As families gather for Easter celebrations, the food on the table is a lot pricier than at the time of New Year festivities. Though oil prices have fallen 53% in 2020, Covid-19 has had the opposite effect on food prices.
Staples such as wheat and rice have rallied. Rice prices are now at a seven-year high. Pork, which is a vital source of protein in China, has risen 16% ytd.
Source: Bloomberg
Why have food prices rallied?
1. Hoarding
There has been widespread hoarding by individuals and governments in the wake of the lockdown. Major crop producers such as Vietnam, Russia and Kazakhstan have banned exports. Vietnam is one of the largest exporters of rice in the world. Russia has halted grain exports including wheat. Kazhakstan, one of the world's breadbaskets, has suspended wheat, sugar and sunflower oil exports.
Consumers in many countries are stockpiling months' worth of food in their homes. In cities ranging from London to Nairobi, grocery store shelves have emptied of items ranging from onions to bread. Panic buying of tinned soup, rice, noodles and pasta may be surging.
2. Logistical Hurdles
The measures used to curb the virus have caused foreign ships to be barred from ports. Chinese ports were the first affected, as the virus first took hold in Wuhan in late January. The drop in throughput in Shanghai was 78% yoy in Q1 20. Other Chinese ports have recorded 30-40% falls.
There also loading delays at ports in Asia, Africa and Europe. The lockdown means that workers are displaced. Even with China's return to work in the past few weeks, ships are still disrupted or in the wrong place.
3. Production Collapse
The lockdown has also struck a body blow to food production. There is a shortage of labour. US authorities are preventing farm workers from Mexico coming to harvest crops. Slaughterhouses in the US also face labour shortages. In Asia, the palm oil industry could see supply drop by 5-10% in 2020, as workers are prevented from leaving their homes.
Stock proxies for the food price surge
The following stocks are excellent proxies for a food price rally. They are either primary producers or processors that can pass on price increases:
| Staple | Stock | Ticker | Comments |
|---|---|---|---|
| Rice | Patum Rice | PRG TB | Patum Rice, a rice refiner, is one of the few proxies to a rice price hike. |
| Wheat | Unilever Nigeria | UNILEVER NL | Unilever produces wheat products, where input prices can be passed on to the end-user. |
| Chicken | Charoen Pokphand Foods | CPF TB | CPF has a vice-like grip on chicken in Thailand and Vietnam. |
| Pork | WH Group | 288 HK | WH Group is the world's largest pork company |