021 La Niña episode—a global weather event occurring every few years —has led to dry weather in key food exporting countries, including Argentina, Brazil, Russia, Ukraine, and the United States. This has caused, in some cases, harvests and harvest outlooks to fall short of expectations. As demand has outpaced supply, US and world stocks-to-use ratios—a measure of market tightness—reached multi-year lows for some staples.
Strong demand for biofuels increased speculative demand by non-commercial traders, and export restrictions are additional factors supporting world producer prices.
Also, the fact that food price inflation started increasing before the pandemic. The increase in consumer food price inflation predates the pandemic. In the summer of 2018, China was hit by an outbreak of African swine fever, wiping out much of China’s hog herd, which represents more than 50 percent of the world’s hogs.
Lastly, early lockdown measures and supply chain disruptions induced a spike in consumer food prices. At the start of the pandemic, food supply chain disruptions, a shift from food services (such as dining out) towards retail grocery, and consumer stockpiling (coupled with a sharp appreciation of the US dollar) pushed up consumer food price indices in many countries—with consumer food inflation peaking in April 2020—even though producer prices of primary commodities, including food and energy, were declining sharply as demand for primary food commodities was disrupted.
Based on the four facts presented, the authors wrote that, it is plausible that consumer food price inflation will pick up again in the remainder of 2021 and 2022. Indeed, the recent sharp increase in international food prices has already slowly started to feed into domestic consumer prices in some regions as retailers, unable to absorb the rising costs, are passing on the increases to consumers.
More is likely to come, however, since international food prices are expected to increase by about 25 percent in 2021 from 2020, stabilizing in 2021.
“Rising world food prices for producers are making headlines and causing concerns among the public. The most recent data show a moderation in consumer food price inflation globally, but as we explain below, that could change in the coming months. This would only add to the high prices that consumers in many countries already lived through last year.
“If prices eventually rise again, there will likely be sizeable differences between countries. Due to various factors, it is probable that the effect would be felt most by consumers in emerging markets and developing economies still wrestling with the effects of the pandemic. Emerging markets and low-income countries are more vulnerable to food price shocks. ZIJ/13/9/2021