Food Prices Rebound in July on Global Tensions

Food prices around the world rebounded in July from two-year lows as commodities like rice and vegetable oil rose for the first time in months following renewed tensions over grain exports from Ukraine and concerns over global production and India’s curbs on some of its rice exports, the United Nations food agency said Friday.

FAO Price Index Increases by 1.3% in July

The Food and Agriculture Organization’s (FAO) price index, which tracks monthly changes in the international prices of commonly traded food commodities, increased by 1.3% in July over June, driven by higher costs for rice and vegetable oil. It was the first uptick since April, when higher sugar prices bumped up the index slightly for the first time in a year.

Commodity Prices Fall after Record Highs

Commodity prices have been falling since hitting record highs last year in the wake of Russia’s invasion of Ukraine. Disrupted supplies from the two countries exacerbated a global food crisis because they are leading suppliers of wheat, barley, sunflower oil and other affordable food products, especially to nations in parts of Africa, the Middle East and Asia where millions are struggling with hunger.

Rebounding from Price Shocks

The world is still rebounding from those price shocks, which have increased inflation, poverty and food insecurity in developing nations that rely on imports.

The July score was almost 12% lower than a year ago and 22% below an all-time peak in March 2022, just after the start of Russia’s invasion of Ukraine.

Vegetable Oil Price Index Rebounds

The FAO’s vegetable oil price index climbed 12% compared with June, breaking a run of seven straight monthly declines, the agency said. Sunflower oil rebounded by over 15% month-over-month, mainly because of uncertainty created by Russia’s decision to quit the Black Sea Grain Initiative, the FAO said.

New Risks Emerging

Now, there are new risks after Russia in mid-July exited the grain deal brokered by the U.N. and Türkiye that provided protections for ships carrying Ukraine’s agricultural products through the Black Sea. Along with Russian attacks on Ukrainian ports and grain infrastructure, wheat and corn prices have been zigzagging on global markets.

Russia’s Demands and Wheat Price Increase

Russia complained that its demands to improve its own exports of grain and fertilizer were not met and has said it would consider resurrecting the Black Sea agreement in case its conditions are fulfilled.

International wheat prices rose by 1.6% in July over June, the first increase in nine months, FAO chief economist Maximo Torero said.

Rising Crude Oil Prices Impact Vegetable Oils

Production concerns and rising crude oil prices drove other vegetable oils higher, the FAO said. The agency’s cereal price index edged down 0.5% in July, as a drop in coarse grain markets offset higher levels for wheat and rice.

India’s Trade Ban and Rice Prices

More worrying is India’s trade ban on some varieties of non-Basmati white rice, prompting hoarding of the staple in some parts of the world. The restrictions imposed late last month came as an earlier-than-expected El Nino brought drier, warmer weather in some parts of Asia and was expected to harm rice production.

Rice prices rose 2.8% in July from a month earlier and 19.7% this year to reach their highest level since September 2011, the FAO said.

Food Security Concerns for Sub-Saharan Africa

More expensive rice “raises substantial food security concerns for a large swath of the world population, especially those that are most poor and who dedicate a larger share of their incomes to purchase food,” the organization said in a statement.

It will be especially challenging for sub-Saharan Africa because it’s a key importer of rice, Torero told reporters.

Sharp Increase in Vegetable Oil Prices

Even sharper was the jump in vegetable oil prices as tracked by the FAO, rising 12.1% last month over June after falling for seven months in a row. The organization pointed to a 15% surge in sunflower oil prices following “renewed uncertainties” about supplies following the end of the grain deal.

Food Insecurity and Lack of Transmission

“While the world has adequate food supplies, challenges to supplies from major producers due to conflict, export restrictions or weather-induced production shortfalls can lead to supply and demand imbalances across regions,” said Torero, the FAO chief economist. That will lead to a “lack of food access because of increasing prices and potential food insecurity.”

He noted that global food commodity prices are different than what people pay at markets and grocery stores. Despite prices plunging on world markets since last year, that relief hasn’t reached households.

Local food prices are still rising in many developing countries because their currencies have weakened against the U.S. dollar, which is used to buy grain and vegetable oil.

“That transmission from lower commodity prices to the final consumer prices, which include other components like logistics and other products we produce – bread, for example – is not yet happening in developing countries,” Torero said.

Moving back to higher food commodity prices “could make this lack of transmission take longer than expected,” he said.

Maize Prices Fall, Wheat Prices Rise

Maize prices fell on the prospect of harvesting in South America and U.S. production will replenish stocks. In contrast, doubts over Ukrainian exports and dry weather in North America boosted wheat prices, the FAO said.

Sugar Price Index Drops

The sugar price index shed nearly 4% in July, marking a second straight monthly drop on favorable supply prospects in Brazil and India, though prices were nearly 30% above a year ago.

Dairy and Meat Prices Remain Stable

The FAO’s dairy and meat price references both fell slightly in July.