Local measures in food inflation… Specific measures have begun to be considered to control domestic inflation on issues related to local food prices. Argentina is setting a ceiling on corn and wheat exports in a new bid to quell domestic food inflation. The left government will decide how much of the grain is needed and then stop exporters from recording shipments that would endanger these local supplies. Argentina is the world's third-largest exporter of maize and the largest supplier of wheat, so any change in exports could have broader effects on global agricultural markets, where supply chain barriers disrupt transport and food prices soar around the world.
Global food inflation (FAO food price index), wheat, corn and live cattle prices comparison… Source: Bloomberg
Price factors… Supply cuts, high commodity prices, factory closures and political tensions are driving prices higher. Wheat price stands out as one of the biggest contributors to this increase, rising almost 40% in the last 12 months after bad harvests from major exporters such as Canada, Russia and the US. Climate change has caused production to drop, with harvests in many places lower than in previous years. In an environment where the demand for food is inelastic and the basic needs arising from the epidemic, especially nutrition, come to the fore, low production leads to higher price pressure. Labor shortages are helping to increase the cost of food production and transportation in other parts of the world as well. In some countries, Covid restrictions also cause limitations in terms of product entry from outside, especially at points where measures are strict, such as Australia and China. In the meat industry, high input and feed costs and capacity constraints can also affect prices.
It is observed that the historical course of the FAO Food Price Index, especially during the 2007-08 global crisis period, experienced serious fluctuations in prices. Source: Bloomberg, FAO
Historical evolution of global food prices… In 2007-8, global food markets witnessed a roller coaster ride. From January 2007 to July 2008, the FAO food price index increased by 61%, driven by dairy, grains and fat components. In the second half of 2008, food prices corrected steeply, along with prices for other commodities such as oil. But they climbed back up in 2010/11 and reached previous peaks of 2008. However, despite these adjustments, food prices adjusted for inflation remain well above the 1980s and 1990s averages. Volatility in prices has increased, as evidenced by the distinct peaks and troughs since 2007.
The FAO Food Price Index (FFPI) is a measure of the monthly variation in international prices of a basket of food products. It consists of the average of five commodity group price indices weighted by the average export shares of each group. The FAO Food Price Index is a fixed trade-weighted average of 55 agricultural commodity prices given internationally.
Conclusion? Increasing cost pressures, especially on agricultural production, push producers to increase their prices in order to keep their profit margins at a sustainable level. The price effect in food does not depend solely on factors arising from supply or agricultural inputs (such as fertilizers, biofuels). Costs associated with production, processing and shipping are also included in the price. Because the manufacturing process is involved in the processing, we are interested in cost factors related to industry and energy, while logistical constraints, fuel costs and geographical distances come into play in transportation. In addition to drought, we can count factors such as natural disasters, flood, fire and frost, which are effective in the production phase and damage the product.
In terms of interaction in inflation, there is also a spillover from food-related input elements such as industry and energy. Food inflation is reflected in different degrees according to the development level of countries, spending habits of individuals and income groups.
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