Strategy Note /

Commodity food prices accelerating again

  • Food prices up 3% mom in August, accelerating again after two months' of decline, and up 33% yoy, close to 10-year peak

  • High household spend on (and high imports of) food in Bangladesh, Egypt, Jordan, Lebanon, Nigeria, Pakistan, Philippines

  • Implies renewed pressure on inflation, fiscal spend (where governments subsidise), trade balance and social stability

Commodity food prices accelerating again
Hasnain Malik
Hasnain Malik

Strategy & Head of Equity Research

Tellimer Research
6 September 2021
Published byTellimer Research

The latest UN FAO World Food Price index (published on 2 September) showed a resumption of accelerating food inflation: up 3.1% mom and 33% yoy, after two months of mom declines.

The index is close to a 10-year peak. The move up in the overall food index over the last year or so is of a similar magnitude to that seen prior to the "Arab Spring" of 2011. Turkey is a recent example of food prices driving a higher overall inflation print than expected.

The relief seen over the past two months has halted, implying a resumption of pressure for countries with high household spend on food and dependent on imports of food: eg Bangladesh, Egypt, Jordan, Lebanon, Nigeria, Pakistan and Philippines.

Among the components of the index, there were monthly increases for:

  • Cereals – mainly Wheat, which is a key food import for Egypt.

  • Vegetable Oils – including Palm Oil, which is a key export for Indonesia and Malaysia.

  • Sugar – exported mainly by Brazil, Thailand, and India.

  • Meat – large emerging market exporters include Brazil, India, and Argentina.

The only monthly decrease was in Dairy (exported mainly from developed markets).

The next update of this index is due on 7 October.

Food prices up 3% in August, near 10-year peak

Policy makers, when determining interest rates, tend to focus on core inflation and treat some of the variation in food items as seasonal or temporary. However, for governments that subsidise food items, this food price spike creates fiscal stress and for countries reliant on food imports it drives a deterioration in the trade balance.

Furthermore, for the mass, poorer segment of the population, food inflation is generally an acute concern – the 'Arab Spring' coincided with a c40% increase in 2010-11 – and this translates into risk for governments facing re-election or attempting to implement structural reforms that challenge vested interests. Recent protests in Tunisia, for example, are as much about frustration with cost of living increases, in the absence of employment growth, as they are about Covid management and corruption.

Countries with both a high portion of household expenditure on food and a significant net import bill for food include Bangladesh, Pakistan and the Philippines in Asia, Egypt and Nigeria in Africa, and almost all of the Middle East (particularly, Jordan and Lebanon).

Food accounts for a large portion of household expenditure in countries such as Argentina, Ghana, Ivory Coast, Kazakhstan, Kenya, Morocco and Ukraine but, at the macroeconomic level, this is offset by net exports of food. That, of course, does not mitigate the risk of social unrest from the poorer segments of these countries if the bump in export revenues does not trickle down.

Emerging market consumption exposure to food prices

Emerging market trade exposure to food prices