The latest UN FAO World Food Price index (published on 4 November) 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 October, the seventh consecutive monthly decline, but it is still up 2.0% yoy, and 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 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.
Cereals – up 3% 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 (Russia briefly withdrew, alleging drone attacks from outbound grain vessels) and lower output expectations for wheat and maize in the US. Wheat is a major import for Egypt.
Meat – down 1% mom and up 6% yoy, mainly driven by weaker global demand. The main emerging market exporters include Brazil, India and Argentina.
Sugar – down 1% mom and down 9% yoy on better global supply prospects, particularly India. The main emerging market sugar exporters are Brazil, Thailand and India.
Dairy – down 2% mom and up 15% yoy, due to weaker euro and weaker demand, particularly from China. Developed markets are the main exporters of dairy.
Vegetable oils – down 7% mom and down 10% yoy, driven by high inventories and output expectations, with the exception of sunflower oil, where Ukraine is a major supplier. Palm oil is a key export for Indonesia and Malaysia.
The next update of this index is due on 2 December.
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
Cheapest commodity exporter equity markets
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.
Commodity exposure in EM: Stick or twist, June 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