Strategy Note /

Food prices cool again, back to pre Russia-Ukraine War level

  • Food prices down 1.1% mom in September (6th consecutive monthly decline). Still up 5.5% yoy and 50% from May 2020 trough

  • Global demand slowdown, lower oil price (subsequently reversed), reopening of Ukraine's Black Sea ports (a fragile deal)

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

Food prices cool again, back to pre Russia-Ukraine War level
Hasnain Malik
Hasnain Malik

Strategy & Head of Equity Research

Tellimer Research
7 October 2022
Published byTellimer Research

The latest UN FAO World Food Price index (published on 7 October) declined again from the March 2022 all-time high, which followed Russia’s invasion of Ukraine. The cumulative drop since that peak is 15%.

The index was down 1.1% in September, the sixth consecutive monthly decline, but it is still up 5.5% yoy, and up 50% from the May 2020 trough.

Prior to the declines of the past six months, the index had reached a new all-time high in March: the move up in the overall food index over the preceding two years was much greater, at 75%, than that seen prior to the 'Arab Spring' of 2011 (when 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 9% drop in the average Brent crude oil price compared to the prior month (although this has reversed in the early part of October).

  • Russia and Ukraine's deal to reopen Ukraine's Black Sea ports – Ukraine has an 11% share in global wheat exports, for example.

    • The 22 July Black Sea Grain Initiative deal (signed by Russia, Turkey, and Ukraine) to reopen Ukraine's Black Sea ports is likely to be very fragile, in our view. The first ship with Ukrainian grain exports left Odessa on 1 August and by mid-September the monthly run-rate was about half of the pre-war average, according to the committee overseeing the progress of the deal.

Among the components of the food index, vegetable oils were down sharply but cereals were up modestly.

  • Vegetable oils – down 7% mom and down 10% yoy, driven by seasonal production in Malaysia and Indonesia for palm oil, greater export availability from Argentina for soy and from Ukraine for sunflower, and the knock-on effect of lower crude oil prices. Palm oil is a key export for Indonesia and Malaysia.

  • Meat – down 1% mom and up 7% yoy, mainly driven by weaker global demand. The main emerging market exporters include Brazil, India and Argentina.

  • Dairy – down 1% mom and up 20% yoy, due to weaker euro and weaker demand from Europe. Developed markets are the main exporters of dairy.

  • Sugar – up 1% mom and down 9% yoy, tight global supply was largely offset by by better production and export prospects in Brazil (the largest global exporter), because of abundant rain, lower domestic ethanol prices, and currency weakness versus the dollar. The main emerging market sugar exporters are Brazil, Thailand and India.

  • Cereals – up 2% mom and up 11% yoy, driven by the concern over the durability of the agreement between Russia and Ukraine to reopen Ukraine's Black Sea ports and dry weather in Argentina and North America for wheat – up 2% mom, a key food import for Egypt – and Indian export restrictions and Pakistan floods for rice.

The next update of this index is due on 4 November.

Global food prices back to pre-Russia-Ukraine War levels

Food exposure in EM

This latest reading confirms that conditions have taken a turn, but they remain acutely difficult 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, and the 44% increase in average Brent ytd, compared to the full 2021 year average, is clearly very unfavourable for them.

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), Kuwait, Oman, Qatar (Oil & Gas), Brazil (Iron, Food), South Africa (metals)

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

Emerging market equities are cheap and reflect well known risks, Oct 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