Strategy Note /

Flat food prices and falling oil prices offer small relief for importers

  • Food prices down 15% and crude oil down 40% since March 2022 Russia-Ukraine War peak: small relief for importers

  • Conditions for importers are still difficult with ytd average food and oil prices 15% and 40% higher than full year 2021

  • Food and fuel exposure of household spend and imports most acute in Bangladesh, Jordan, Lebanon, Pakistan, Philippines

Flat food prices and falling oil prices offer small relief for importers
Hasnain Malik
Hasnain Malik

Strategy & Head of Equity Research

Tellimer Research
8 December 2022
Published byTellimer Research

Food prices are down 15% and crude oil is down 40% since the March 2022 Russia-Ukraine War peak: a small relief for importers.

However, conditions for importers are still difficult with year-to-date average food and oil prices 15% and 40% higher, respectively, than the full-year 2021 average.

Exposure of household spend and imports to food and fuel are most acute, among emerging markets, in Bangladesh, Jordan, Lebanon, Pakistan, and the Philippines.

In EM equities the cheapest exposure to net commodity exports are on offer in Chile and Peru (Copper), Colombia, Kuwait, Oman, Qatar, Saudi (Oil & Gas), and Brazil (Iron, Food).

Food prices flattish again in November

The latest UN FAO World Food Price index (published on 8 December) declined again from the March 2022 all-time high, which followed Russia’s invasion of Ukraine. The cumulative drop since that peak is 15% and prices are back to levels seen before the war.

The index was down 0.1% in November, the eighth consecutive monthly decline, up merely 0.3% yoy, albeit still up 49% from the May 2020 trough.

In the two years prior to the March 2022 peak, the index rose 75%. Prior to the 'Arab Spring' of 2011 the index increased by c40% in a year.

The continuation of monthly declines occurred amid the following factors:

  • Global growth slowdown (demand destruction) concerns infected all food categories.

  • A 10% drop in the average Brent crude oil price compared to the prior month (with another 9% drop in the opening week of December).

  • Fragile continuity in Russia and Ukraine's deal to reopen Ukraine's Black Sea ports – Ukraine has an 11% share in global wheat exports

Among the components of the food index, cereals, meat, and dairy were down slightly but vegetable oils and sugar were up modestly.

  • Cereals – down 1% mom and up 6% yoy, driven by continuity in the the agreement between Russia and Ukraine to reopen Ukraine's Black Sea ports (Russia briefly withdrew at the end of October, alleging drone attacks from outbound grain vessels). Wheat is a major import for Egypt.

  • Meat – down 1% mom and up 4% yoy, partly driven by avian flu impact on poultry supply. The main emerging market meat exporters include Brazil, India and Argentina.

  • Dairy – down 1% mom and up 9% yoy, due to weaker euro and weaker demand, particularly from China. Developed markets are the main exporters of dairy.

  • Vegetable oils – up 2% mom and down 16% yoy, driven up by the impact on palm oil of excessive rainfall in southeast Asia but moderated by Ukrainian supply of sunflower oil. Palm oil is a key export for Indonesia and Malaysia.

  • Sugar – up 5% mom and down 5% yoy on a lower export quota from India and higher ethanol prices in Brazil. The main emerging market sugar exporters are Brazil, Thailand and India.

The next update of this index is due in early January 2023.

Global food prices still at pre-Russia-Ukraine War levels

Food exposure in EM

This latest reading suggests that conditions have taken a turn from an acutely difficult period for for countries with high household spending on food and high dependency on imports of food – for example, Bangladesh, Egypt, Jordan, Lebanon, Nigeria, Pakistan and the Philippines.

And within this subset – excluding Egypt and Nigeria – there is also net import exposure to what remain high crude oil imports, given the 41% increase in average Brent ytd, compared to the full 2021 year average. However, Brent has dropped 40% from the Russia-Ukraine War peak in March 2022.

Food accounts for a large proportion 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.

The emerging market beneficiaries from high commodity food prices, at least from a trade perspective, are the following:

  • Asia: Indonesia, Malaysia, Thailand, Vietnam

  • Africa: Ghana, Ivory Coast, Zimbabwe

  • Europe: Iceland, Poland, (Ukraine prior to the Russian invasion)

  • LatAm: Argentina, Brazil, Chile, Peru

Food security in emerging markets

Emerging market consumption exposure to food prices

Emerging market trade exposure to food prices

Cheapest commodity exporter equity markets

Net Commodity Export exposure via EM equities relatively cheap in Chile and Peru (Copper), Colombia, Kuwait, Oman, Qatar, Saudi (Oil & Gas), Brazil (Iron, Food)

Our Country Index in this context

Exposure to net fuel and food imports are factors incorporated into our EM Country Index, where the weight attached to these factors can be customised.

Related reading

Laggards like China bounce back: Emerging-Frontier Equity Monthly, Nov 2022

OPEC+ output cut pains oil importers, Biden, anti-Russia bloc, Oct 2022

Commodity exposure in EM: Stick or twist, June 2022

Food security in EM in the time of inflation, disruption, and now protectionism, May 2022

Food protectionism and inflation: India's wheat export ban the latest example, May 2022

Indonesia Palm Oil export ban cannot last, April 2022

MENA’s reliance on Russian/Ukrainian wheat imports raises risk of hunger (Curran), March 2022